EPZ stands for Export Processing Zone. It is a designated geographical area within a country that is set up to promote exports by providing various incentives and facilities to businesses. The concept of EPZs originated in the 1960s, and India was one of the early adopters of this concept.
The objective of EPZs is to provide a conducive environment for businesses to operate by offering various incentives such as tax exemptions, duty-free imports, and simplified procedures. EPZs usually have a range of facilities such as custom-bonded warehouses, power supply, water supply, roads, and communication facilities.
In India, the first EPZ was set up in Kandla, Gujarat, in 1965. Over the years, several EPZs were established in different parts of the country. However, EPZs faced several challenges such as bureaucratic red tape, lack of infrastructure, and connectivity issues, which limited their potential to contribute significantly to India’s exports.
In 2000, the government of India introduced the Special Economic Zone (SEZ) policy, which aimed to address the shortcomings of EPZs and provide a more business-friendly environment for companies to operate in. SEZs are an evolved version of EPZs and have been more successful in promoting exports, attracting foreign investment, and generating employment opportunities.
Functions:
- To provide a conducive environment for businesses to operate by offering various incentives such as tax exemptions, duty-free imports, and simplified procedures.
- To create world-class infrastructure facilities such as custom-bonded warehouses, power supply, water supply, roads, and communication facilities.
- To encourage the growth of export-oriented industries by providing a range of facilities such as logistics support, access to skilled manpower, and technology transfer.
- To generate employment opportunities by attracting investments and creating a demand for skilled and unskilled workers.
Roles:
- To promote exports and increase foreign exchange earnings for the country.
- To attract foreign investment and facilitate the transfer of advanced technologies and best practices.
- To contribute to the economic growth of the country by creating a demand for goods and services and by generating employment opportunities.
- To promote balanced regional development by creating economic opportunities in underdeveloped regions.
Objectives:
- To increase exports and foreign exchange earnings for the country.
- To attract foreign investment and promote economic growth.
- To create employment opportunities for the people.
- To encourage the growth of export-oriented industries.
- To promote technology transfer and the use of advanced technologies.
- To create a business-friendly environment by providing various incentives and facilities.
The following are the criteria for an area to be designated as an EPZ:
- Proximity to a seaport, airport, or land border crossing point
- Sufficient land availability for industrial development
- Adequate infrastructure, including roads, water, and electricity supply
- A favorable business environment, including a simple and transparent regulatory framework, tax incentives, and flexible labor laws
- Access to a skilled workforce and training facilities
- Security and stability
Benefits of the EPZ policy include:
- Tax incentives: Companies located in EPZs are exempted from certain taxes, such as customs duties, value-added tax (VAT), and corporate income tax. This makes it more attractive for companies to invest and operate within the EPZ.
- Duty-free imports and exports: Companies in EPZs are allowed to import and export goods duty-free. This reduces their production costs and makes their products more competitive in international markets.
- Simplified procedures: EPZs have simplified and streamlined procedures for setting up a business, obtaining permits, and dealing with regulatory authorities.
- Infrastructure and services: EPZs offer world-class infrastructure and services, including reliable electricity supply, water supply, and telecommunications facilities. This ensures a conducive business environment for companies operating in the zone.
- Access to markets: Companies in EPZs can access new markets through export opportunities, as the policy encourages export-oriented production.
- Job creation: EPZs create employment opportunities for the local population, which contributes to the economic growth of the region and reduces poverty levels.