India bars cap goods import under EPCG, power shares surge
Govt amends the Foreign Trade Policy (FTP) for 2015-2020 to bar imports of capital godds for power generation and transmission under EPCG
New Delhi: India has barred imports of capital goods import for power generation under the Export Promotion Capital Goods scheme, boosting shares prices of domestic firms.
"Authorization under EPCG Scheme shall not be issued for import of any Capital Goods for generation or transmission of power including Captive plants and Power Generator Sets of any kind," the Ministry of Commerce and Industry said in a notification that amends the Foreign Trade Policy (FTP) for 2015-2020.
The EPCG scheme allowed import of capital goods including spares for pre-production, production and post-production at zero duty subject to an export obligation of 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years.
The policy decision boosted capital goods shares especially those involved in power sector. Larsen & Toubro was up 1.8 per cent, while BHEL rose 1.15 per cent, Siemens 1.12 per cent, ABB 2.5 per cent, Havells 3 per cent, Solar Industries 3.7 per cent and BGR Energy 2.9 per cent.
The S&P BSE Capital Goods gained close to 1 per cent when the benchmark index was down marginally 45 points or 0.18 per cent to close at 24,824.83.
The restriction on capital goods import comes after a dismal show by the domestic industry.
In November 2015, the index for industrial production slumped by 3.2 per cent, its steepest fall since October 2011 when it fell by 5 per cent. The fall in IIP comes after a 9.9 per cent expansion in October and 3.6 per cent a year ago.
What came as a shocker, capital goods output fell 24.4 per cent reflecting a declining capex cycle. In November, infrastructure output fell steepest in over a decade by 1.3 per cent due to sharp fall in steel, crude oil, natural gas and cement.
India is trying to revive the investment cycle through a series of steps including stepping up public capex and offering fiscal support to the capital goods sector.
The overall GDP growth has grown 7.2 per cent during the first half of FY16, same as that in entire FY15. The government has scaled down its growth projection for FY16 to 7-7.5 per cent from 8.1-8.5 per cent estimated in February.