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Civil Services GS Indian Economics Handout 23: EPZs and EOUs in India
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Civil Services GS Indian Economics Handout 23: EPZs and EOUs in India

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  • 1. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 1 For all Handouts and more, visit :iasstudymat.blogspot.com India was one of the first in Asia to recognize the effectiveness of the ExportProcessing Zone (EPZ) model in promoting exports, with Asias first EPZ set up in Kandla in1965. With a view to overcome the shortcomings experienced on account of themultiplicity of controls and clearances; absence of world-class infrastructure, and anunstable fiscal regime and with a view to attract larger foreign investments in India, theSpecial Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported byquality infrastructure complemented by an attractive fiscal package, both at the Centre andthe State level, with the minimum possible regulations. SEZs in India functioned from1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscalincentives were made effective through the provisions of relevant statutes. To instill confidence in investors and signal the Governments commitment to astable SEZ policy regime and with a view to impart stability to the SEZ regime therebygenerating greater economic activity and employment through the establishment of SEZs, acomprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. Anumber of meetings were held in various parts of the country both by the Minister forCommerce and Industry as well as senior officials for this purpose. The Special EconomicZones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assenton the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on thewebsite of the Department of Commerce offering suggestions/comments. Around 800suggestions were received on the draft rules. After extensive consultations, the SEZ Act,2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing fordrastic simplification of procedures and for single window clearance on matters relating tocentral as well as state governments.The main objectives of the SEZ Act :(a) generation of additional economic activity(b) promotion of exports of goods and services;(c) promotion of investment from domestic and foreign sources;
  • 2. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 2 For all Handouts and more, visit :iasstudymat.blogspot.com(d) creation of employment opportunities;(e) development of infrastructure facilities; It is expected that this will trigger a large flow of foreign and domestic investment inSEZs, in infrastructure and productive capacity, leading to generation of additionaleconomic activity and creation of employment opportunities. The SEZ Act 2005 envisages key role for the State Governments in Export Promotionand creation of related infrastructure. A Single Window SEZ approval mechanism has beenprovided through a 19 member inter-ministerial SEZ Board of Approval (BoA). Theapplications duly recommended by the respective State Governments/UT Administrationare considered by this BoA periodically. All decisions of the Board of approvals are withconsensus. The SEZ Rules provide for different minimum land requirement for different class ofSEZs. Every SEZ is divided into a processing area where alone the SEZ units would come upand the non-processing area where the supporting infrastructure is to be created.The SEZ Rules provide for: • " Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs; • Single window clearance for setting up of an SEZ; • Single window clearance for setting up a unit in a Special Economic Zone; • Single Window clearance on matters relating to Central as well as State Governments; • Simplified compliance procedures and documentation with an emphasis on self certificationFacilities and Incentives Incentives and facilities offered to the SEZsThe incentives and facilities offered to the units in SEZs for attracting investmentsinto the SEZs, including foreign investment include:- • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
  • 3. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 3 For all Handouts and more, visit :iasstudymat.blogspot.com • 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 upto 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. The major incentives and facilities available to SEZ developers include:- • Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA. • 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. • Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. • Exemption from dividend distribution tax under Section 115O of the Income Tax Act. • Exemption from Central Sales Tax (CST). • Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).• Export Performances Exports from the functioning SEZs during the last few years are as under: Year Value (Rs. Crore) Growth Rate ( over previous year ) 2003-2004 13,854 39% 2004-2005 18,314 32% 2005-2006 22 840 25% 2006-200 34,615 52% 7 2007-2008 66,638 93% 2008-2009 99,689 50% 2009-2010 2,20,711.39 121.40%
  • 4. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 4 For all Handouts and more, visit :iasstudymat.blogspot.com
  • 5. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 5 For all Handouts and more, visit :iasstudymat.blogspot.com
  • 6. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 6 For all Handouts and more, visit :iasstudymat.blogspot.com
  • 7. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 7 For all Handouts and more, visit :iasstudymat.blogspot.com The EOU Scheme introduced in early 1981, is complementary to the SEZ scheme(erstwhile EPZ scheme). It adopts the same production regime but offers a wider option inlocation with reference to factors like source of raw materials, port of export, hinterlandfacilities, availability of technological skills, existence of an industrial base, and the need fora large area of land for the project. Over the last decade, Export Oriented Units have evolved as a major player in thecountrys export effort. They have grown consistently at double digit level, and recorded agrowth of about 27.48% during the year 2004-05SALIENT FEATURES  No license required for import.  Exemption from Central Excise Duty in procurement of capital goods, raw-materials, consumables spares etc. from the domestic market.  Exemption from customs duty on import of capital goods, raw materials, consumables spares etc.  Reimbursement of Central Sales Tax (CST) paid on domestic purchases.  Supplies from DTA to EOUs treated as deemed exports.  Reimbursement of duty paid on furnace oil, procured from domestic oil companies to EOUs as per the rate of drawback notified by the Directorate General of Foreign Trade.  100% Foreign Direct Investment permissible.  Exchange earners foreign currency (EEFC) Account.  Facility to retain 100% foreign exchange proceeds in EEFC Account.  Facility to realize and repatriate export proceeds within twelve months.Further extension in time period can be granted by RBI and their authorized dealers.  Re-export of imported goods found defective, goods imported from foreign suppliers on loan basis etc.  Exemption from industrial licensing requirement for items reserved for SSI sector. Profits allowed to be repatriated freely without any dividend balancing requirement
  • 8. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 8 For all Handouts and more, visit :iasstudymat.blogspot.com  Access to Domestic Market upto 50% of FOB value of export on concessional rate of duty.  Duty free goods to be utilized in two years. Further extension granted on liberal basis.  Job work on behalf of domestic exporters for direct export allowed.  Conversion of existing Domestic Tariff Area ( DTA) unit into an EOU permitted.  Can procure duty-free inputs for supply of manufactured goods to advance licence holders.  Suppy of ITA-I items in the domestic market which would be counted for fulfillment of NFE.  EOUs in agriculture and horticulture engaged in contract farming may be permitted to take out duty free goods listed to the fields of contact farmers for production.OBLIGATIONS OF EOUThe EOUs are required to achieve Positive Net Foreign Exchange Earning(NFE). NFE shall be calculatedcumulatively for a period of five years from the commencement of production .For this purpose, a LegalUndertaking is required to be executed by the unit with the Development Commissioner.The units have to provide periodic reports to the Development Commissioner and Zone Customs. Unitshave to obtain Customs Bonding from the concerned jurisdictional Central Excise Authority.
  • 9. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 9 For all Handouts and more, visit :iasstudymat.blogspot.com
  • 10. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 10 For all Handouts and more, visit :iasstudymat.blogspot.comExport Performance of EOUs & SEZ Units ---> Statement showing year-wise Exportperformance by EOUs & SEZ Units Year SEZ Units EOUs TOTAL US Rs. In Gro US $ Growt Rs. In US $ Growt Growth Rs. In Growth $ Growth wth Millio h Millio h % Crore % Mill % Crore % n % Crore n % ion1992- 1376 474 2170 748 3546 1222931993- 1960 42.4 632 33.33 3086 42.20 995 33.02 5046 42.281 1627 33.142941994- 2653 35.37 856 35.44 4710 52.61 1519 52.66 7363 45.914 2375 45.974951995- 3236 21.96 981 14.60 7009 48.83 2123 39.76 10245 39.147 3104 30.695961996- 4339 34.1 1240 26.40 8729 24.53 2494 17.48 13068 27.552 3734 20.296971997- 4817 11.03 1302 5.00 10279 17.76 2778 11.39 15096 15.521 4080 9.2662981998- 5252 9.034 1250 -3.99 12058 17.32 2871 3.35 17311 14.673 4121 1.0049991999- 6709 27.72 1560 24.80 13701 13.63 3186 10.97 20410 17.903 4746 15.16620002000- 8552 27.48 1859 19.17 15912 16.14 3536 10.99 24464 19.865 5395 13.675012001- 9190 7.451 1915 3.01 18735 17.74 3930 11.15 27925 14.146 5845 8.3431022002- 10057 9.435 2095 9.40 23591 25.91 4875 24.03 33647 20.491 6970 19.237032003- 13814 37.36 2996 43.01 28828 22.20 6274 28.70 42641 26.73 9270 33042004- 1286 18655 35.05 4140 38.18 39228 36.08 8727 39.11 57883 35.745 38.80805 72005- 1633 22840 22.43 5159 24.61 49462 26.09 11172 28.02 72302 24.91 26.92406 12006- 2315 34787 52.31 7688 49.02 69965 41.45 15462 38.40 104752 44.882 41.75507 02007- 5168 66638 91.56 16492 114.51 142211 103.26 35194 127.62 208849 99.374 123.2708 6EXPORT, IMPORT, NFE, DURING 2008-09 AND CUMULATIVE INVESTMENT &EMPLOYMENT TILL MARCH, 2009 BY EOUs (Values In Rs Crores) EXPORT IMPORT In NFE In Rs INVESTMENT S.No. SEZs Employment In Rs crores Rs crores crores In Rs crores NSEZ 10608.82 2531.47 8077.35 2274.45 43714 2 SEEPZ-SEZ 18539.12 7309.11 11230.01 5227.93 41858 3 MSEZ 14044.65 4709.98 9334.67 23949.19 54204 4 CSEZ 17697.20 5808.35 11888.85 8416.22 86333 5 VSEZ 7908.36 3642.66 4265.70 1013.20 19731 6 FSEZ 3086.39 1070.13 2016.26 1275.38 9946
  • 11. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 11 For all Handouts and more, visit :iasstudymat.blogspot.com 7 KASEZ 98582.38 86472.58 12109.80 3410.40 24514 8 ISEZ 1031.29 162.89 868.40 189.71 3305 Total 171498.21 111707.17 59791.04 45756.48 284105EXPORT, IMPORT, NFE, DURING 2008-09 AND CUMULATIVE INVESTMENT &EMPLOYMENT TILL MARCH, 2009 BY EOUs (Values In US $ Million) EXPORT IMPORT INVESTMENT NFE In US $ S.No. SEZs In US $ In US $ Miln. Miln. Miln. In US $ Miln. 1 NSEZ 2306.60 550.40 1756.20 494.52 2 SEEPZ-SEZ 4030.83 1589.17 2441.66 1136.67 3 MSEZ 3053.63 1024.06 2029.57 5207.10 4 CSEZ 3847.78 1262.87 2584.91 1829.88 5 VSEZ 1719.46 792.00 927.46 220.29 6 FSEZ 671.05 232.67 438.38 277.30 7 KASEZ 21434.07 18801.13 2632.95 741.50 8 ISEZ 224.23 35.42 188.81 41.25 Total 37287.65 24287.70 12999.95 9948.51Export from EOUs & its share in Countrys Export & Net Foreign Exchange earned by EOUS (ValuesIn Rs Crores) EOUs EOUs Indias % ExportGrowth ExportGrowthYear EOUsExports IndiasExports share of EOUsImports Rate % over Rate % over Indias prev. year prev. year export1997- 10278.51 130101 9.50 7.90 2566.88981998- 12058.27 17.32 139753 7.40 8.63 3104.80991999- 13701.29 13.63 159561 14.20 8.59 3014.7020002000- 15912.00 16.14 203571 27.60 7.82 3659.01012001- 18743.45 17.79 209018 2.70 8.97 5940.81022002- 23590.60 25.86 255137 22.06 9.25 6973.00032003- 28827.58 22.20 293367 14.98 9.83 9928.00042004- 39228.40 36.08 375340 27.94 10.45 16692.11
  • 12. ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 12 For all Handouts and more, visit :iasstudymat.blogspot.com052005- 49462.35 26.09 456418 21.60 10.84 30485.96062006- 69964.60 41.45 571779 25.28 12.24 30154.50072007- 168838.80 141.32 655863 14.71 25.74 108209.59082008- 171498.20 1.58 839978 28.07 20.42 111707.1709(P)Average Annual growth rate percentage (during last 5 Years (2008-09/2003-04) In Rs.Term In US $ Term Growth rate of Export over last 5 years 469.43 468.91 Avg Annual Growth Rate % 93.89 93.78