The differentiator for FTZs is integration

Srinath Manda says a big difference between UAE and Indian Free Zones (FZs) is scale of operations the latter are promoted as sector-specific zones, so they haven’t achieved the scale of integrated ones.

Free Zones were conceived to boost exports by creating designated zones free from bureaucratic troubles and more suited for international market. So the locations where they were set up were out from a typical populated city and preferably within a close proximity of a port to facilitate movement of products and procurement of raw materials.

But SEZs have been successful only in locations with a concentration of manufacturing industry or consumption market. Although global trade driven by increasing representation and promotion by the World Trade Organisation (WTO) was a big driver of Free Zones, very few countries could really capitalise on this interesting concept.

Advantage UAE
China has been the most successful nation with respect to Free Zones/Free Trade Zones. The next most successful FTZ within India’s vicinity is the UAE. The UAE, especially Dubai, with its Jebel Ali Free Zone (JAFZA) has become a role model for the entire Middle East. Dubai has been successful because it turned into a distribution hub for the Middle East. It has a lot of neighbouring consumer markets that are dependent on imports for which cargo from countries like India and China comes in a large quantity. And the infrastructure available in Dubai to handle all that cargo and dissipate or distribute it in the neighbouring markets is remarkable. UAE is a market that mostly receives and re-exports goods. In both these cases, FTZs have succeeded.

Natural & seized advantages
Natural advantages of an FTZ depend primarily on close proximity of either a major source of manufacturing or major force of consumption or both. Other important factor can be having a very helpful port which can handle all the cargo. Basically, ideal location of the port, deep sea water, and availability of backup land to support all warehousing & final assembling/packing, all becomes the natural advantages. If a country determines to create the facility by virtue of its mindset is non-natural advantage. Jebel Ali is the best example of non-natural facility, being a manmade port. It has no natural advantages, but has still been developed to suit the requirements. JAFZA was created in anticipation of a potential contingency whereby the traditional business source of oil gets exhausted. JAFZA has a high-capacity port and warehousing zone with all the modern amenities and futuristic requirements almost double the capacity of any Indian port with high-standard equipment and terminal handing to match.

Lost initiative
In India, lack of backup land, lack of handling capacities, lack of network connectivity with hinterland, and tardy government clearances at various stages at the ports are holding FTZs back. Rather than having large scale integrated economic zones, authorities went about promoting industry-specific SEZs, which may not be able to achieve the kind of scale required to create a momentum. So we need integrated SEZs in specific locations. In India, only Mundra could create that kind of an industrial zone.

Integrating the transport network or at least bringing the transportation administration for cargo under one window is an immediate step.

Future of FTZs in India
With a large consumption base, a reasonably large manufacturing base, supporting raw material or sourcing industries also based here, internal talent, internal R&D facilities, and a complete ecosystem for a given industry, there are natural advantages to make FTZs a success in India, yet the approach of development needs to be much more participation-friendly.