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FTWZ: A game changer for India's logistics

FTWZ: A game changer for India's logistics

Logistics cost in India is approximately 14 per cent of GDP, while the number for most developed nations is about 9-10 per cent. On a 1.6 trillion GDP, this represents absolute value of inefficiency and therefore a logistics market potential of over $65 billion. It is estimated that India burns nearly $2.5 billion worth of fuel on account of trucks standing idle on state check-posts. Even with the poor road infrastructure and disorganised trucking network in the country, roads currently account for approximately 65 per cent of the total freight transport, while rails have only 30 per cent market share. The biggest challenge India as an economy faces today, is the need for infrastructure, specially in the logistics space, to support our fast
pace economy.

Although inefficiencies are prevalent in the economy, as a market we are very unique, the potential is enormous and we are just witnessing the tip of the iceberg. Consumption in India is expected to grow four fold in real terms from $378 billion presently, to $1.56 trillion by 2025, given the fact that presently India ranks only 17th in terms of importing world products, consuming just over two per cent of globally produced merchandise, but growing at 35 per cent. By 2020, India is projected to have an additional 47 million working population, almost equal to the total world shortfall, fuelling our ability to become a manufacturing hub, given the fact that India ranks only 26th as per WTO in terms of exporting world products, contributing just over 1.3 per cent of globally consumed merchandise, but growing at 22 per cent.

Even with our unique geographical position, diverse demography, over 7,000 km of coastline and huge domestic market, the country only processed just over 7.7 million containers last year, as against Dubai (12 million), Singapore (24 million) and China (over 186 million). These economies are used by global companies selling their products in India, as transhipment hubs and regional distribution centres. Along with excellent road and port infrastructure, they also have logistics parks known as Free Trade Zones (FTZs) driving the container movement. What India needs is a Free Trade and Warehousing Zones (FTWZ) and domestic distriparks supported by rail infrastructure and rail as a preferred mode of transportation over road, across strategic locations. Most importantly, we need a player that can provide these services under one roof.

India’s first FTWZ in Mumbai

Spread across 165 acre, Arshiya’s mega logistics park at Mumbai is a state-of-the-art facility, similar to zones in Singapore, Dubai and China. The FTWZ has 13 metre high warehouses, G+6 racking system, container yard (CY), over-dimensional cargo (ODC) yard, chillers, freezers, temperature controlled storage, strong rooms and other office infrastructure. Additionally, the FTWZ has:

• 24×7 on-site customs clearance
• Business ancillary services (on-site office spaces, banks, insurance, currency exchanges and CHAs)
• Key amenities (medical dispensary with ambulance, fire station with primary, secondary fire fighting systems, and fire tenders provided with a toll free number)
• Secure IT connectivity
• Ancillary buildings and facilities
• Supporting infrastructure
• Storm water drainage system
• Environmental consciousness
• Central operations control centre (COCC)
• Integrated building management system (IBMS)
• Security infrastructure

Arshiya’s upcoming zone in Khurja, in UP (near Delhi), sprawls on 315 acre, which includes 135 acres of FWTZ, 130 acre distripark and 50 acres of rail siding.

International as well as leading Indian companies from sectors such as electronics, trading, wines and spirits, FMCG, oil and gas, chemicals, pharmaceuticals, clothing, retail, shipping, as well as logistics companies are servicing their customers through the FWTZ and have had notable improvements in their supply chain with substantial cost savings.

About FTWZ

The Government of India introduced the Free Trade & Warehousing Zones (FTWZ) Policy, as a part of Foreign Trade Policy (FTP) 2004-2009, governed by the SEZ ACT 2005 and SEZ Rules 2006. It’s a deemed foreign territory within Indian soil. The need for FTWZ is substantiated with the fact that India is the world’s 2nd largest developing and fastest growing economy, after China.

With a population of approx 1.1 billion, our domestic consumption comprises 58 per cent of our GDP. Strategically located between South East Asia and the Middle East, the country has a 7,000 km coastline, and unlike China, the population is evenly spread across hinterland. Unlike Dubai, India has a strong manufacturing base where global companies are producing products for domestic as well as export opportunities. Over the last few decades, India has been losing investments to neighbouring economies, which were being used by global corporations as bases for feeding India, because of unavailability of similar infrastructure in our country.

At present, majority of product hubbing and value addition is done in Dubai and Singapore. About 70-80 per cent of these value additions are done for products meant for the Indian market. In comparison to Dubai or Singapore, India is a much larger market for product consumption and is an emerging manufacturing hub. It has tremendous advantages in terms of cost and skill arbitrage vis-à-vis Dubai and Singapore and is better suited to be a transshipment, value addition and global distribution hub. We need to provide logistics infrastructure to mitigate geographic challenges and develop customised solutions for global companies. This will have a direct impact on sustaining the fast pace trajectory of our economy, generating investment and finally creating new employment.

India’s trade zones mean big biz

FTWZ will turn things around for companies importing, exporting or re-exporting to or from the country. Permission of 100 per cent FDI for the set-up of units by the unit holder of the FTWZ will be granted. The Value Added Services (VAS) allowed inside the FTWZ include palletisation, shrink wrapping, packaging, repackaging, labeling, carbonisation, bar coding, strapping, sorting, knitting, blending, assembling, cutting and threading activities.

Benefits for imports:

• Duty deferment benefits
• Quality control capability prior to duty-payment
• Exemption on SAD, VAT, CST and service tax on imports through FTWZ
• Flexibility towards end distribution in India
• Foreign exchange transaction capability

Benefits for exports:

• Products from India entering the FTWZ are treated as deemed export providing immediate benefits to suppliers
• Local tax exemption on CST, sales tax, excise, VAT and service tax on  all activities  conducted inside the FTWZ
• Export quotas will be easier to be met for companies exporting into FTWZ
• Increased efficiency through lowered reverse logistics through quality control before dispatch from the country

Benefits for re-exports:

• Service tax exemption on all activities conducted inside the FTWZ, including rent and labour
• Exemption from custom and stamp duty on products imported into FTWZ; meant  for re-export out of India
• Income tax exemption on profit where applicable
• Hassle-free re-export process

Arshiya international Ltd: First mover in FTWZ

With over 10 years of legacy in the logistics and supply chain space, Ajay S Mittal is Group Chairman and Managing Director, Arshiya International Ltd. It is the first company to develop and operate the country’s first Free Trade and Warehousing Zone (FTWZ). The zone in Mumbai (Panvel), has been operational since November 2010. With an investment charter of over Rs 7,000 crore in the next three to four years, Arshiya would be developing and operating in all five FTWZs across India’s strategic locations. These state-of-the-art mega logistics parks would be similar to those in Singapore, Dubai and China. Including the operational FTWZ in the West (Mumbai-Panvel), Arshiya has planned operations in the North (Khurja, near Delhi in the state of UP), Central India (Nagpur), South (Chennai) and in the Eastern parts of the county as well. Complementing each FTWZ will be domestic distribution hubs called as ‘Distriparks’ and rail infrastructure, including sidings. Plans are underway to commence operations of the North FTWZ by June 2011. The company will be inducting 150 trains into its operations, as part of Phase 1. Currently, 15 trains are operational and are servicing the company’s customers across the country.

Ajay S Mittal, Group Chairman amd Managing Director, Arshiya International Ltd.

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