Economic Policy and Regulatory Environment in India

India’s Foreign Trade PolicySpecial Economic Zones (SEZs)

Rachna GangwarInstitute of Management Technology Ghaziabad

India’s Foreign Trade PolicySpecial Economic Zones (SEZs)

Foreign Trade Policy

• Union Commerce Ministry, GOI announcesintegrated FTP for 5 years, also called as EXIMpolicy

• Policy upgraded every year with somemodifications and new schemes

• FTP which was announced on 28th August2009 is an integrated policy for 2009-14

• Union Commerce Ministry, GOI announcesintegrated FTP for 5 years, also called as EXIMpolicy

• Policy upgraded every year with somemodifications and new schemes

• FTP which was announced on 28th August2009 is an integrated policy for 2009-14

India’s Foreign TradeExports & Imports

(Figures in US$ billion)

Year ExportTarget

ActualExport

%Growth

Imports %Growth

2004-05 75 83.53 30.8 111.52 42.7

2005-06 100 103.09 23.4 149.17 33.8

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2005-06 100 103.09 23.4 149.17 33.8

2006-07 125 126.26 22.5 185.60 24.4

2007-08 160 162.90 29.0 235.9 27.0

2008-09 175(Revised)

185.29 13.6 287.76 14.3

2009-10(April-Oct’09)*

91.05 146.77

Impact on Indian Exports(Figures in US$ billion)

Period 2007-08* (US $Billion)

2008-09**(US $ Billion) Increase(+) / Decrease (-)

April- Sept. 73.558 108.907 + 48.1

October 14.675 14.131 -3.7

November 12.909 11.163 -13.5

December 14.625 13..368 -8.6

January 2009 14.889 12.869 -13.6

February 15.221 11..941 -21.5

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February 15.221 11..941 -21.5

March 17.254 12..916 -25.1

April’ 08 to March’ 09 163.13 185.295 +13.6

Month 2008-09@ 2009-10 Increase(+) / Decrease (-)April 2009 18.460 11.909 -35.5

May 18.687 11.368 -39.2

June 19.181 13.059 -31.9

July 19.030 13.623 -28.4

August 17.759 14.289 -19.5

September 15.789 13.608 -13.8

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 India’s exports of goods and services by 2014.

Long Term Objective :• To double India’s share in Global Trade by 2020.

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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 India’s exports of goods and services by 2014.

Long Term Objective :• To double India’s share in Global Trade by 2020.

Foreign Trade Policy 2009-14

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

levies

• Both the long and short term objectives of thepolicy 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 – 2009-14New Initiatives

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

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

India’s Trade Basket

India’s Trading Partners

Special Economic Zones (SEZs)

• With a view to attract larger foreigninvestments in India, the Special EconomicZones (SEZs) Policy was announced in April2000

• SEZs in India functioned from 1.11.2000 to09.02.2006 under the provisions of theForeign Trade Policy

• With a view to attract larger foreigninvestments in India, the Special EconomicZones (SEZs) Policy was announced in April2000

• SEZs in India functioned from 1.11.2000 to09.02.2006 under the provisions of theForeign Trade Policy

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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

• 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 aidcentres etc

• Free Trade & WarehousingZones, International Financial Services Centremay be approved within the processing area

• 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 aidcentres etc

• Free Trade & WarehousingZones, International Financial Services Centremay be approved within the processing area

Special Economic Zones (SEZs)

• Seven Central Government Special EconomicZones (SEZs) and 12 State/Private Sector SEZsset up prior to the enactment of SEZAct, 2005, formal approval has been accordedto 576 proposals out of which 392 SEZspresently stand notified

• Seven Central Government Special EconomicZones (SEZs) and 12 State/Private Sector SEZsset up prior to the enactment of SEZAct, 2005, formal approval has been accordedto 576 proposals out of which 392 SEZspresently 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

• 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.

• Duty free import/domestic procurement of goods fordevelopment, operation and maintenance of SEZ units

• 100% Income Tax exemption on export income for SEZunits 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

Andhra Pradesh25%

Gujarat9%

Kerala5%

Others15%

Distribution of SEZs across States in India( Percentage of operational SEZs as on May 2012)

Tamil Nadu19%

Karnataka14%

Maharashtra13%

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 sectorMulti-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 sectorsOther SEZ’s– SEZ in a port or airport– SEZ for Free Trade and Warehousing

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 sectorMulti-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 sectorsOther SEZ’s– 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 singleproduct

• 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 m2for rest of the cities

• Minimum area relaxed to 50 hectare for singleproduct

• 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 m2for rest of the cities

Minimum Investment Requirements

Sector Specific SEZ’s– Investment should be more than Rs. 250 crores or– Net worth* of Rs. 50 croresMulti product SEZ’s– Investment should be more than Rs. 1000 crores or– Net worth* of Rs. 250 crores

BoA may however consider proposals not meetingminimum investment/net worth criteria onmerits if required

Sector Specific SEZ’s– Investment should be more than Rs. 250 crores or– Net worth* of Rs. 50 croresMulti product SEZ’s– Investment should be more than Rs. 1000 crores or– Net worth* of Rs. 250 crores

BoA may however consider proposals not meetingminimum investment/net worth criteria onmerits if required

Tax Benefits

IT/IT Enabled Services54%

ElectronicHardware

3%

Textiles/Apparel/Wool3%

Food Processing2%

Gems andJewellery

2%

Bio-tech2%

Footwear/Leather1%

FTWZ1%

Non-Conventional

Energy1%

Semiconductor1%

Sector-wise Distribution of exporting SEZs(As on 30.06.2012)

Multi-Product11%Other

9%

Engineering5%

Pharma/chemicals5%

ElectronicHardware

3%

Location of SEZs(as on July, 2010)

Coastal Non-Coastal Total

Manufacturing 52 98 150

Services 39 167 206Services 39 167 206

Total 91 265 356

Source: Ministry of Commerce and Industry

Exports from SEZs

Major Sector-wise Exports from SEZs(2006-07 to 2011-12)

FinancialYears

Computer/Electronicsoftware

Gemsand

Jewellery

Chemicalsand

PetroleumRefinery

Other Mfgsectors

TotalExports

2006-07 507 16,069 1,106 16,933 34,6152006-07 507 16,069 1,106 16,933 34,615

2007-08 3,985 23,006 1,423 38,224 66,638

2008-09 16,228 33,436 6,386 43,639 99,689

2009-10 45,784 43,829 73,972 57,126 2,20,711

2010-11 84,700 47,849 1,06,558 76,761 3,15,868

2011-12 81,017 74,617 1,52,516 56,327 3,64,478

(export figures in crores)

150

200

250

300

350

Share of SEZ Exports in India's Exports

Total exports of the Country

Total SEZ Exports

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

0

50

100

150

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 DevelopmentCommissioner under Sub-section (9) of Section 15

• Contractors• Service Providers and Vendors

• Developer, Co-Developer• Units in SEZ

– Entrepreneur– ‘Entrepreneur’ means a person who has been

granted a letter of approval by the DevelopmentCommissioner under Sub-section (9) of Section 15

• Contractors• Service Providers and Vendors

FTWZ

• ‘Free Trade and Warehousing Zone’ means aSpecial Economic Zone wherein mainly tradingand warehousing and other activities relatedthereto are carried on

• ‘Free Trade and Warehousing Zone’ means aSpecial Economic Zone wherein mainly tradingand warehousing and other activities relatedthereto are carried on

FTWZ

• Warehousing of goods on behalf of foreign ordomestic 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

• Warehousing of goods on behalf of foreign ordomestic 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