CHAPTER 4

EXPORT PROMOTION-II
(SPECIAL SCHEMES)

EXPORT HOUSES, TRADING HOUSES,

-STAR TRADING HOUSES,
SUPER STAR TRADING-HOUSES

- EXPORT PROCESSING ZONES

100% EXPORT-ORIENTED UNITS

 EXPORT PROMOTION-II

EXPORT HOUSES

Export Houses were first mooted in 1958, were starred

in I960, and the policy was reviewed quite frequently in the
initial years. The initial resolution of Sept. 1, 1962
constituting Export Houses stipulated that they should be
specially constituted public limited companies with no
shareholder holding more than 10% shares. Companies were
required to promote the exports of non-traditional produces,
to new markets. They were to have Government auditors and
Government nominees.The scheme was revised in 1965. An
export performance of Rs 10 lakhs per annum of non-
traditional commodities was necessary for recognition.

The object of the scheme 1 of export houses was_ to

allow some incentives and facilities to eligible recognised
export houses. The attempt was to strengthen export houses
to be able to negotiate with buyers abroad, to enable them
to build up an enduring relationship between them and their
supporting manufacturers. It was also felt that they should
be helped to fulfil the need to keep their supporting
manufacturers supplied with imported raw materials, and to
develop strong linkages with cheir counterparts in overseas
markets. The scheme derived its inspiration from the
sogashoshas~ of Japan, which had grown to be big
organisations which had the clout to make large-scale
imports, and to provide support for exports. They were able
to charter whole vessels for carrying exports. The freight
costs were consequently very economical.

1975-76

The criteria for selection of export houses were:

(1) A minimum export turnover of at least. Rs. 50 lakhs of
non-traditional products or Rs. 3 crores of traditional
products per annum.
(2) Merchant exporters, as well as manufacturer exporters
were eligible for recognition.
(3) Export houses were to draw up an action programme for
the export of a wide range of products in consultation with
the Government.

120
(4) The recognition was allowed for 3 years, provided the
conditions were fulfilled each year.
(5) Small-scale units could set up consortia with a minimum
collective export performance of Rs. 25 lakhs.

The Export Houses were expected to establish better

links with their supporting manufacturers and to be able to
supply them imported raw materials from ready stocks
required for export production. They were eligible for

(i) initial/supplementary import licenses for the import of

raw materials, components and spares.
(ii) import replenishment licenses against their own imports
{iii)replenishment licenses transferred to them by
registered exporters and were obliged to export four
times the value of the transferred license.

For products of the SSI sector, the eligibility

criterion was exports of Rs. 25 lakhs or at least 15% of the
total f.o.b. value of exports. SSI exports were given double
the weightage while calculating the exports. A Working
Group was set up by the Government to review the scheme for
Export Houses. A revised scheme was introduced with effect
from 1-4-1976.

1976-77

In the revised scheme, while the limits were kept at

Rs. 50 lakhs for "select products" and Rs. 3 crores for
"non-select products", for small-scale manufacturing export
houses and a consortia.of small-scale units, the limits were
Rs. 25 lakhs (FOB) for "select" products and Rs. 2 crores
for "non-select" products. The annual average for the
previous 3 years was to be taken, provided that the ..export
figure was not "nil" in any year. Further the minimum
eligibility criteria had to be met at least during 2
consecutive years.

The nature of the "select list of Export Products"

as notified in the Import Policy for the year was below:-
1.Engineering goods-Engineering goods and ferro-alloys
2.Chemicals, plastics and allied products-Chemicals and
allied products, which included inorganic chemicals,
drugs and dyes, culinary oleo resins, refractories and
 plastics and linoleum products
3.Leather and sports goods- Finished leather and leather
manufactures and sports goods
4.Food,agriculture and forest products-Tea, meat and allied
products, processed foods, fruits, vegetables
5.Textiles-including carpets, woollen fabrics, cotton
garments natural silk fibres, hosiery, and synthetic fabrics
6.Gem and Jewellry-Cut and polished diamonds, precious and
semi-precious stones
7.Handicrafts- handicrafts and cut and polished granite
8.Miscellaneous-including fabricated mica and processed
ores

Only direct exports and indirect exports effected as

an associate of the STC were counted. Direct experts meant
that the export order or contract, the bank certificate, the
letter of credit and the invoice had to be in the name of
the export house. Project exports including those for
turnkey projects abroad, consultancy and- collaboration fees
were also counted as exports for calculting the eligibility
criteria. An export Houses was expected to have a minimum
export performance as indicated in Table 4.1 below:

Table 4.1

Minimum
No | Product Group j Export performance
1 | (Rs./ lakhs)
1 1
1-1 Engineering Groups 1 15
2 • 1 Chemical & Allied Products 1 15
3-1 Plastic Sc Linoleum Products 1 io
4 . | Leather manufacturers | 10
5-1 Sports 3oods | _. 10
6. | Canned & Frozen Fish | 10
7- I Processed Foods | 10
8. | Handicrafts 1 10
9- I Tobacco Products I • 10
10 . | Readymade garments other than | 10
| garments of natural silk 1
11. | Natural silk fabrics garment 1 10
12 . | Embroidered fabrics 1 10
.1
Source:Import Trade Control Policy, (1976-77)

122.
(iii)import replenishment licences transferred to them under
the import policy for Registered exporters.

In order to promote small scale units to consolidate

their efforts in the export field, these units were
permitted to set up consortia of their own to organise sales
of their products abroad.

1978 79
-

Following the recommendations of the Alexander

Committee, the scheme was slightly revised.

The Alexander Committee recognised the importance of

the role of export houses in providing a wide range of
export services. For the first time Additional licences were
allowed. The entitlement was calculated at 1/3 of the f.o.b.
value of exports of SSI-manufactured "select products" made
in 1977-78 and 5% of the f.o.b. value of exports of non-SSI
"select products". Restricted items could be imported
subject to a single item not exceeding Rs. 1 lakh.

The RE? entitlement of export houses did not have upper

ceiling or an export oblrgation. The ceiling for release of
foreign exchange for export houses- for promotional purposes
was raised from Rs 1 lakh to Rs. 5 lakhs or 2.5% of the
f.o.b. value of exports. Export houses were also allowed to
import items on OGL for stock and sale.

1979 80
-

Government had appointed a Committee3 to review the

role and working of the Export Houses scheme. Changes were
made to strengthen the negotiating capacity of Export Houses
in foreign rrade. Also an enduring relationship was enabled
to be built up between the export houses and the supporting
manufacturers. The export of products carrying import
replenishment rates of more than 50% would not .qualify for
the grant of Additional Licences to eligible Export Houses.
The value limit of Rs. 2 lakhs per item to be imported
against Additional Licences was to be raised to Rs. 5 lakhs,
where the item was used by the Export Houses for manufacture
cf their export products. Diversification of exports within
the same product group was one of the criteria for the grant

124
of Export House Certificate. Export Houses were also to send
their detailed schemes and action programme of exports, and
quarterly and annual returns of the exports effected. For
renewal of the Export House Certificate, an annual average
growth of at least 2 0% in the 3 year base period was
required, provided, there was no "nil" export in any of the
3 years of the base period. 10% growth rate was allowed for
large-scale Export House with a volume of Rs. 10 crores and
Re 1 crore for small-scale units.

1980 81
-

The policy remained basically the same. Export

Houses whose annual export performance were not less than
Rs. 5 crores were allowed IRMAC facilities. The value of the
Additional License, was to be calculated at 33 1/3% of the
f.o.b. value of the exports of Select Products manufactured
by the small scale and cottage industries plus 7 1/2% of the
f.o.b. value of other exports of Select products made in the
same year. All such Additional Licences were to be non-
transferrable.

The foreign exchange limit for promotional activities

was raised to 2.5% or a maximum of Rs. 7.5 lakhs. Export
Houses were granted the following facilities:
(i) REP licences to which they were eilgible as registered
exporters, (ii) REP licences transferred to them by others,
(iii)Import of items on OGL. (iv) Additional licences and
(v) REP licences allowed for their exports.

1981 82
-

Following the report of the Tandon Committee, the

annual average f.o.b. value of exports for Export Houses in
the prescribed base period of Select products was not to be
less than Rs. 1 crore and for Non-select products, Rs. 5
crores. For small-scale units the figure was Rs. 25 lakhs
and Rs. 2 crores respectively. The Committee recommended the
establishment of a new category of Trading Houses.

.-The following criteria were laid out for eligibility

as a Trading House:
An annual turnover exceeding Rs. 15 crores
A 5 year record

IIS’
 Record o£ new products and markets
International marketing standards
It should extend technical, financial, marketing,
franchising facilities and upgradation of products.
The list of select products had 3 sets of additional
items compared to the earlier list.

The concept behind the new scheme of recognition of

Trading Houses lay in the objective of the scheme, to
develop new products and new materials for export,
particularly, from the small-scale and cottage industry
sectors. Eligible export houses were also to have facilities
for testing and quality control.

Accordingly in 1981-82, Trading Houses had to have

minimum annual exports of Rs.10 crores of "select" products.
These exports were expected to include SSI exports to the
extent of 10%. The Trading Houses were also to undertake a
minimum growth of 15% over 3 years. They were also expected
to add adequate financial and technical resources, specially
with quality control.

Both Export Houses of annual performance exceeding Rs.

E crores and Trading Houses were allowed IRMAC licenses
(Industrial Raw Materials Assistance Centre) to-enable them
to supply raw materials and components to Actual users
against licences.

For export houseswhichwere non-SSI, Additional

licenses were allowed at 15% of the f.o.b. of "select
products" made by SSI units + 7 1/2% of select products made
by others. For SSI units it was 33 1/3% of the f.o.b. value
of "select products" made by SSI units + 7 1/2 of the f.o.b.
value of exports of "select products" by others (App 22, Pg
212). These Additional licenses were non-transferrable. For
Trading Houses, Additional Licences were allowed at 20% of
the f.o.b. value of SSI "select products" +71/2% of the
f.o.b. value of non-SSI "select products". Trading Houses
were given the facilities of imports of certain restricted
items.

For the grant of Additional Licenses, the net foreign

exchange earned was considered (i.e. the gross f.o.b. value
of exports minus the value of Advance/Special Imprest/

126
Imprest/REP licenses/Import-Export Pass Book. This was
calculated at 6% n.f.e. (for select products + 5% of the
f.o.b. value of products in the SSI sector. This was for
export Houses. For Trading Houses the formula was 10%
n.f.e. + 10% of f.o.b. value. The rest of the facilities
remained the same.

1982-83

The turnover criteria remained the same. Export of

fresh fruits/vegetables cut flowers and decorative plants
were included as "select products". Import of non-OGL
capital goods was allowed upto'Rs. 20 lakhs against REP
licences.

1983 84
-

The criterion for Export Houses was Rs. 2 crores

and Rs. 5 crores for non-select products. For- SSI Export
Houses the criterion was Rs. 50 lakhs and Rs. 2 crores.
Earnings from consultancy, erection charges, ship repair,
and net foreign exchange was counted towards "select
products" upto 10%.

For Trading Houses the figure was Rs. 10 crores of

select products spread over 3 product groups. At least 10%
of direct exports of small-scale units and 20% by way of
indirect exports of ancillary units was necessary for Export
Houses. Additional Licences were allowed at 10% of the
f.o.b. value of SSI select products and 5% for other
products. For Trading Houses, additional licences were
allowed at 20% of the f.o.b. + 7 1/2% of the f.o.b. value of
other "select product" exports.

1984 85
-

The eligibility criteria were made stricter. Now Rs.

3 crores of select products or Rs. 7 crores of , Non-select
products had to be exported. For SSI units, the criteria
remained the same. Exports of new products and/or to new
markets was to be given double weightage. The value of the
Additional Licences was reduced to 10% and 5%.

127
 In 1986, a workshop4 was conducted on the "Role of
Export Houses in developing exports from small and medium
enterprises." The report on the workshop studied the role
played by Export Houses in the various countries and also in
India. The need to expand both the product base and the
market for India's exports was percieved. It was also felt
that the small-scale sector in India had considerable export
potential, but lacked the resources to actualise their
export potential.

It was further recognised that between 1979-80 and

1981-81, the exports of export houses had averaged 35% of
India exports. In 1984-85, the 637 export houses generated
26.5% of Indian exports.- Out of these the 10 Trading Houses
(less than 2% of the total), were responsible for more than
one-third of the exports. Compared to this the sogashoshas 5
and 9 Korean. GTC's accounted for over 50% of Japanese and
Korean exports in 1982 and 1983. This indicates what a long
way our export houses/trading Houses had to go.

There was a feeling that the large numbers indicated

that there was not much selectivity. Consequently many ' of
the Export Houses did not have the capabilities and
expertise envisaged in an Export House. Some Houses resented
the compulsion to export the products of the small-scale
sector, and felt that the mandatory export requirement often
proved counter-productive. ' Sri Ram Khanna on the contrary
has pointed out^ that the larger manufacturers are in a
better position to use their direct selling efforts.

1985-88

The criterion for recognition of an export house for

the non-SSI sector was Rs. 3 crores for select products and
Rs. 7 crores for non-select products. For SSI houses the
limits were Rs.75 lakhs and Rs. 3 crores, respectively
subject to 50% of their exports being direct exports of
their manufacture. For Trading Houses the limit was Rs. 15
crores of f.o.b. of select products. These were to be
"direct" exports and spread over 3 product groups. The
criteria are shown in Table 4.2.

128
 Table 4.2

Criteria for recognition as Export Houses

Product | Non-SSI units | SSI units

1
Select | < Rs. 3 crores | Rs 75 lakhs
1
Non-Select | > Rs. 7 crores | Rs . 3 crores
1
Source:Import and Export Policy, (1985-88 )

These were to include at least 10% by way of direct

exports, or 20% by way of indirect exports of products
manufactured by ancillary units. The value of Additional
licences was to be calculated at 10 per cent of the n.f.e.
on total exports of select products plus 10% of the f.o.b.
value of select "SSI" and cottage-industry products.

Consortia of small-scale units could apply for a

certificate. Renewal of the export-house certificate was
done with an average growth rate of at least 20% during the
base period. This was based on the net foreign exchange
realised. “This was equal to the total f.o.b. value of
admissible exports minus the c.i.f. value of imprest
licences, REP licences and Import-Export Pass Books.

The value of Additional licences granted was calculated

at 6% of the net foreign exchange earned on total exports of
select products plus 5% of the f.o.b. value of exports of
select produces of small-scale units and cottage industries
for the previous year.

1988-91

In this policy the eligibility of grant of Export

House/Trading House Certificate was to be determined on the
basis of the Net Foreign Exchange Earnings (NFE) from the
exports made in the preceding 3 licensing years termed as
the "base period". The net foreign exchange earnings was
defined as the "Total f.o.b. value of admissible exports
c.i.f. value of imports through the Advance/Imprest
Licenses/Import-Export Pass Books.

I 29
 In order to avoid the selection of fly-by night
operators, in none of the 3 years of the base period could
the earnings be less than 25% of the minimum average "n.f.e.
on the total exports for the preceding year. For export
houses the eligibility was at Rs. 2 crores of net foreign
exchange earnings. For Trading Houses the eligibility
criterion was Rs 10 crores for the n.f.e. Additional
licences were granted at the rate of 10% of the n.f.e.
earnings on the total eligible exports made in the preceding
licensing year. For Export Houses/Trading Houses with rr.ore
than 10% growth annually the rate was 12%.

-Special 'REP licence- A Special REP licence was allowed

to those Advance Licence holders who completed their export
obligation. This was allowed at 10% of the value addition
achieved. The value of the REP licences was to be equal to
20 per cent of value addition for certain export products.

1990-93

A new Scheme of Star Trading Houses for exporters

exhibiting an exemplary performance on the export front, was
introduced. The objective of the Scheme of registration of
Star Trading House was to grant recognition and to extend
facilities to a select band of registered exporters with
outstanding export performance. As a recognition of the
importance of the Services Sector, these were counted
towards exports. Emphasis was placed on the diversity of
export produces by insistence that not more than 75% must be
from some export groups like Engineering Goods, Chemicals
and Allied Products, Textiles.

The criterion for Export Houses was further revised

to Rs '5 crores and to Rs 20 crores of the net foreign
exchange (nfe) for Trading Houses. The new category of Star
Trading Houses had an eligibility criterion of nfe of Rs. 75
crores. The exports were to be over a minimum cf two export
product groups. The figure for export houses was later
reduced to Rs. 4 crores.

Star Trading Houses were entitled to Special

Additional Licences at 15% of the nfe for import of
restricted raw materials and components. These were non-

130
transferrable. Export Houses/Trading Houses were eligible to
Additional Licences at the rate of 10% of. the nfe
earnings. This rate was 1.3%, where the House had a minimum
growth rate of 30%. Non-OGL capital goods upto Rs. 50 lakhs
were also allowed to be imported. The flexibility limits for
Additional License were increased to 15% in the case of
Export Houses and 20% in the case of Trading Houses. Several
items of imports were allowed within this flexibility.

A study undertaken by ICRIER estimated that on

31.3.1990, there were 1350 export houses and 156 trading
houses. The aggregate performance of these was assessed at
around Rs 16,868 crores and Rs 8,090 crores respectively.

1991-92

In July 1991, the threshold continued to be Rs.4

crores, Rs. 20 crores and Rs. 75 crores. On 3rd August 1991,
along with the major changes, the thresholds were revised
for Export Houses to Rs.6 crores, for Trading Houses to Rs.
30 crores and for Super Trading Houses to Rs. 125 crores.
From 1/4/1992, additional licences were abolished and export
houses, trading houses and star trading houses were to
receive additional Eximscrips at the rate of 5% of the
f.o.b. value of exports. Trading Houses were allowed to be
set up with 51% foreign equity for promoting exports. Such
trading houses were eligible for all benefits allowed to
domestic export and trading houses.

1992-97

With effect from 1st April 1992, the criterion for

recognition as Export Houses, Trading House or Star Trading
House was based on the average annual n.f.e. during, the 3
preceding years or the n.f.e. during the preceding year,
whichever is satisfied.(Table 4.3) This underwent a
modification and from 1st April 1994, the criterion for
recognition as Export House, Trading House, Star Trading
House or Super Star Trading House was allowed either on the
basis of the f.o.b. or n.f.e. value. This is as indicated in
Table 4.4.

131
 Table 4.3

Criteria for recognition based on nfe basis

1 1 Average n.f.e. | n.f.e. earned j

I ] earned in base | during the base |
1 1 period i.e. | period i.e. |
| Category | 3 preceeding | preceding |
1 * i licencing years | licensing years |
1 1 in Rupees. | in Rupees |
1 1 1
j Export Houses | 6'crores | 12 crores |
| Trading Houses | 30 crores | 60 crores |
| Star Trading | 125 crores | 150 crores |
| Houses. | 1
1 1 I
Source: Export and Import Policy (1992-97)

Table 4.4

Criteria giving recognition on f.o.b. or n.f.e basis

I f.o^b. I n.f.e-.
Category | value | criterion

|Average |Previous |Average | Previous

|of 3 yrs |licensing |of 3 yrs |licensing
| (Rs in |year (Rs |(Rs in | year (Rs
|crores) jin crores |crores) jin crores)
1 1
Export Houses | 10 1 15 1 6 1 12
I1 I1
Trading | 50 1 75 | 30 j 60
Houses | 1 | j
Star Trading 250 | 300 | 125 | 150
Houses 1 1
| 750 j 1000 | 400 | 600
Super Star
Trading | 1 1 |
Houses 1 1 1
1 1
Source: Import and Export Policy (1992-97)

133
 After the Rupee was devalued two times in 1991, the
were no Additional Licenses available for exports. The
number and value of Additional Licences issued from 1980-81
onwards are shown in Table 4.5.

Table 4.5

Number of Additional Licences granted and number yearwise

| Year j Number | Value |

of Licences | (Rs. in crores) |
1 ....1
|1980-81 | 1C 52 1 374 I
344 j
00
to
00

|
1

1209
H

j 331 j
1 82-83 I 1204
j 83-84 j [ 176
1132 |
j 84-85 j 1 117
817 - |
99 j
10
00
in

00

298 1
1

86-87 | 1 26 j
| 1038
189 j
CO

1
CO

CO

559
1

1 88-89 I | 522 |
1130
j 89-90 j j
1501 760 |
j 90-91 | 1 1010 |
1468
1 ........ 1.... 1
Source: Office of the D.G.F.T

The number and value do not form a pattern, or exhibit

any conclusive relationship. This appears to be due to the
fact that changes were done in the scheme of Export/Houses
from time to time.

The eligibility criterion for recognition as Export

Houses/ Trading Houses changed frequently. Consequently the
number of Additional Licences issued did not reflect any
definite trend, but fluctuated. Similarly, since the size of
Additional Licences also varied depending on the quantum of
imports allowed, the values also varied greatly.
 Table 4.6

Number of Export Houses and Trading Houses yearwise

1 | Export | Trading | Star |Super Star|

1 | Houses | Houses | Trading |Trading |
1 I 1 |Houses (Houses |
1 1 1 1 1 1
| Year of | 1960 | 1981 | 1990 | 1994 |
| establish- 1 1 1 1
| ment

1962-63 1• 70 1 1 1 1
1981-82 1 1176 1 4 1 •• 1 1
1 (1422)* | (5) * 1 1 1
1982-83 | | 1 1 1
j
(1768)* | (9) * | 1 1
1983-84 | 1 1 1 1
j
(1661)* | (8) * 1 1 1
1984-85 i 1 1 1 1
i (1395)* | (6) * | 1 1
1985-86 1 1 1 1 1
| (965)* | (6) * | | 1
1986-87 1 1 1 1 1
1 (822)* | (8) * | 1 1
1987-88 1 1C 3 3 | 103 1 1 1
i (871)* | (7) * 1 1 1
1 j 105 1 1 1
1988-89 1340
1 (1154)* | (101)* 1 1 1
j 162
1989-90 1 1440 | 1 1
j (160)*
| (1293)* | i 1
j j 168
1990-91 1255 1 4 1 1
| (1285)* | (176)* 1 1 1
j 137
1991-92 1 1201 1 9 1 1
j 128
1992-93 1 1159 1 18 1 i
j 157 j 15
1993-94 1 1371 1 1
1 (1270)* | (150)* | (14)* 1 1
1 j 220 | 22 1 4 1
1994-95 1594
1995-96 | 1 1 i 1
1 (1578)*| (258)* | (2) * | (6) * |
-1 1 ...................... 1 .1

Source: The figures in the first line refer to those from

FIEO Those in the second line with an asterisk
are from the Ministry of Commerce

I35-
 Table 4.6 indicates the yearwise break-up of Export
Houses, Trading Houses and Star Trading Houses. Two sets of
figures are available - one from the office of the CC(I&E)
and the second from the office of FIEO - the Federation of
Indian Exporters Organisation. This organisation is the
registering authority for export houses and Trading Houses.

There is very often a wide variation between these two

sets of figures. This is probably due to the fact that so
far as the office of the CC(I&E) is concerned, the figures
are probably collected from the data for those seeking
recognition or renewal. In the case of the FIEO, the figures
could presumably be based on registration certificates
issued, or statements of exports collected.
'k’k'k’k'k'k+c'kikie'k

I2>£
 EXPORT PROCESSING ZONES

Another important export promotion scheme was that

of (EPZs). In many developing countries, Export Processing
Zones(EPZs) were established with the two primary objectives
of promoting net foreign exchange earnings from manufactured
exports and generation of employment. EPZ's were recognised
as an effective instrument for export promotion in several
countries. They are different from Free Trading Zones, which
are free ports where entrepot trade is the exclusive
activity. Entrepot activity in itself does not involve
manufacturing activity, but generally comprises of imports
and then exports or re-exports. EPZ's are 'generally
associated with a degree of manufacturing or export
processing.

The Export Processing Zones are constituted as attached

offices, under the Ministry of Commerce, in the Government of
India. The Zones do not have uniform rules and policies
governing them, because different states have independent
control over local taxes, municipal laws and incentives for
different regions or types of industry.

The Indian EPZs have a 3-tier management structure. The

EPZ authority at the apex level, the Board of Approvals at
the middle level and the EPZ administration at the lccal
level. The EPZ authority is headed by the Secretary,
Ministry of Commerce, while the EPZ administration is
headed by the Development Commissioners. The Authority meets
frequently-thrice or more times a year and among other
functions, undertakes a review of the zone and coordination
of inter-departmental issues. The Boards include
representatives of relevant Ministries and represented the
attempt to institute a "single-window clearance" for all
issues pertaining to Zone operations.

India was the first country in Asia to set up an EPZ at

Kandla in 1965. The rationale of establishing EPZ's is that
export production was attempted to be achieved without
adjusting or transforming the regime of protection for
companies producing for the domestic market.

137
 The growth of the KFTZ over the years has been as shown
below in Table 4.7:

Table 4.7

Growth of exports in the Kandla Free Trade Zone

| Year No.of operational Total Total j

units exports employment j
(Rs in crores) 1
1 1
| 1975-76 23 2.19 650 |
j 1976-77 850 j
35 3.52
1200 j
| 1977-78 38 4.71
j 1978-79 1500 |
43 5.52
j 1979-80 2500 j
47 9.39
| 1980-81 54 25.51 4000 j
j 1981-82 5000- j
67 70.04
j 1982-83 7200 j
84 142.43
7000 j
| 1983-84 95 107.35
7000 j
| 1984-85 107 237.08
j 1985-86 8510 j
114 236.86
j 1986-87 8500 j
122 236.27
j 1987-88 8000 j
129 185.03
j
| 1989-90 - 338.20
j 1990-91 j
- 456.50
j 1991-92 |
- 427.20
j 1992-93 |
- 167.20
j 1993-94 9000 |
-
270.40
1 1
Source:Raj:v Kumar(1989)-Pages 76 & 194
Gupta S.P. -Page 176

The scheme aimed at developing physical infrastructure

which include developed industrial estates, built factory
premises and /or developed plots with supportive services
and utilities. The conducive administrative and customs
regime lent operational case. EPZs were expected to make up
the deficiencies which developing countries faced, of poor
institutional and physical infrastructure and capital
scarcity, lack of technical, managerial and international
marketing skills. The inherent advantages are low labour,
rental and raw-material costs. These deficiencies are made

I3S
up to a some extent in a limited area to boost exports,
generate employment, earn foreign exchange, and stimulate
foreign direct investment.

In the Kandla and the Santa Cruz Zones which were the
first two Zones to be established many more units were in
operation than in the recently established ones. However
the contribution of these Zones to India's export of
manufactures had been limited. It took nearly ten years for
the Kandla Zone to start exporting. Around 1986 over 110
production units were in operation, six of which were Trans
National Corporations. However about 50% of the Zone's
exports were produced by only ten units. Over 87% of total
exports were destined for the market of the former USSR.

The SEEPZ came into existence in 1975. The Santa Cruz

Zone of 100 acres was the only single product Zone in India.
It exclusively exported electronic products and components
such as computer electronics, peripherals and other
electronic components. Subsequently, attempts were made to
develop exports of consumer electronics and computer
software. A few units manufacturing gem and jewellery were
also established after August 1986. The area of the Zone
was subsequently expanded by 50 acres to house the 100%
Export Oriented Jewellery Complex. Two thirds of India's
exports of electronics are concentrated in this Zone.

The major export markets for SEEPZ were the Far East
(50%), the US (35%), Western Europe (10%) and the former
USSR and Eastern Europe (8%). Out of 59 electronic export
units in operation in the Zone, 25 were in collaboration
with foreign companies. However, initially one Indian
company contributed to 45% of the total exports from the
Zone. The performance of SEEPZ has been briefly outlined as
in Table 4.8, which is <jn the following page.

13 9
 Table 4.8

Growth of Exports in the Santa Cruz Electronic Export

Processing Zone

|Year No: of units Total exports Total employment!

| (in crores) |

| 1974-75 7 0.05 150

|1975-76 13 0.56 800
|1976-77 18 3.01 1500 i
j1977-78
23 4.06 1700
j1978-79
27 6.26 1800
j1979-80
33 11.15 2000
j1980-81 |
37 18.85 2500
|1981-82 39 29.62 2500
j1982-83
39 54.46 6740
j1983-84 j
51 88.62 6000
|1984-85 54 95.83 7000 1
|1985-86 59 84.48 7500
j1986-87
70 102.36 7500
j1987-88 j
74 110.14 8000
j1989-90 |
-
285.00 -

j1990-91
- - 389.90 -

j1991-92 - 500.20 -

j1992-93 1
-
821.60 -
|1993-94 136* 1558.50 -

Source: Rajiv Kumar(1989), pages 77 & 194

Gupta, S.PC1996)-Page 178

To improve the functioning of the Zone the Tandon

Committee Report on Export Processing Zones and the
Committee on Trade Policies made a series of
recommendations. Both the Committees stressed the need for
a single fully empowered commercially oriented
administrative body handling the total functioning of all
Zones. Both the Committees stressed the need to allcw
companies to sell 25% of their production to the domestic
market. The Tandon Committee also recommended a tax holiday
of ten years. Subsequently, a statutory High Powered
Authority was constituted to manage and control all the

140
Export Processing Zones.

The important incentives provided to companies

operating in the Zones were enhanced. These include 100%
foreign ownership units of joint ventures of foreign and
Indian companies with majority foreign equity, sale of 25%
to the domestic market, a five year tax holiday, exemption
from taxes on all capital goods and intermediate inputs
under the OGL scheme and exemption from import duties
continued while attempts were made to reduce delays and red-
tapism.
Table 4.9

Performance of New Zones

(Rs in crores)

1 1989-90 90-91 91-92 92-93 93-94 |

1 1
| Noida 51.9 46.6 72.1 146.8 107.4 - |
| Madras 29.6 61.3 122.5 163.3 200.2 j
| Cochin 11.0 5.5 28.6 62.2 81.8 j
| Falta 16.4 25.0 27.9 18.2 35.6 j
1 1
Source: Gupta, S .P.(1996)-Page 178

The contribution of the Export Processing Zones to the

total export of manufactures has however continued to be
limited. Subsequently a decision to create four new Zones
was taken in 1983. The two existing EPZs operated on their
own till 1983. In 1983, 4 more EPZs were established in the
states of Tamil Nadu, Kerala, West Bengal and UP. At Madras
(MEPZ), Cochin (CEPZ), Falta (FEPZ) and Noida (NEPZ)
respectively. All of them commenced production in 1986-87.,
In 1993, an EPZ was planned for Vishakapatanam in Andhra
Pradesh.

Except for NOIDA, all the EPZs are near the ports.
NOIDA is close to Delhi International Airport, and an inland
container depot. Despite all these efforts, the exports from
these Zones have not picked up in the manner in which it was
envisaged. The contribution of EPZ's between 1989-90 and
1993-94 to the economy is as below:

14-1
 Table 4.10

EPZ exports and their share in Indian exports

(Rs in crores)

| 1989-90 90-91 91-92 92-93 93-94 |

1

|EPZ exports 732 983 1177 1376 1958 |

|1
| Share of EPZ 2.64% 3.02% 2.67% 2.56% 2.82% |
| exports in 1
|Indian exports 1
1 1
Source: Gupta,S .P.(1996 )-Page 212, Table- 11.

This confirms the earlier findings, that the scheme

was -not a big success. EPZs in India accounted for only
Q
about 3% of India's total exports. In countries such as
Malaysia, the Phillipines or South Korea, these zones account
for over 40 percent of exports. According to a study carried
out by ICRIER, nearly one-third of the units of EPZs had
closed down between 1973 and 1985. This was beacause the
EPZs did not attract many foreign Companies, collaboration
deals, large Indian units or small units with marketing
skills.

100% EXPORT ORIENTED UNITS

This scneme was implemented in 1981 to provide duty­

free access to imports of all inputs for companies which
planned to effect the exports of all their produces and to
create a single point clearance with regard to industrial
licensing and foreign collaborations.

A company is required to fulfil three conditions for

eligibility as an Export Oriented Unit :

(a) Its output should be entirely exported;

(b) The domestic value addition should be 20% at least;
(c) The export production should be under Customs Bond for
ten years or five years for products facing rapid
technological change.

Sk.2.
 Initially, before the economic liberalisation in she
domestic area started, there was an attraction for companies
to operate under the scheme of Export Oriented Unirs.
However in reality the advantages enjoyed by EOUs were
limited. In particular, a disadvantage facing them was that
these units have to pay for the Customs Bond at the plant
site. From September 1986 onwards, EOUs were also allowed
to sell 25% of their sales in the domestic market.

Table 4.11

Exports from E.O.U's yearwise

Year Exports

| 1981-82 Rs. 10 crores |

| 1982-83 Rs. 38 crores |
| 1983-84 Rs. 59 crores |
| 1984-85 Rs. 104 crores |
| 1985-86 Rs. 131 crores |
| 1986-87 Rs. 291 crores j
| 1987-88 Rs. 245 crores |
j 1988-89 Rs. 460 crores |
1 1
Source:Annual Reports (1981 to 1989)/-Ministry
of Commerce

The scheme however was really never successful and an

increasing number of companies pleaded to 'be de-bonded. By
September 1985 although 453 companies held valid Letters of
Intent to become 100% EOUs, only 80 of them were reported to
be in production and exporting by the end of June 1985.
About 80% of the total exports of these companies were
generated by four units that exported bulk items such as
iron ore, charged chrome and minerals. The contribution of
Export Oriented Units to total exports was low and decreased
even further. Since the last five years, there has been a
steady increase in the ratio of exports from 100% e.o.u's,
as can be seen in Table- 4.12.

143
 Figure 4.12

Share of E.O.U's in India's exports

{Rs. in crores)

1989-90 1990-91 1991-92 1992-93 1993-94

Exports 577 697 1046 1940 2863

Share of EOD 2.08% 2.14% 2.37% . 3.61% 4.11%

| exports in |
| Indian Exports |
I—---------- 5--------------------------------------- 1
Source: Gupta , S.P. (1996)-Page 212-Tablell

There is a slight rise in the years 1992-93 and 1993-

94. However, it is not clear whether the rise took place
due to liberalisation as in the case of the domestic market,
or whether this trend would continue.

1992-97

In the 1992-97 policy, several improvements took

place. These included:
(i) Simplification of customs/excise procedures
(ii) Development Commissioners of EPZ's were delegated with
the powers of the Board of Approval to allow
expansion/broad banding; attestation of the list of
capital goods for import
(iii) Development Commissioners could also grant the units
the importer-exporter Code Number, Green Card and the
acceptance of legal undertakings.
(iv) Leasing of capital goods from domestic companies by
EPZ's/3.0.U's has been permitted.
(v)-The area of activity in EPZ's was extended to include
trading, re-export after labelling, repacking, repair,
reconditioning and re-engineering.

Several new measures have also been taken.

Industrial units set up in EPZ's,FTZ's and 100%E.0.U's~ have
been exempted from the purview of compulsory pre-shipment
inspection. Private bonded warehouses in EPZ's have been
allowed to sell in the Domestic Tariff Area.
 Government also permitted the development of Export
Processing Zones by the private, State or joint-sector. The
Inter-Ministerial Committee on private EPZ's cleared two
proposals for private EPZ's to be set up in Bombay and Surat
in 1994-95.10

Despite all the serious efforts made by the

Government of India, the contribution made by both EPZ's and
E.O.U's is quite low. Due to the economic liberalisation in
the Domestic Tariff Area, the comparative benefits available
to these units have gone down, as a result of which many
choose to go back and work in the domestic area. One reason
why the schemes have not been tremendously successful, is
due to the fact that they still suffer from a great deal of
handicaps, due to inadequate infrastructural support.
Notes

1. Sri Ram Khanna-(Page 374) writes that, "As between

Export Houses and non-Export-Houses, Export Houses have
proven to be a much better form of Export Promotion.
Export Houses fare better than non-Export Houses on
almost all important indicators of international
marketing efforts".
2. Tsurumi (1980)-Page 1-Sogoshoshas are percieved as the
engines of the export-led growth of Japan. The nine
sogashoshas in 1978 were Mitsubishi, Mitsui, C.Itoh,
Marubeni. Sumitomo, Nisho-Iwai, Kanematsu-Gosho, Tomen
and Nichimen
3. Jain Committee Report on Export Houses-(October 1979)
made some recommendations, which were then considered
by the Tandon Committee (1980)
4. Workshop on Role of Export Houses, published by Exim
~ Bank
5. ibid, Page 29,- The seminar also studied Export Houses
in India and the Government Policy. The
characteristics of the units and linkages with the
small-scale sector units was also studied
6. Khanna, Sri Ram Khanna- Page 349
7. Kumar, Rajiv (1989)-Page 19-His study concluded that
the economy can benefit from externalities it generates
only when the overall economic environment ' is also
being gradually more strengthened than diffused.
8. Sood, K. Page 112
9. Gupta, 3.P- in his book compares the role of Special
Economic Zones and Economic and Technological
Development Zones in the Economic Reform Programme of
China. In China, these Zones have resulted in areas of
accelerated economic growth.
10. Annual Report, (1994-95), Ministry of Commerce

ll+G