Economic Policy and Regulatory Environment in India

Indias Foreign Trade Policy Special Economic Zones (SEZs)

Rachna Gangwar Institute of Management Technology Ghaziabad

Foreign Trade Policy

Union Commerce Ministry, GOI announces integrated FTP for 5 years, also called as EXIM policy Policy upgraded every year with some modifications and new schemes FTP which was announced on 28th August 2009 is an integrated policy for 2009-14

Indias Foreign Trade Exports & Imports (Figures in US$ billion)

Year
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (April-Oct09)*

Export Actual Target Export

75 100 125 160 175 (Revised) 83.53 103.09 126.26 162.90 185.29 91.05

% Growth
30.8 23.4 22.5 29.0 13.6

Imports
111.52 149.17 185.60 235.9 287.76 146.77

% Growth
42.7 33.8 24.4 27.0 14.3

Impact on Indian Exports

(Figures in US$ billion)
Period April- Sept. October November December January 2009 February March April 08 to March 09 Month April 2009 May June July August September 2007-08* (US $ Billion) 73.558 14.675 12.909 14.625 14.889 15.221 17.254 163.13 2008-09@ 18.460 18.687 19.181 19.030 17.759 15.789 2008-09**(US $ Billion) 108.907 14.131 11.163 13..368 12.869 11..941 12..916 185.295 2009-10 11.909 11.368 13.059 13.623 14.289 13.608 Increase(+) / Decrease () + 48.1 -3.7 -13.5 -8.6 -13.6 -21.5 -25.1 +13.6 Increase(+) / Decrease (-) -35.5 -39.2 -31.9 -28.4 -19.5 -13.8
4

Foreign Trade Policy 2009-14

Short Term Objectives: To stop and reverse the declining trend of exports To provide additional support to those sectors which have been hit badly by recession in the Developed World. Medium term Policy Objectives : To achieve an Annual Export growth of 15% with an Annual Export Target of US$ 200 billion by March 2011. To achieve an Annual Export growth of around 25% by 2014. To double Indias exports of goods and services by 2014. Long Term Objective : To double Indias share in Global Trade by 2020.

Foreign Trade Policy 2009-14

Both the long and short term objectives of the policy are to be achieved through:
infrastructure improvement related to exports transaction cost reduction and providing full refund of all indirect taxes and levies

Foreign Trade Policy 2009-14 New Initiatives

Strategies Stable Policy environment Fiscal incentives Diversification of export markets Procedural rationalization Institutional changes

Indias Trade Basket

Indias Trading Partners

Special Economic Zones (SEZs)

With a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000 SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy

11

Special Economic Zones (SEZs)

SEZ Physical Concept

SEZ Physical Concept

Non Processing Area
Educational institutions Hospitals Hotels Recreation and entertainment facilities Residential and business complexes DTA units not allowed to set up

SEZ Physical Concept

Space in the processing area to be leased to
To entrepreneurs holding valid letters of approval For facilities for exclusive use of the Units such as canteens, public telephone booths, first aid centres etc

Free Trade & Warehousing Zones, International Financial Services Centre may be approved within the processing area

Special Economic Zones (SEZs)

Seven Central Government Special Economic Zones (SEZs) and 12 State/Private Sector SEZs set up prior to the enactment of SEZ Act, 2005, formal approval has been accorded to 576 proposals out of which 392 SEZs presently stand notified

Objectives of SEZ Act

Generation of additional economic activity Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment opportunities Development of infrastructure facilities

Incentives to SEZs
Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units for first 5 years, 50% for next 5 years thereafter Exemption from minimum alternate tax Exemption from Central Sales Tax Exemption from Service Tax Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

Distribution of SEZs in the Country

Distribution of SEZs across States in India

( Percentage of operational SEZs as on May 2012)
Others 15% Kerala 5% Andhra Pradesh 25%

Gujarat 9%

Maharashtra 13%

Tamil Nadu 19%

Karnataka 14%

Types of SEZs
Sector Specific SEZ - units may be set up for manufacture of one or more goods in a sector rendering of one or more services in a sector Multi-product SEZ-units may be set up for manufacture of two or more goods in a sector or goods falling in two or more sectors trading and warehousing rendering of two or more services in a sector or services falling in two or more sectors Other SEZs SEZ in a port or airport SEZ for Free Trade and Warehousing

Minimum Land Requirement

Special Economic Zones (SEZs)

Minimum area relaxed to 50 hectare for single product 500 hectare for multi product No minimum requirement for IT SEZ (minimum built up 100,000 m2 for top 7 cities, 50,000 m2 for next 15 cities and 25,000 m2 for rest of the cities

Minimum Investment Requirements

Sector Specific SEZs Investment should be more than Rs. 250 crores or Net worth* of Rs. 50 crores Multi product SEZs Investment should be more than Rs. 1000 crores or Net worth* of Rs. 250 crores BoA may however consider proposals not meeting minimum investment/net worth criteria on merits if required

Tax Benefits

Semiconductor Non- 1% Conventional Gems and Energy Jewellery 1% 2% Footwear/Leather Food Processing 1% 2% Textiles/Apparel/Wool 3% Electronic Hardware 3% Pharma/chemicals 5%

FTWZ 1% Bio-tech 2%

Sector-wise Distribution of exporting SEZs

(As on 30.06.2012)

IT/IT Enabled Services 54%

Engineering 5% Other 9% Multi-Product 11%

Location of SEZs
(as on July, 2010)

Coastal Manufacturing Services Total 52 39 91

Non-Coastal 98 167 265

Total 150 206 356

Source: Ministry of Commerce and Industry

Exports from SEZs

Major Sector-wise Exports from SEZs

(2006-07 to 2011-12)
Financial Years Computer/ Gems Electronic and software Jewellery 507 3,985 16,228 45,784 84,700 81,017 16,069 23,006 33,436 43,829 47,849 74,617 Chemicals and Petroleum Refinery 1,106 1,423 6,386 73,972 1,06,558 1,52,516 Other Mfg sectors Total Exports

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

16,933 38,224 43,639 57,126 76,761 56,327

34,615 66,638 99,689 2,20,711 3,15,868 3,64,478

(export figures in crores)

Share of SEZ Exports in India's Exports

350

Total exports of the Country

300

Total SEZ Exports % share of SEZ exports in the total exports of the country

250

200

150

100

50

SEZ: Institutional Framework

Players in SEZs
Developer, Co-Developer Units in SEZ
Entrepreneur Entrepreneur means a person who has been granted a letter of approval by the Development Commissioner under Sub-section (9) of Section 15

Contractors Service Providers and Vendors

FTWZ
Free Trade and Warehousing Zone means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on

FTWZ
Warehousing of goods on behalf of foreign or domestic clients Trading with or without labelling Packaging and repacking Re-sale, re-invoice, or re-export of goods Assembly of complete and semi-knockdown goods Kitting and various value optimization services on the goods/cargo