EPZS, 100% EOUS, SEZS AND
EXPORT HOUSES AND TRADING
HOUSES
Export ProcessingZones
First EPZ- Mayagaez, Puerto Rico-1962
Kandla, India-1965
Post II World War- war torn countries- assistance from USA.
Nations independence- 1950’s- import substitution
Lead- acute balance of payment problems
Increased exports met with tariffs
Compensated by fiscal measures
Export Processing Zone-EPZ
Industrial estates- housing production/
processing/ consultancy units- exports
Widening- net foreign exchange earnings
Situated near seaports or airports
Products- value-added (VA) component
Foreign equity allowed up to-100%
No payment of duty- import-capital goods &
raw materials for export production
Objectives
1. Encourage and generate the economic development
2. To channel the sources of foreign exchange within the system in a phased
manner- (FDI)
3. Foster the establishment and development of industrial enterprises within the
said zones
4. Encourage and generate wider economic activities -zones
5. To explore new areas for the development of Indian exports
6. Encourage establishment and development of Indian industries and business
enterprises and facilitate with proper infrastructure
7. Generate employment opportunity
8. Upgrade labor and management skills
9. Acquire advanced technology for increased productivity
10. Ensure world class quality of products
EPZs inIndia
1. Kandla Free Trade Zone
(KAFTZ), Kandla, Gujarat
2. Santa Cruz Electronic Export
Processing Zone (SEEPZ), S.
Cruz, Maharashtra
3. Cochin Export Processing Zone
(CEPZ), Cochin, Kerala
4. Falta Export Processing Zone
(FEPZ), Falta,West Bengal
5. Madras Export Processing Zone
(MEPZ), Madras, Tamil Nadu
6. Noida Export Processing Zone
(NEPZ), Noida, Uttar Pradesh
7. Visakhapatnam Export
Processing Zone
(VEPZ), Visakhapatnam, Andhra
Pradesh
Selection Criteria
Board of Approval favour the proposals which:-
1. Show high % of VA per unit of exports
2. Bring in new / sophisticated technology
3. Involve manufacturing processes which attempt to exclude the assembly of
“semi- knocked-down” units, bulk- breaking activities and repacking and
labeling
4. Provide evidence of technical and marketing arrangement with/ without
foreign equity participation
5. Have a large scale of operation
6. Substantial capital investment and the general standing of the promoter.
Entrepreneurial quality, pollution possibilities, suitability of the unit to be
located in the zone, assured market possibility of linkages into the DTA are also
considered.
Incentive Packages
1. Duty- free import of capital goods and equipments from
preferred sources
2. Exemption from customs duties on raw materials,
components and tools
3. Exemption from import licenses
4. Export incentives for locally procured supplies from DTA
5. Blanket foreign exchange sanction for business trips abroad
6. Repatriation of capital up to the extent of the original
investment
7. Repatriation of profits and dividends after the
payment of tax
8. 100% foreign equity participation
9. EPZ Boards act as nodal agencies for clearance
and approval of applications and licenses
10. EPZs have declared public utilities. Trade Union
activities- restricted, minimum wage laws- NA
11. Priority release of cement, steel, telephone and
telex connections
Fiscal Concessions-
1. Tax holiday for 5 years on all corporate profits
2. Exemption from Central excise duties on manufactured items
3. Exemption from Central Sales tax, State sales
tax, Octroi, property taxes, stamp duties on lease of the plots
etc.
4. Credit at preferential rates from Central and State financial
agencies
5. Subsidized rentals and lease rates for built-up sheds, factory
space in standard design factories and industrial plots
6. Exemption from electricity duty
7. Transport subsidy
8. Capital subsidy
9. Packaging credit facilities for a period of 180 days
without production of firm export orders or
letters of credit
10. 25 % of produce for sale in India against a valid
import license
11. Portions of waste, seconds and scrap can be sold
– DTA subject to payment of regular export duties
but without license
Mortality of Units
Details of units approved, established, cancelled, closed down and working as on 31.03.1988
Name of Approvals Withdrawn Units Units Units
the Zone recorded / cancelled established closed working
after down
approval
KFTZ 679 81 173 44 129
SEEPZ 227 128 97 23 74
NEPZ 73 16 15 - 15
MEPZ 124 37 23 - 23
CEPZ 29 2 3 - 3
FEPZ 41 NA 2 - 2
Source:
Reasons for HighMortality
1. Failure of marketing arrangements
2. Withdrawal of foreign collaboration
3. Financial and managerial problems
4. Shortage of export orders
5. Obsolete technology on which production is made
6. Stiff international competition
7. Recession in the International market
8. Changes in international economic relations
9. Changes in the Govt. policies of the trading countries
Foreign Investment Inflow toIndian
EPZs
Year Total foreign Foreign investments
investments in Indian EPZs
1991 351.4 -
1992 675.2 -
1993 1786.0 -
1994 2969.9 -
1995 6393.0 88.72*
*Foreign investments made in Indian EPZs are the aggregate amounts from 1985-86
to 1994-95.
Source:
Reasons for insignificant Inflow of FIs
1. Vast and developed land area for setting up large
industrial units by FIs is not available in the Zones
2. Indian EPZs are not in a position to arrange and
supply the required quantity of electric power to
Fis
3. Environmental and pollution problems
4. Bulk-breaking, repacking and labelling facilities
enjoyed by MNCs in foreign EPZs are not
permitted in Indian EPZs owing to low vale
addition made to the end product.
100% Export OrientedUnits
Initiated by GOI in December 1980 to encourage and mobilise
domestic investment- export production
Industrial unit –offers its entire production for export
Excludes permitted levels of rejects
Designed to create additional export capacity
Was not normally encouraged for products subject to export
control ceilings which can be met by the existing industrial units
Hence units- acted as mere substitution for existing units’
production- not allowed
Features
1. Required to manufacture in bond
2. Carry an export obligation- 10 years (ordinary
cases)
3. -5 years ( products are open to high degree of
technological changes)
4. Enjoy duty free import
5. Exempt from excise duty if- access to
indigenous sources
100% Export Exempted in case of:-
1. Rejects upto 5%- approved by DC- sold in the
DTA in payment of appropriate duties
2. 25% production- sold in the DTA, if valid license
and payment of duties (except motor vehicles
and liquor)
3. Agriculture and allied units- 50% produce can
be sold in the DTA
4. Electronics hardware products- sold in the DTA
if conditions laid down in the policy fulfilled
Net Effects
99 units in 1987 took advantage of the
scheme
Export increased from Rs.104 million (1981-
1982) to Rs.1313 million (1985-1986)
Second Oil Price Shock, which hampered the
export activities significantly, led the
establishment of a number of Export
Processing Zones to boost the export sector
Special Economic Zones
Special Economic Zones (SEZs) Policy was
announced in April 2000
SEZ Act, 2005, was passed by Parliament in
May, 2005.
Act supported by SEZ Rules came into effect in 10th
February, 2006
Drastic simplification of procedures
Single window clearance – matters relating to
central as well as state governments
Objectives
1. Generation of additional economic activity
2. Promotion of exports of goods and services
3. Promotion of investments from domestic and foreign sources
4. Creation of employment opportunities
5. Development of infrastructural activities
6. Improvement of business environment on a nation wide bases and
providing competitive platform to the Indian entrepreneur
7. To provide scale related advantages by helping to reduce manufacturing
costs
8. To become the destination of foreign investment and to serve as a
channel for both foreign investment and technology
Operational SEZs inIndia
State Sl.No Units Product
Andhra Pradesh 1. Visakhapatnam SEZ* Multi-product
Gujarat 2. Kandla SEZ* Multi-product
3. Surat SEZ* Multi-product
4. VillageVanj, Distt. Surat, Gujarat Apparel
Kerala 5. Cochin SEZ* Multi-product
Madhya Pradesh 6. Indore SEZ Multi-product
Maharashtra 7. Santa Cruz ElectronicsEPZ-SEZ Electronics, Gemsand
Jewellery
Rajasthan 8. Jaipur SEZ Gems and Jewellery
9. Jodhpur Handicrafts
Tamil Nadu 10. Madras SEZ* Multi-product
11. Mahindra City,Chennai IT, Hardware&
Bioinformatics
12. Mahindra City,Chennai Apparel & fashion accessories
13. Sriperumbudur Telecom equipment/ R&D
and services
14. Mahindra City,Chennai Auto Ancillaries
Uttar Pradesh 15. Noida* SEZ Multi-product
16. Moradabad,UP Multi-product
West Bengal 17. Falta SEZ* Multi-product
18. Manikanchan SEZ Gems and Jewellery
19. Salt Lake Electronic City, Kolkata Software development and IT
enabled services
Administrative Set-up
BOARD OF APPROVAL
(Secretary, Dept of
Commerce)
ZONE ZONE ZONE
(Development (Development (Development
Commissioner – Commissioner – Commissioner –
ex-officio chairperson- AC) ex-officio chairperson- AC) ex-officio chairperson- AC)
Incentives and Facilities Offered to SEZs
1. Duty free import/domestic procurement of goods for development, operation and maintenance of
SEZ units
2. 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax
Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for
next 5 years.
3. Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
4. External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity
restriction through recognized banking channels.
5. Exemption from Central Sales Tax.
6. Exemption from Service Tax.
7. Single window clearance for Central and State level approvals.
8. Exemption from State sales tax and other levies as extended by the respective State
Governments.
The major incentives and facilities available to SEZ
developers include:-
1. Exemption from customs/excise duties for development of
SEZs for authorized operations approved by the BOA.
2. Income Tax exemption on income derived from the business
of development of the SEZ in a block of 10 years in 15 years
under Section 80-IAB of the Income Tax Act.
3. Exemption from minimum alternate tax under Section 115 JB
of the Income Tax Act.
4. Exemption from dividend distribution tax under Section 115O
of the Income Tax Act.
5. Exemption from Central Sales Tax (CST).
6. Exemption from Service Tax (Section 7, 26 and Second
Schedule of the SEZ Act).
Performance of SEZ compared to EPZ
Source:- Malini L Tantri, “Effectiveness of SEZs Over EPZs Structure:
The Performance at Aggregate Level”
Export Houses andTrading Houses
A company which specialises in the export
of goods made by other manufacturers
It can be defined as a registered exporter
holding a valid Export House certificate
issued by the Director General of Foreign
Trade.
OBJECTIVE
To building marketing infrastructure and expertise
required for export promotion.
To minimise price fluctuations as a result of seasonal
variations in supply and demand
Arrange for storage, transportation, packaging and
processing
Assist in marketing of the product
Assist in getting supplies at reasonable prices
Act as important instruments of export growth.
Eligibility
Merchant as well as Manufacturer exporters
Service providers
Export Oriented Units (EOUs)
Units located in Export Processing Zones (EPZs)
Special Economic Zone(SEZ’s)
Electronic Hardware Technology Parks (EHTPs)
Software Technology Parks (STPs)
Criterion forRecognition
Category Average FOB FOB value Average NFE NFE earned
value during during the earnings during the
the preceding preceding made during preceding
three licensing the preceding licensing
licensing year, in three year, in
years, in Rupees licensing Rupees
Rupees (crores) years , in (crores)
(crores) Rupees
(crores)
EXPORT HOUSE 15 22 12 18
TRADING HOUSE 75 112 62 90
STAR TRADING 375 560 312 450
HOUSE
SUPER STAR 1125 1680 937 1350
TRADING HOUSE
Validity Period
Status Certificate shall be valid for a period of
three years starting from 1st April of the
licensing year during which the application for
the grant of such recognition is made
On the expiry of such certificate, application
for renewal of status certificate shall be
required to be made within a specified period .
During the said period, the status holder shall
be eligible to claim the usual facilities and
benefits, except the benefit of a SIL (Special
Import License).
IN A NUTSHELL
4 stages:
EPZs were set up starting with the Kandla free
trade zone
Lots of shortcomings
Measures taken to check them
1980- new scheme- EOUs
Second Oil Price Shock
Hampered export activities
More setting up of EOUs and EPZs
Economic Liberalization and restructuring of
EPZs
Introduction of SEZs in EXIM policy 1997-2002
Presently most of the EPZs have been transformed into SPZ
REFERENCES
V. M. Manoharan, “ Indian Export Processing Zones and CPEZ”, Vikas pulishing
House, New Delhi, Edition-2000
M. L. Varma, “Foreign Trade Management in India”, Vikas Publishing House
Pvt. Ltd, new Delhi, 1988
Cherunnilam Francis, “International Trade and Export
Management”, Himalaya Publishing House,2000
Sumati Varma, “Internatinal Business- Concepts, Environment, Structure and
Strategy”, Ane Books Pvt. Ltd, 2010
Malini L. Tantri, “Effectiveness of SEZs over EPZs Structure: The Performance
at Aggregate Level” (article)
Aradhna Aggarwal, “Export Processing Zones In India: Analysis Of The Export
Performance”, Indian Council For Research On International Economic
Relations, Core-6A, 4th Floor, India Habitat Centre, Lodi Road, New Delhi-110
003, November 2004
THANK YOU
