The scheme will, however, continue to attract the 10 per cent countervailing duty levied by the Government few months ago, S P Srivastav, commissioner, drawback, in the customs department said. The EPCG scheme has another windowit allows imports of both new and second-hand machinery at 10 per cent duty against a stiff export obligation. Srivastava said that the 5 per cent customs duty would also not apply to the 10 per cent EPCG scheme. The 10 per cent countervailing duty is intended to give domestic industry a level-playing field vis-a-vis its competitors.

Over the years, customs duties on capital goods have been reduced, blunting the competitive edge enjoyed by indigenous manufacturers like Laxmi Machine Works in Coimbatore. Theirinterests will, therefore, have to be protected against the onslaught of imports under the EPCG scheme. Against this background, the imposition of the countervailing duty assumes significance. There are, however, indications that the 10 per cent EPCG scheme may be phased out when the revised Exim policy (1997-2002) is announced on April 1. This is because of a lack of demand for imports of capital goods under this scheme. The export obligation against imports at 10 per cent duty is four times the cost, insurance and freight (C.I.F) value of capital goods, which has to be fulfiled in five years.

Under zero-duty imports, the obligation can be achieved on a free-on-board (F.O.B) basis or a net foreign exchange basis. In the case of F.O.B, the obligation will be equal to six times the C.I.F value of capital goods to be completed in eight years. The net foreign exchange norms prescribe four times the C.I.F value of capital goods as the export obligation to be achieved in eight years.