FTWZ guidelines are under consideration

Free Zones in the UAE and industry clusters such in China have been a huge success. However, free zones here still have a long way to go to reach this level of success. The government has taken some steps in this direction by announcing some measures to strengthen the SEZ policy. Talking with Garima P, EM Sudarsana Natchiappan, Minister of State for Commerce & Industry, Department of Industrial Policy and Promotion, elaborates on the government initiatives in this direction.

Although SEZs in India have grown in export volumes, developer interest has palpably declined. How your recent measures address this problem?
In order to further strengthen and promote investments, the government has recently announced a package of reform measures for the SEZ policy and operational framework which was subsequently amended vide GSR No 540 dated 12 August 2013. The highlights of the measures are given in the table.

What opportunities exist for investors in the existing Free Trade Warehousing Zones (FTWZs) in India?
The scheme envisages duty-free import of all goods (except prohibited items) for trading and warehousing. Such goods are permitted to be re-sold/re-invoiced or re-exported. Goods warehoused by FTWZ units are also permitted to be sold in the DTA on payment of applicable customs duties. Value added services such as pick and pack, kitting, assembly of CKD and SKD kits, packing or re-packing with or without processing, labelling, quality control, bar-coding etc, as per customer or marketing requirements may be undertaken within the FTWZ.

Further, FTWZs are envisioned on one hand to augment exports by making exports easier with reduced procedures and single window clearance leading to lower transaction costs, while on the other, support growth of domestic manufacturing industry by way of ‘Just In Time’ (JIT) deliveries for local manufacturers leading to savings in inventory carrying costs, as also enable global vendors to store and manage inventories, closer to Indian and regional markets, thereby creating regional hubs in India leading to additional job creation and investment in our country. Goods in FTWZ have nearly similar tax concessions as for bonded, EOD and SEZ goods. Movement of goods from DTA to FTWZ unit is considered an export eligible for all export entitlements.

Free Zones in the UAE and industry clusters such as Shenzhen in China have turned out to be hugely successful. Can India replicate their success? Has the government taken any steps in the direction?
FTWZs guidelines are under consideration. This would help in creation of logistics infrastructure to facilitate import and export and international trade with logistical and consolidation hubs being established in India.

India’s SEZs and (lately) FTWZs have seen some initial success but policy flip-flops and taxation issues have recently deterred developers and exporters. What are those issues and what are the new trends?
Several representations have been received by Department of Commerce from its stakeholders requesting to further streamline and simplify the provisions laid under SEZ Act and Rules, especially in view of the ongoing economic slowdown. However, FTWZ guidelines would help in creation of logistics infrastructure to facilitate import and export and international trade with logistical and consolidation hubs being established in India.

Highlights of SEZ policy measures

• In view of the acute difficulties in aggregating large tracts of uncultivable land for setting up SEZs, while ensuring vacancy and contiguity, we have decided to reduce the minimum land area requirement by half. For multi-product SEZ from 1,000 hectares to 500 hectares and for sector-specific SEZ from existing 100 hectares to 50 hectares.
• To provide greater flexibility in utilising land tracts falling between 50-450 hectares, it has been decided to introduce a graded scale for minimum land criteria which would permit an SEZ an additional sector for each contiguous 50 hectare parcel of land. This will also bring about more efficient use of the infrastructure facilities created in such an SEZ.
• Further, flexibility to set up additional units in a sector-specific SEZ is being provided by introducing sectoral broad-banding to encompass similar/related areas under the same sector.
• On the issues relating to vacancy of land, while the existing policy allows for parcels of land with pre-existing structures not in commercial use to be considered as vacant land for the purpose of notifying an SEZ, it has now been decided that additions to such pre-existing structures and activities being undertaken after notification would be eligible for duty benefits similar to any other activity in the SEZ.
• In order to encourage agro-based industries in SEZ, a new sector-specific SEZ named -æagro-based food processing’ sector with a minimum land area requirement of 10 hectare has been introduced.
• The present requirement of 10 hectares of minimum land area has been done away with. Now, there would be no minimum land requirement for setting up an IT/ITES SEZ. Only the minimum built up area criteria would be required to be met by the SEZ developers.
• The minimum built up area requirement has also been considerably relaxed with the requirement of one lakh sq m to be applicable for the seven major cities viz: Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangalore, Pune and Kolkata. For the other Category B cities 50,000 sq m and for remaining cities only 25,000 sq m built up area norm will be applicable.
• The present SEZ Framework does not include an Exit Policy for the units and feedback was that this was perceived as a great disadvantage. It has now been decided to permit transfer of ownership of SEZ units, including sale.