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Foreign trade policy banks on SEZ and interest sops

A swathe of land concessions for special economic zones,extension of interest subsidy to engineering exports and simplifying the transaction rules

Written by ENS Economic Bureau | New Delhi | Published: April 19, 2013 1:30:44 am

A swathe of land concessions for special economic zones,extension of interest subsidy to engineering exports and simplifying the transaction rules for exporters were the major offers from commerce minister Anand Sharma to battle a trade slowdown,on Thursday.

The incentives aim to put exports which shrank 1.76 per cent during 2012-13,back on growth trajectory. Exports have declined to $300.6 billion during 2012-13,widening the trade deficit to $190.91 billion,as per official figures released by the commerce ministry.

“I hope that the measures which we have announced today will go a long way in providing much needed support for exports,” Sharma said while announcing the annual supplement to foreign trade policy (FTP) 2009-14 here. This is the last year of the FTP announced in 2009. Industry flagged the announcements on SEZs. “A step at right time” was how CII president S Gopalakrishnan described them. The government has reduced the minimum land area requirement for setting up SEZs by half,in wake of acute difficulties in aggregating large tracts of uncultivable land. It has also removed the ceiling of minimum land area for SEZs pertaining to the IT and ITeS sector along with putting in place an exit policy for SEZ units including sale.

“For multi-product SEZ (it has been reduced to) from 1,000 hectares to 500 hectares and for sector-specific SEZ from existing 100 hectares to 50 hectares… there would be no minimum land requirement for setting up IT/ITeS SEZs and only minimum built up area criteria would be needed to be met by SEZ developer,” Sharma said. The interest in SEZs has been waning following the imposition of minimum alternative tax (MAT) and dividend distribution tax (DDT) and the provisions under the proposed Direct Taxes Code.

The 170 functional SEZs have attracted investment of over Rs 2.36 lakh crore and exports from them totalled Rs 4.76 lakh crore in 2012-13,a growth of over 2,000 per cent over the 7 year period,as per the official data. Federation of Indian Export Organisation (Fieo) said some concessions on tax front are also needed for SEZs “to make it an engine of growth.” In the run-up to the India-EU FTA the minister has opened two more ports,at Faridabad and Chennai (Ennore) to allow import of cars.

Apart from easing the rules for SEZs,the minister said that the Export Promotion Capital Goods (EPCG) scheme which allows exporters to import capital goods at zero duty,has been extended beyond March 2013. It would now be applicable to all sectors as the 3 per cent EPCG scheme has also been merged with the zero duty EPCG scheme. The 2 per cent interest subvention scheme has also been extended to other items from the engineering and textile sector till March 2014. At present,the interest subsidy was available to specific sectors like handicrafts and carpets. The policy saw mixed reactions from industry chambers and export councils. The policy was though welcomed,many were of the view that much more was needed.

The government has widened the scope duty credit scrips,which can now be used for payment of service tax on procurement of services apart from payment of the excise duty. On market diversification front,Sharma said that Norway has been added under Focus Market Scheme and Venezuela under Special Focus Market Scheme.


The commerce and industry ministry has announced several initiatives as part of the annual supplement to the foreign trade policy that are aimed at pushing exports. During the fiscal 2012-13,exports declined by 1.76% to $300.6 billion and pushed up the trade deficit to $190.91 billion. The highlights of the announcement are:

Reviving investors’ interest in SEZs

* The minimum land area requirement has been reduced by half. For multi-product SEZs,the new threshold is 500 hectares as against 1,000 hectares and for sector-specific SEZs it is 50 hectares as against 100 hectares.

* For land tracts between 40-50 hectares,a graded scale for minimum land criteria has been introduced,which would permit an additional sector for each contiguous 50 hectare parcel.

* Greater flexibility to set up additional units in a sector-specific SEZ that would bring in related activities.

* The requirement of 10 hectares of minimum land area has been done away with for IT/ITeS SEZs.

* An exit policy has been introduced,where transfer of ownership of SEZ units,including sale is also allowed.

Zero Duty Export Promotion Capital Goods (EPCG) Scheme

* The zero duty EPCG and the 3% EPCG schemes is harmonised into one scheme — a zero duty EPCG scheme

covering all sectors.

* Authorisation holders will have export obligation of 6 times the duty saved amount to be completed in a period of 6 years.

* The period for import under the Scheme would be 18 months.

* Exporters who have availed benefits under Technology Upgradation Fund Scheme (TUFS) administered by the ministry of textiles,can also avail the benefit of zero duty EPCG Scheme.

* The import of motor cars,SUVs,all purpose vehicles for hotels,travel agents,or tour transport operators and companies owning/operating golf resorts will not allowed under the scheme.

Widening of Interest Subvention Scheme

At present,2% interest subvention scheme is available to certain specific sectors like handicrafts,handlooms,carpets,readymade garments,processed agricultural products,sports goods and toys. The scheme had been further widened to include 134 sub-sectors of engineering sector and would be available until March 31,2014.

Widening the Scope of Utilization of Duty Credit Scrip

Duty credit scrips issued under focus market schemes,focus product schemes and Vishesh Krishi Gramin Udyog Yojana (VKGUY) can be used for payment of service tax on procurement of services within the legal framework of service tax exemption notifications under the Finance Act,1994.

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