ENVIRONMENT FOR BUSINESS

A Report on

EPZs, EOUs, TPs and SEZs

Submitted in partial fulfilment of the requirement for the Semester-2

Marketing Management course of M.B.A. 2013-‘15

Submitted to:

Dr. Hansa Jain

Submitted by:
Group No–18

Group members:

11351 – Sunpreet Chhabda

11353 – Shifa Delhiwala

11362 – Shreya Kejriwal

11363 – Nirav Kotak

B. K. School of Business Management, Gujarat University

 ACKNOWLEDGEMENT

We would like to thank God almighty for his blessings which he has so
generously showered on us.

We are very much thankful to our professor, Dr. Hansa Jain for her constant
help in successful completion of our project and for being an inspirational
guide. We are thankful to her for the invaluable suggestions and the
knowledge shared by her.
 TABLE OF CONTENTS

No. TITLE PG. NO.

Acknowledgement 2
Table of Contents 3
1 INTRODUCTION 4
2 EXPORT PROCESSING ZONES (EPZs) 4
3 SPECIAL ECONOMIC ZONES (SEZs) 9
4 EXPORT ORIENTED UNITS (EOUs) 13
5 TECHNOLOGY PARKS (TPs) 16
INTRODUCTION
As a part of the export promotion drive, Government have, from time to time,
introduced several schemes to promote units primarily devoted to exports. These
include Export Processing Zones (EPZs), hundred per cent Export-Oriented
Industrial Units (EOUs), and different categories of Technology Parks TPs). In
2000, a scheme of Special Economic Zones (SEZs) was also introduces.

EXPORT PROCESSING ZONES (EPZs)

Export Processing Zones (EPZs) are industrial estates which form enclaves
from then national customs territory of a country, It is a region where a group of
countries has agreed to reduce or eliminate trade barriers. It is an area within
which goods may be landed, handled, manufactured or reconfigured, and re-
exported without the intervention of the customs authorities.The entire
production of this zone is exported Only when the goods are moved to consumers
within the country in which the zone is located do they become subject to the
prevailing customs duties. Free-trade zones are usually situated near major
seaports, international airports, and national frontiers—areas with many
geographic advantages for trade. Such zones are provided with well developed
infrastructural facilities. Industrial plots/ sheds are normally made available at
concessional rates. Units in these Zones are allowed foreign equity even up to
100 per cent. EPZ units can import capital goods, raw material, etc. for export
production without payment of duty. Domestically- procured items are also
eligible for duty exemption.

EPZ is set up generally in developing countries by their governments to

promote industrial and commercial exports.

The world's first Free Trade Zone was established in Shannon, County
Clare, Shannon Free Zone. This was an attempt by the Irish Government to
promote employment within a rural area, make use of a small regional airport and
generate revenue for the Irish economy. The number of worldwide free-trade
zones proliferated in the late 20th century. In the United States free-trade zones
were first authorized in 1934.
 In 1997, 93 countries had set up export processing zones employing 22.5
million people, and five years later, in 2003, EPZs in 116 countries employed 43
million people.

Evolution of the EPZ Policy in India

India initiated the process of industrial growth in 1948 it

announced its first Industrial Policy Resolution, IPR 1948. The strategy adopted
was one of import-substitution industrialisation across all sectors. Within an ISI
policy framework, export promotion had also been a concern of the
government.

The main concept of Export Processing Zones was conceived in the early
1970s to promote the growth of the sickening export business of India. The area
under EPZs in India enjoys special support from government of India with respect
to fiscal incentives, tax rebates and other exclusive benefits for the growth of
export.

Objectives of an EPZ :

 Encourage and generate the economic development

 Encourage Foreign Direct Investments (FDI)
 To facilitate transfer of technology by foreign investment and other means.
 To channel the sources of foreign exchange within the system in a phased
manner
 Foster the establishment and development of industrial enterprises within
the said zones
 Encourage and generate wider economic activities by encouraging foreign
investments for the development of the zones
 To channel the foreign exchange earnings for the further development of
these zones and explore new areas for the development of Indian exports
 Encourage establishment and development of Indian industries and
business enterprises and facilitate with proper infrastructure Generate
employment opportunity
 Upgrade labour and management skills
 To generate employment opportunities
 Acquire advanced technology for increased productivity
 Ensure world class quality of products.
 To contribute to overall development of the economy

Phases of EPZ evolution

 Initial Phase : 1965-1985

 Expansionary Phase : 1985-1990

 consolidating Phase : 1991-2000

 Emergence phase :2000 onwards

Initial phase

First zone in Kandla, 2nd Santacruz in Mumbai. Mumbai. The

policies were very rigid. Package of incentives and facilities were not
attractive.There was no single window facility within the zone.
Entrepreneurs had to acquire individual clearances from various state
government and central government departments. Custom procedures for
bonding, bank guarantees and movement of goods were rigid. FDI policy
was also highly restrictive.

According to the business environment rating index which rated

investment climate in 43 countries on the basis of 18 independent factors,
Indian, zones were placed at the bottom for FDI (TCS 1976).In 1980 the
government introduced the Export Oriented Units Scheme (EOU). This
scheme facilitates the setting up of EOUs beyond the boundaries of EPZs.
The responsibility of administering these units was also entrusted with the
zone administration.

Expansionary Phase : 1985-1991

These were at Noida (Uttar Pradesh), Falta (West Bengal) Cochin

(Kerala) and Chennai (Tamil Nadu). Thereafter, Visakhapatnam EPZ in
Andhra Pradesh was established in 1989, though it could not become
operational before 1994.Primary purpose was still not specified and laws
were rigid.

Consolidating phase:1991-2000
 Liberalization took place, which led to relaxation in laws and
government procedures. The focus had been on delegating powers to
zone authorities, providing additional fiscal incentives, simplifying policy
provisions and providing greater facilities. The scope and coverage of the
EPZ/EOU scheme was enlarged in 1992 by permitting the agriculture,
horticulture and aqua culture sector unit also. In 1994, trading, re-
engineering and re-conditioning units were also permitted to be set up.

Emergence phase : 2000 onwards

Policy (1997-2002) has introduced a new scheme from April 1,

2000 for establishment of the Special Economic Zones (SEZs) in
different parts of the country. From November 1, 2000 the Export
Processing Zones at Kandla, Santa Cruz (Mumbai), Cochin and Surat
have been converted into SEZs. In 2003, other existing EPZs namely,
Noida, Falta, Chennai, Vizag were also converted into SEZs.

Procedure

Companies needed to get their proposals cleared by the Secretariat of industrial

approvals and also by the Ministry of Commerce. Furthermore, entrepreneurs
had to acquire individual clearances from various state and central government
departments.

Fiscal and non fiscal incentives to the companies

 Fiscal incentives

◦ 100% exemption from tax for 5 years. 50% exemption in the next
two years.

 Non fiscal incentives

◦ FDI Limits : 100% through automatic route to manufacturing SEZ

units (barring handful of sensitive industries)

◦ Full repatriation of profit and capital Yes (after tax payments)

◦ Subcontracting allowed

◦ All labour laws apply.

Infrastructure provided by govt

  Standard factories built by the zones

 Water

 Electricity

 Telecommunication

 Warehousing

EPZ in India

 Kandla Free Trade Zone, Gujarat

 Santa Cruz Electronic Export Processing Zone (SEEPZ), Mumbai

 Noida Export Processing Zone, UP

 Madras Export Processing Zones, Chennai

 Cochin Export Processing Zone, Kerala

 Falta Export Processing Zone, West Bengal

 Visakhapatnam Export Processing Zone

Criticism

Free trade zones are domestically criticized for encouraging businesses to

set up operations under the influence of other governments, and for giving
foreign corporations more economic liberty than is given indigenous employers
who face large and sometimes insurmountable "regulatory" hurdles in
developing nations. Sometimes the domestic government pays part of the initial
cost of factory setup, loosens environmental protections and rules regarding
negligence and the treatment of workers, and promises not to ask payment of
taxes for the next few years. And then company shifts the plant to avoid tax.

SPECIAL ECONOMIC ZONE (SEZs)

Introduction

India was one of the first in Asia to recognize the effectiveness of the Export
Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up
in Kandla in 1965. With a view to overcome the shortcomings experienced on
account of the multiplicity of controls and clearances; absence of world-class
infrastructure, and an unstable fiscal regime and with a view to attract larger
foreign investments in India, the Special Economic Zones (SEZs) Policy was
announced in April 2000.

This policy intended to make SEZs an engine for economic growth supported
by quality infrastructure complemented by an attractive fiscal package, both at
the Centre and the State level, with the minimum possible regulations. SEZs in
India functioned from 1.11.2000 to 09.02.2006 under the provisions of the
Foreign Trade Policy and fiscal incentives were made effective through the
provisions of relevant statutes.
Definition of SEZ
SEZ is a geographically bound zone where the economic laws in matters related
to export and import are more broadminded and liberal when compared to the rest
of the country. SEZs in India enjoy exemptions from income tax, sales tax and
customs duties. SEZs are projected as duty-free areas for the purpose of trade,
operations, duty, and tariffs. SEZ units are self-contained and integrated having
their own infrastructure and support services. SEZ means an area that has been
specified as an enclave that is duty free and is treated as a foreign territory. The
category “SEZ” covers a broad range of more specific zone types, including free
trade zones (FTZ), export processing zones (EPZ), free zones (FZ), industrial
estate (IE), free ports, urban enterprise zones (IEZs) and others.
Within SEZs, a unit may be set up for the manufacture of goods and other
activities including processing, assembling, trading, repairing, reconditioning,
making of gold / silver, platinum jewellery, and so on. As per law, SEZ units are
deemed to be outside the customs territory of India, Goods and services coming
into SEZs from the domestic tariff area (DTA) are treated as exports from
India, and goods and services rendered from the SEZ to the DTA are treated as
imports into India.
Objectives of SEZ

• 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

Difference between SEZ and EPZ

The SEZs are different from EPZs: In the SEZs there will not be any inspector raj
and once commodities go in, nobody will ask any questions until they come out.
Units in the SEZs may also do domestic sales by paying all relevant duties.
However, they have to be net foreign exchange earners.
While EPZs are industrial estates, SEZs are virtually industrial townships that
provide appropriate infrastructure such as housing, roads, ports and
telecommunication. The scope of activities that can be undertaken in the SEZs is
much wider, their linkages with the domestic economy are stronger. Resultantly
they have a diversified industrial base. Their role is not transient like the EPZs,
as they intended to be instruments of regional development as well as export
promotion. As such, SEZs can have tremendous impact on exports, inflow of
foreign investment an employment generation.
It was also announced that all the existing EPZs will be converted into SEZs.

The main objectives of the SEZ Act are:

(a) generation of additional economic activity

(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities; (Why repetition)

Examples of SEZ in india

Kandla ,Cochin,Madras,Falta ,vishakhapattnam

Incentives to units in SEZ

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 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. Exemption from minimum alternate tax under
section 115JB of the Income Tax Act . External commercial borrowing by SEZ
units up to US $ 500 million in a year without any maturity restriction through
recognized banking channels.

 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

SEZ body and approval mechanism

A Single Window SEZ approval mechanism has been provided through a 19

member inter-ministerial SEZ Board of Approval (BoA). The applications duly
recommended by the respective State Governments/UT Administration are
considered by this BoA periodically. All decisions of the Board of approvals are
with consensus.

The SEZ Rules provide for different minimum land requirement for different
class of SEZs. Every SEZ is divided into a processing area where alone the SEZ
units would come up and the non-processing area where the supporting
infrastructure is to be created.

Approval mechanism

The developer submits the proposal for establishment of SEZ to the

concerned State Government. The State Government has to forward the
proposal with its recommendation within 45 days from the date of receipt of
such proposal to the Board of Approval. The applicant also has the option to
submit the proposal directly to the Board of Approval.
The Board of Approval has been constituted by the Central Government in
exercise of the powers conferred under the SEZ Act. All the decisions are taken
in the Board of Approval by consensus. The Board of Approval has 19
Members.

Export Performances

 Exports from the functioning SEZs during the last some years are as
under:

Sr no Year Rupees(crore) Growth %

1 2003-2004 13,854 39%

2 2004-2005 18.314 32%

3 2005-2006 22840 25%
4 2006-2007 34615 52%
5 2007-2008 66638 93%
6 2008-2009 99689 50%
7 2009-2010 71139 40%

Facilities and Incentives

Incentives and facilities offered to the SEZs

The incentives and facilities offered to the units in SEZs for attracting
investments into the SEZs, including foreign investment include:-

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).

EXPORT ORIENTED UNIT (EOU)

This scheme was introduced in 1981, is complementary to SEZ. Though it
adopts the same production regime but offers a wide option in locations with
reference to factors like source of raw materials, ports of export, hinterland
facilities, availability of technological skills, existence of an industrial base &
need for a larger area of land for the project. As on Dec 31, 2005, 1924 units are
in operation under the EOU scheme.

Hundred percentage export-oriented unit (EOU) refers to an industrial unit which

offers for exports its entire production, excluding permitted levels of rejects.
EOUs were allowed in industries in respect of which the export potential and
export targets were considered by the relevant Export Promotion ceilings which
can be reached by existing units in the industry. Thus, the scheme of hundred
percent export oriented units had been designed to create additional export
capacity; units which results in mere substitution for the existing units’
production were not to be permitted. Being outside the EPZs, the EOUs did not
get the benefits of the built-in-facilities of the Zones. EOUs enjoyed most other
facilities and incentives as were available to the EPZ units. An EPZ/ EOU unit
had to be a net foreign exchange earner (NEFP).
Objectives of the EOU

Main aim is to increase exports, earn foreign exchange to the country, transfer
of latest technologies stimulate direct foreign investment and to generate
additional employment.

Major Sectors in EOU

 Granite

 Textiles / garments

 Food Processing

 Chemicals

 Computer software

 Coffee

 Pharmaceuticals

 Gems & Jewelry

 Engineering & electronics

 Engineering goods

 Aqua & pearl culture

EOU Activities

Initially main concentration –Textiles & Yarns, Food Processing,

Electronics, Chemicals, Plastics, Granites & Minerals/ores. But now also
include the areas having functions like manufacturing, servicing, development
of software, trading, repair, re-making, re-conditioning, re-engineering include
making of Gold/silver/platinum jewelry & articles thereof, agriculture including
agro-processing, aquaculture, animal husbandry, bio-technology, floriculture,
horticulture, pisciculture, viticulture, poultry, sericulture & granites.
NEED FOR SPECIAL LICENSE

 To set up an EOU for the following sectors, an EOU owner needs a

special license:

 Arms & ammunition.

 Explosive & allied items of defense equipment,

 Defense aircraft and warships,

 Atomic substances,

 Narcotics & Psychotropic substances and hazardous chemicals,

 Distillation & brewing of alcoholic drinks,

 Cigarettes/cigar & manufactured tobacco substitutes.

The EOU owners are required to submit the application from the Development
Commissioner who’ll then put them up to Board of Approvals (BOA).

Location for EOU

Can be set up anywhere in the country & can be engaged in the

manufacture & production of (software, floriculture, horticulture, agriculture,
aquaculture, animal husbandry, pisciculture, poultry & sericulture or other
similar activities.) above mentioned field.

 Setting up of EOU is also strictly guided by the Environmental rules &

regulations, Local Zonal Office & State Government.

EOU Unit Obligations

They are required to achieve the minimum NFEP (Net Foreign Exchange
Earning as a Percentage of Exports) & the minimum EP (Export Performance)
as per the provisions of EXIM Policy which vary from sector to sector. NFEP is
calculated for a period of 5 years.EOU can export all products prohibited items
of export in ITC (HS).Recent changes in EOU’s scheme:
Export of goods up to one & half per cent of the EOB value. The Development
Commissioners will fix time limits for finalizing the disposal of matters related
to EOU’s. In Textile sector, dispose off the left over up to 2 per cent fabric
CIF(Cost Insurance Freight).

Bonding Period of EOU

The EOUs are licensed to manufacture goods within the bonded time period for
the purpose of export. As per the Exim Policy, the period of bonding is initially
for five years, which is extendable to another five years by the Development
Commissioner. However on a request of EOU Unit, time period can also be
extended for another five year by the Commissioner / Chief Commissioner of
Customs.

TECHNOLOGY PARKS (TPs)

The official definition adopted by the International Association of Science Parks

(IASP) in February 2002 goes as follows -

“A science park is an organization managed by specialized professionals,

whose main aim is to increase the wealth of its community by promoting the
culture of innovation and the competitiveness of its associated businesses and
knowledge-based institutions.”

A technology park is a business support and technology transfer initiative that:

 Encourages and supports the start-up and incubation of innovation-led,

high-growth, knowledge-based businesses.
 Provides an environment where larger and international businesses can
develop specific and close interactions with a particular centre of
knowledge creation for their mutual benefit.
  Has formal and operational links with centres of knowledge creation such
as universities, higher education institutes and research organizations.

Software Technology Parks of India

 India has earned itself a reputation of an IT superpower.

 Software Technology Parks of India has played a seminal role in

accomplishing this status.

 STPIs across over the country are synonymous with excellent

Infrastructure and Statutory support aimed at furthering growth of
Information Technology in the country.

 Software Technology Parks of India (STPI) is a society set up by the

Ministry of Information Technology, Government of India in 1991, with
the objective of encouraging, promoting and boosting the Software
Exports from India.

 STPI maintains internal engineering resources to provide consulting,

training and implementation services. Services cover Network Design,
System Integration, Installation, Operations and maintenance of
application networks and facilities in varied areas

Vision, Mission and Objective of STPI

VISION

Make India a global Information Technology power and one of the largest
generators and exporters of software in the world.
MISSION

To boost software export and services from the country by promoting IT/ITES
industry

OBJECTIVE

1. To provide statutory and other promotional services to the exporters by

implementing Software Technology Parks (STP)/Electronics and Hardware
Technology Parks (EHTP) Schemes and other such schemes which may be
formulated and entrusted by the Government from time to time.

2. To promote micro, small and medium entrepreneurs by creating conducive

environment for entrepreneurship in the field of IT/ITES.

3. To provide data communication services including value added services to IT

/ IT enabled Services (ITES) related industries.

4. To promote the development and export of software and software services

including Information Technology (IT) enabled services/ Bio IT.

Services provided by STPI

STPI broadly provides services specially tailored for Software exporters in the
region.

 Datacom Services: STPI is one of the first data communication carriers

of India. STPI also holds the Internet Service Provider (ISP) license with
operational jurisdiction covering the entire country of India. STPI offers
leased line services to the premium segment, where quality is of utmost
concern.

 Statutory Services: STPI is a statutory body for providing Single

Window Clearance to software exporters. The STP Scheme provides
 these units with lucrative incentives, which have made it a phenomenal
success. Over 6000 companies nationwide enjoy the benefits of this
scheme.

 Projects & Consultancy Services: Services include consultancy in

designing cost effective LAN/WAN solutions, and onsite technical
support to SME companies for installation, configuration, trouble
shooting and maintenance of network infrastructure

 Incubation Services: STPI sets up entire facility ready for commencing

operations by software units from day one. It offers advantage of no
gestation period and does not require capital investment. It helps in
developing confidence in the client and ensures that the business
opportunity is not lost.

STP Scheme

The STP scheme is a 100 percent export oriented scheme for the development
and export of computer software, including export of professional services
using communication links or physical media.
This scheme is unique in its nature as it focuses on one product/sector, i.e.
computer software.

Scheme Benefits & Highlights

 Approvals are given under single window clearance scheme.

 A company can set up STP unit anywhere in India.
 Jurisdictional STPI authorities clear projects costing less than Rs.100
million with Indian Investment.
 100% Foreign Equity is permitted.
 All the imports of Hardware & Software in the STP units are completely
duty free, import of second hand capital goods also permitted.
 Re-Export of capital goods is also permitted.
 Simplified Minimum Export Performance norms i.e., "Positive Net
Foreign Exchange Earnings"
 Use of computer system for commercial training purposes is permissible
subject to the condition that no computer terminals are installed outside
the STP premises.
 The sales in the Domestic Tariff Area (DTA) shall be permissible up to
50% of the export in value terms.
 STP units are exempted from payment of corporate income tax up to
2011.
 The capital goods purchased from the Domestic Tariff Area (DTA) are
entitled for benefits like exemption of excise Duty & reimbursement of
Central Sales Tax (CST).
 Capital invested by Foreign Entrepreneurs, Know-How Fees, Royalty,
Dividend etc., can be freely repatriated after payment of Income Taxes
due on them, if any.
 The items like computers and computers peripherals can be donated to
recognized non-commercial educational institutions, registered charitable
hospitals, public libraries, public funded research and development
establishments, organizations of Govt. of India, or Govt. of a State or
Union Territory without payment of any duties after two years of their
import.
 100% Depreciation on Capital Goods over a period of five years.
STPI Centers in India
State-wise Software Exports through STPI in 2012-13
Year-wise STP Exports

Concept of Women Technology Park

 As a part of the 12th Five Year Plan initiatives the Department of

Science & Technology has been implementing a scheme “Science &
Technology for Women” with a view to empower women through
inputs of Science and Technology.
 The broad objectives of this scheme are to promote development and
adaptation of appropriate technologies to benefit women
 Women Technology Parks (WTP) are envisaged to act as a resource
centre where all necessary support is made available to women from a
single platform for improving the socio-economic quality of life.
 WTP will act as windows for providing information, creating
awareness, giving training for appropriate technologies leading to skill
up gradation and also possibly to help establish the all important
forward and backward linkages for income generation through micro
enterprises for women