Category: Management Notes

Some of its major functions and activities are:

(a) Exchange Stability

The Fund is required to promote stability in the foreign exchange rates of its member countries. The Fund Agreement seeks to attain the exchange stability by requiring members to agree with the Fund suitable gold or dollar (U.S.) par values (connection with gold severed in January 1976) for their respective currencies, so as to create a system of stable exchange rates.

Each member of the Fund undertakes to establish and maintain the agreed par value for its currency, and to consult the Fund on any change in excess of 10% of the initial party. The Fund allows such alterations in exchange rates only for correcting fundamental disequili­brium in the balance of payments of the country concerned. But, now exchange values are no longer (since January 1976) determined in terms of gold, and so the IMF has ceased to have any direct impact on exchange values.

(b) Multinational Convertibility of Currencies

The Fund makes arrangement for the multinational convertibility of the currencies of the member coun­tries within the prescribed limits of the quota of each member. Since the Fund contains the currencies of all member countries, a member is entitled to purchase whichever currency it needs.

A member country can purchase foreign currencies every year up to 25% of its quota subject to the maximum limit of 200% of its quota. Thus, the Fund offers facilities to its members for additional liquidity.

(c) Assistance for Short-Term Payments Difficulties

The Fund makes its for­eign exchange resources available, under proper safeguards, to its members to meet short-term or medium-term payments difficulties.

(d) Promotion of International Trade

The Fund seeks to promote interna­tional trade by inducing member nations to avoid restrictive currency practices and barriers to trade, such as multiple exchange rates, exchange control, etc. The countries retaining exchange controls are required to justify them.

(e) Allocation of Special Drawing Rights

The Fund also supplements, as and when needed, the existing reserve assets of the participants in the Special Drawing Account. It also makes allocation from the Account to the member countries.

(f) Other Functions

Its other functions include international monetary reform, recycling of petro-dollars to the oil-importing countries, etc. Re­cently, the Fund has to introduce a series of measures like the sale of its gold reserve delinking of the par values of currency from gold, etc. for increasing the supply of international liquidity and promoting greater monetary co­operation among member countries.

Major Objectives of International Financial Institutions

The Fund has been established to achieve the following major objectives:

(a) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income;

(b) To promote exchange stability, to maintain orderly exchange arrange­ments among members, and to avoid competitive exchange depre­ciation;

(c) To assist in the establishment of multilateral system of payments in respect of current transactions between members and in the elimina­tion of foreign exchange restrictions which hamper the growth of world trade?

(d) To shorten the duration and lessen the degree of disequilibrium in the balance of payments of members; and

(e) To promote international monetary co-operation through a perma­nent institution.

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body.

UNCTAD is the part of the United Nations Secretariat dealing with trade, investment, and development issues. The organization’s goals are to: “maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis”. UNCTAD was established by the United Nations General Assembly in 1964 and it reports to the UN General Assembly and United Nations Economic and Social Council.

The primary objective of UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. The conference ordinarily meets once in four years; the permanent secretariat is in Geneva.

One of the principal achievements of UNCTAD (1964) has been to conceive and implement the Generalised System of Preferences (GSP). It was argued in UNCTAD that to promote exports of manufactured goods from developing countries, it would be necessary to offer special tariff concessions to such exports. Accepting this argument, the developed countries formulated the GSP scheme under which manufacturers’ exports and import of some agricultural goods from the developing countries enter duty-free or at reduced rates in the developed countries. Since imports of such items from other developed countries are subject to the normal rates of duties, imports of the same items from developing countries would enjoy a competitive advantage.

The creation of UNCTAD in 1964 was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations. The United Nations Conference on Trade and Development was established to provide a forum where the developing countries could discuss the problems relating to their economic development. The organization grew from the view that existing institutions like GATT (now replaced by the World Trade Organization, WTO), the International Monetary Fund (IMF), and World Bank were not properly organized to handle the particular problems of developing countries. Later, in the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO).

The first UNCTAD conference took place in Geneva in 1964, the second in New Delhi in 1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth in Manila in 1979, the sixth in Belgrade in 1983, the seventh in Geneva in 1987, the eighth in Cartagena in 1992, the ninth at Johannesburg (South Africa) in 1996, the tenth in Bangkok (Thailand) in 2000, the eleventh in São Paulo (Brazil) in 2004, the twelth in Accra in 2008, the thirteenth in Doha (Qatar) in 2012 and the fourteenth in Nairobi (Kenya) in 2016.

Currently, UNCTAD has 195 member states and is headquartered in Geneva, Switzerland. UNCTAD has 400 staff members and a bi-annual (2010–2011) regular budget of $138 million in core expenditures and $72 million in extra-budgetary technical assistance funds. It is a member of the United Nations Development Group. There are non-governmental organizations participating in the activities of UNCTAD.

Membership in the United Nations Conference on Trade and Development (UNCTCAD)

As of May 2018, 195 states are UNCTAD members: all UN members plus UN observer states Palestine and the Holy See. UNCTAD members are divided into four lists, the division being based on United Nations Regional Groups with six members unassigned: Armenia, Kiribati, Nauru, South Sudan, Tajikistan, Tuvalu. List A consists mostly of countries in the African and Asia-Pacific Groups of the UN. List B consists of countries of the Western European and Others Group. List C consists of countries of the Group of Latin American and Caribbean States (GRULAC). List D consists of countries of the Eastern European Group.

The lists, originally defined in 19th General Assembly resolution 1995 serve to balance geographical distribution of member states’ representation on the Trade Development Board and other UNCTAD structures. The lists are similar to those of UNIDO, an UN specialized agency.

The most recent member are the Palestinians.

The full lists are as follows:

(1) List A (100 members): Afghanistan, Algeria, Angola, Bahrain, Bangladesh, Benin, Bhutan, Bosnia and Herzegovina, Botswana, Brunei Darussalam, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, China, Comoros, Côte d’Ivoire, Republic of Congo, Democratic Republic of Congo, Djibouti, Egypt, Equatorial Guinea, Eritrea, Eswatini, Ethiopia, Fiji, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, India, Indonesia, Iran, Iraq, Israel, Jordan, Kenya, Kuwait, Laos, Lebanon, Lesotho, Liberia, Libya, Madagascar, Malawi, Malaysia, Maldives, Mali, Marshall Islands, Mauritania, Mauritius, Micronesia, Mongolia, Morocco, Mozambique, Myanmar, Namibia, Nepal, Niger, Nigeria, North Korea, Oman, Pakistan, Palestine, Palau, Papua New Guinea, Philippines, Qatar, South Korea, Rwanda, Samoa, Sao Tome and Principe, Saudi Arabia, Senegal, Seychelles, Sierra Leone, Singapore, Solomon Islands, Somalia, South Africa, Sri Lanka, Sudan, Syria, Thailand, Timor-Leste, Togo, Tonga, Tunisia, Turkmenistan, Uganda, United Arab Emirates, Tanzania, Vanuatu, Viet Nam, Yemen, Zambia, Zimbabwe.

(2) List B (31 members): Andorra, Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Holy See, Iceland, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, New Zealand, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

(3) List C (33 members): Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, Venezuela.

(4) List D (24 members): Albania, Azerbaijan, Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Montenegro, Poland, Moldova, Romania, Russia, Serbia, Slovakia, Slovenia, Macedonia, Ukraine, Uzbekistan.

Not assigned countries (6 members): Armenia, Kiribati, Nauru, South Sudan, Tajikistan, Tuvalu.

Other states that do not participate are Cook Islands, Niue, and the states with limited recognition.

The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966, which is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines. The company also maintains 31 field offices around the world to promote social and economic development in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries. From 31 members at its establishment, ADB now has 68 members.

The ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions. ADB releases an annual report that summarizes its operations, budget and other materials for review by the public. The ADB-Japan Scholarship Program (ADB-JSP) enrolls about 300 students annually in academic institutions located in 10 countries within the Region. Upon completion of their study programs, scholars are expected to contribute to the economic and social development of their home countries. ADB is an official United Nations Observer.

As of 31 December 2016, Japan holds the largest proportion of shares at 15.677%, closely followed by United States with 15.567% capital share. China holds 6.473%, India holds 6.359%, and Australia holds 5.812%.

Functions of the Asian Development Bank (ADB)

1. Economic and Social Advancement

This bank has a membership program under which there are various benefits available for the members’ countries.

These benefits include providing loan and investment at a concessional rate. One of the functions of the ADB is to provide loans and equity investments for the economic and social upgrade of developing member countries.

2. Technical Assistance

Most of the countries require a lot of services like advisory services. Moreover, they while operating at the international level, most of the countries require technical support too.

One of the functions of the Asian Development Bank is to provide technical assistance for the preparation and implementation of development projects and advisory services.

3. Investment Promotion

Firstly, the Asian Development Bank provides a lot of services to the member countries in the form of investments. At the same time, they also provide some specific sort of investment facilities for development purposes.

4. Support in Policies and Plans

Plans and policies play an important role in any country. There are various domestic agencies providing help to the authorities while framing various policies.

But there is a need for some international agencies at the same time for the same function. One of the main functions of the ADB is to provide help to the member countries in framing policies and plans at the international level.

Objectives of the Asian Development Bank (ADB)

• Firstly, its objective is to help the member countries in countering poverty. Hence, it helps them in poverty reduction and country development.
• If both the social as well as the economic aspects of a country is rising, then it leads to economic growth. One of the objectives is to help the countries to go towards economic growth.
• Thirdly, their objective is to support human development.
• Moreover, they believe in preserving and protecting the environment.
• Lastly, they work and wish to continue working towards empowering women and improving their status in society.

Organization of Asian Development Bank (ADB)

The highest policy-making body of the bank is the Board of Governors, composed of one representative from each member state. The Board of Governors, in turn, elect among themselves the twelve members of the Board of Directors and their deputies. Eight of the twelve members come from regional (Asia-Pacific) members while the others come from non-regional members.

The Board of Governors also elect the bank’s president, who is the chairperson of the Board of Directors and manages ADB. The president has a term of office lasting five years, and may be reelected. Traditionally, and because Japan is one of the largest shareholders of the bank, the president has always been Japanese.

The current president is Masatsugu Asakawa. He succeeded Takehiko Nakao on 17 January 2020, who succeeded Haruhiko Kuroda in 2013.

The headquarters of the bank is at 6 ADB Avenue, Mandaluyong, Metro Manila, Philippines, and it has 31 field offices in Asia and the Pacific and representative offices in Washington, Frankfurt, Tokyo and Sydney. The bank employs about 3,000 people, representing 60 of its 67 members.

History of Asian Development Bank (ADB)

ADB was conceived amid the postwar rehabilitation and reconstruction of the early 1960s. The vision was of a financial institution that would be Asian in character and foster economic growth and cooperation in the region then one of the poorest in the world.

A resolution passed at the first Ministerial Conference on Asian Economic Cooperation held by the United Nations Economic Commission for Asia and the Far East in 1963, set that vision on the way to becoming reality.

The Philippines capital of Manila was chosen to host the new institution, the Asian Development Bank which opened on 19 December 1966, with 31 members to serve a predominantly agricultural region. Takeshi Watanabe was the first President.

For the rest of the 1960s, ADB focused much of its assistance on food production and rural development. The next three years saw ADB’s first technical assistance, loans (including a first on concessional terms in 1969) and bond issue (in Germany).

In 1970s

Assistance expanded in the 1970s into education and health and then to infrastructure and industry. The gradual emergence of Asian economies in the late 1970s spurred demand for better infrastructure to support economic growth. ADB focused on improving roads and providing electricity.

When the world suffered its first oil price shock, ADB shifted more of its assistance to support energy projects, especially those promoting the development of domestic energy sources in member countries.

Co-financing operations began to provide additional resources for ADB projects and programs. 1970 saw ADB’s first bond issue in Asia worth $16.7 million in Japan.

A major landmark was the establishment in 1974, of the Asian Development Fund to provide concessional lending to ADB’s poorest members.

At the close of the decade, some Asian economies had improved considerably and graduated from ADB’s regular assistance.

In 1980s

It was also becoming clear that the private sector was an important ally in driving growth. ADB thus in the 1980s made its first direct equity investment. ADB also began to use its track record to mobilize additional resources for development from the private sector.

In the wake of the second oil crisis, ADB continued its support in the 1980s to infrastructure development, particularly energy projects. ADB also increased its support to social infrastructure, including gender, microfinance, environmental, education, urban planning and health issues.

In 1982, ADB opened its first field office, a Resident Mission in Bangladesh to bring operations closer to their intended beneficiaries. Later in the decade, ADB approved a policy supporting collaboration with non-government organizations to address the basic needs of disadvantaged groups in its developing member countries.

In 1990s

The start of the 1990s saw ADB begin promoting regional cooperation, forging close ties among neighboring countries through an economic cooperation program.

In 1995, ADB became the first multilateral organization to have a Board-approved governance policy to ensure that development assistance fully benefits the poor. Policies on the inspection function, involuntary resettlement and indigenous peoples designed to protect the rights of people affected by a project were also approved.

ADB’s membership, meanwhile, continued to expand, with the addition of several Central Asian countries following the end of the Cold War.

But in mid-1997, a severe financial crisis hit the region, setting back Asia’s spectacular economic gains. ADB responded with projects and programs to strengthen financial sectors and create social safety nets for the poor. ADB approved its largest single loan-a $4 billion emergency loan to the Republic of Korea and established the Asian Currency Crisis Support Facility to accelerate assistance.

A milestone came in 1999 when, recognizing that development was still bypassing so many in the region, ADB adopted poverty reduction as its overarching goal.

Into the 21^st Century

The new century brought hope and tragedy, as well as a new focus on helping its developing members achieve the Millennium Development Goals and to enhance development effectiveness.

In 2003 saw severe acute respiratory syndrome (SARS) hit the region, making it clear that fighting infectious diseases was a public good that required regional cooperation. ADB began providing support at national and regional levels to help countries more effectively respond to HIV/AIDS and the growing threat of.

ADB had to respond to other unprecedented natural disasters, committing more than $850 million for recovery in areas of India, Indonesia, Maldives and Sri Lanka hit by the Asian tsunami disaster of December 2004 and a $1 billion line of assistance to help victims of the October 2005 earthquake in Pakistan.

As 2007 drew to a close, ADB celebrated 41 years of fruitful cooperation with the governments and peoples of the Asia and Pacific region, looking back on phenomenal economic growth in the region alongside abiding development challenges.

Now in 2008, it is looking to the future with its Strategy 2020 that will determine the organization’s future direction and vision for the next dozen years.

As you know finance plays prime role in any business, even in Export also. Each exporter of any country is highly supported by the government in all means to earn foreign exchange, one of the major indicators of wealth of nation.

Some of the export financial assistance provided by government agencies to promote export business. These financial assistance to exporters varies from country to country depends up on their policy adopted time to time. However most of countries extend a good financial support to exporters to earn foreign exchange from other countries to strengthen each country’s foreign exchange reserves, in turn financial strength.

Some of the major benefits supported by government are given below. These financial benefits to exporters may vary from country to country. I provide below the following financial benefits in general. You may cross check with your government authorities to get authenticated information. These details of financial assistance to exporters are given to let you know an idea on ‘how government supports exporters in assisting financial support’.

Finance up to 90% of FOB value of exports

Financial support to exporters up to 90% of FOB value of exports are provided by most of the banks based on the instruction of government to boost exports. Some of the banks extend a financial support of 100% export value, with a narrow interest rate fixed by government time to time.

Interest rate as low as below 6% per year

Most of the banks provide financial assistance to exporters with a low interest rate as 6% per annum. This rate of interest is very nominal which helps exporters to procure materials, packing or for other export related purposes.

Credit period up to 270 days

Extending credit period up to 270 days is one of the supports under financial assistance to exporters by government through authorized bank. A credit of almost 10 months is a good period for an exporter with least rate of interest on financial assistance to help him to utilize this fund for export purpose. During this period of 270 days, an exporter can procure material, export, and collects his amount of sale of exports to repay such loan amount.

Pre shipment finance – Packing credit

Packing credit is one of the other financial assistance to exporters provided by bank. Getting financial assistance before shipment of goods is a great help for any exporter is concerned. Here, an exporter can avail finance before shipment which is called Packing Credit. Packing credit is pre shipment financial assistance to exporters allotted by banks on the basis of export stocks available for exports. The exporter has to produce copy/original of necessary export orders along with the details of stocks available for exports. The bank authorities inspect the exporter’s premises and collect data of such stock ready for export and assess the value. Based on such valuation of stock, the exporter is allotted packing credit loan by banks with a very narrow interest rate.

Short term credits

Exporters are also eligible to avail financial assistance in the form of short term credits from authorized banks. Short term credits are provided by banks on the basis of instructions provided by government time to time to help exporters to meet their financial requirements.

Post shipment finance – Bill discounting/Bill Negotiation etc

Financial assistance to exporters after exports in the form of Bill discounting/negotiation is provided by banks with a low interest rate. This financial support also helps exporters to procure/manufacture new products for exports for next export consignment. Once after completing the procedures of an export consignment, the exporter submits all required documents to send to overseas buyer. If the export sale contract between buyer and seller is on credit basis, normally the export bills are sent to buyer for collection of payment on maturity date, mutually agreed. When submitting such documents, if the exporter requires finance for upcoming export consignments, he can apply for post shipment finance by discounting of export bills already exported. In the case of Letter of credit, negotiation procedures are followed to avail post shipment finance.

In short, as per government’s policy, no exporter should suffer for want of funds to export goods. Most of the government supports up to 90% of FOB value of goods with very least rate of interest up to 270 days. This is a great chance for any business man to be attracted to earn foreign exchange.

Agricultural and Processed Food Products Export Development Authority (APEDA) is an apex body under the Ministry of Commerce and Industry, Government of India, responsible for the export promotion of agricultural products.

The Agricultural and Processed Food Products Export Development Authority (APEDA) was established by the Government of India under the Agricultural and Processed Food Products Export Development Authority Act passed by the Parliament in December, 1985. The Act (2 of 1986) came into effect from 13th February, 1986 by a notification issued in the Gazette of India: Extraordinary: Part-II [Sec. 3(ii): 13.2.1986). The Authority replaced the Processed Food Export Promotion Council (PFEPC)

At present, APEDA, an autonomous body under the commerce department, is responsible for export promotion and development of 14 agricultural and processed food product groups besides monitoring the import of sugar. India’s exports in 2018-19 were $331 billion of which those under APEDA were $18.8 billion.

In a recent meeting, the commerce ministry asked the industry associations whether product-specific export promotion councils for processed food were required to boost exports, said persons in the know.

A representative of an association who was part of the meeting in the commerce ministry on Moday said that the government is keen to increase exports from the country and is looking at different mechanisms. Most of the discussions are in initial stages, he said.

The Indian Dairy Association, Soyabean Processors Associations and the All India Dal Mill Association said that they are in favour of more export promotion councils, while the All India Rice Exporters’ Association and All India Meat and Livestock Exporters Association favoured status quo, he said.

“Higher minimum support price of agri commodities in India is making it unviable for us to compete in the international market and we all are looking at export subsidy from the government,” said a president of an agri trade association.

An Export Processing Zone (EPZ) is a Customs area where one is allowed to import plant, machinery, equipment and material for the manufacture of export goods under security, without payment of duty. The imported goods are subject to customs control at importation, through the manufacturing process, to the time of sale/export, or duty payment for home consumption.

Q: Who is the licensing authority for EPZs?

EPZs are licensed by the Ministry of Trade in the different Partner States.

Q: What are the importation procedures followed by an importer in the EPZ? (Reg. 169)

The importer should:

• Make a declaration of the imported goods in the prescribed Form C17
• Execute a security bond using Form CB4. The bond secures the duty amount that would have otherwise been payable at the time of importation. The bond also takes care of the taxes due in the event the goods are consumed elsewhere other than the EPZ or disposed off in the domestic market without authority
• Present the imported goods together with Form C17 to the proper officer in charge of the EPZ for receipt and deliveries recording
• Provide examination facilities within the EPZ where imported goods are examined or verified. The Commissioner may on reasonable grounds direct a Customs officer to carry out examination of the goods at the port of entry.

Q: Who keeps records of goods that go in or out of the EPZ? (Reg. 170)

• An operator of an enterprise within an EPZ shall maintain stock records of the raw materials and the finished products in a monthly return register and produce the same for inspection by a Customs officer as requested and on a monthly basis before the fifteenth day of the following month.
• If goods are found missing on inspection, the operator shall be liable to a penalty equivalent to twice the amount of duty payable.

Q: What are the export procedures followed by an operator in the EPZ? (Reg. 171)

• Goods intended for exportation from EPZ should be entered using Form C17
• A bond for the removal of goods from an EPZ to the port of exportation shall be executed using Form CB4
• The goods together with a copy of the export entry shall be taken to the port of exportation. If the seals placed by the EPZ officer have been tampered with, re-examination of goods shall be done by the Customs officer at the border.
• A certified copy of Form C17 confirming that exportation of the goods has taken place shall be given to the owner for the purposes of security bond cancellation.

Q: What are the procedures followed when moving goods from one EPZ to another (Reg. 172)

• Enter the goods to be moved from one EPZ to another EPZ using Form C17
• Execute a bond for the movement of goods from one EPZ to another EPZ using Form CB4
• Obtain a certified/endorsed copy of Form C17 from the officer at the receiving EPZ for the purposes of bond cancellation
• If the movement of goods is within the EPZ, the person in charge of an enterprise shall inform the proper officer of such movements of goods.
• Execute a Security bond using Form CB4

Q: What are the procedures followed when moving plant and machinery from an EPZ to any other area? (Reg. 173)

• Plant, machinery and equipment may be removed for repair, servicing or maintenance, from an EPZ to a Customs territory this seems to be incorrect, where they shall be accorded temporary importation facilities and shall be entered using Form C17.
• The form used to execute a security bond in respect of the plant, machinery and equipment, is Form CB10.

Q: What is the procedure for waste disposal and destruction? (Reg. 175)

• Waste disposal or destruction may be carried out within an EPZ under the supervision of the Customs officer. A certificate of destruction must be issued thereafter by the officer.
• Normal import procedures are to be applied for waste that the importer may wish to sell in the home market.

Q: Are there specific conditions when transporting EPZ goods (Reg. 177/178)

Goods shall be transported in sealed vehicles, except those of exceptionally heavy or bulky objects authorized by the Commissioner. Small packages and samples may be transported in any vehicle, in locked boxes made of steel, sealed by the Customs.

A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country’s national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI). The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive. In some countries, the zones have been criticized for being little more than labor camps, with workers denied fundamental labor rights.

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country’s typical economic laws. Usually the goal is to increase foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North Korea has also attempted this to a degree.

SEZ in India

At present there are eight functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (Uttar Pradesh) in India. Further an SEZ in Indore (Madhya Pradesh) is now ready for operation.

In addition 18 approvals have been given for setting up of SEZs at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (UP), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur (Rajasthan) on the basis of proposals received from the state governments.

State governments will have a very important role to play in the establishment of SEZs. Representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

Are SEZ’s controlled by the government?

In all SEZs the statutory functions are controlled by the government. Government also controls the operation and maintenance function in the seven central government controlled SEZs. The rest of the operations and maintenance are privatised.

Are SEZs exempt from labour laws?

Normal labour laws are applicable to SEZs, which are enforced by the respective state governments. The state governments have been requested to simplify the procedures/returns and for introduction of a single window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

Who monitors the functioning of the units in SEZ?

The performance of the SEZ units are monitored by a unit approval committee consisting of development commissioner, custom and representative of state government on an annual basis.

What are the special features for business units that come to the zone?

Business units that set up establishments in an SEZ would be entitled for a package of incentives and a simplified operating environment. Besides, no license is required for imports, including second hand machineries.

Will it be possible to supply to other units in SEZ?

Yes. Inter-unit sales are permitted as per the SEZ policy. A buyer procuring from another unit pays in foreign exchange.

How do SEZs help a country’s economy?

SEZs play a key role in rapid economic development of a country. In the early 1990s, it helped China and there were hopes (perhaps never very high ones, admittedly) that the establishment in India of similar export-processing zones could offer similar benefits — provided, however, that the zones offered attractive enough concessions.

Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red tape and strict labour laws. To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine. India’s goods exports in 2004 were an estimated $68 bn compared with $594 bn for China, and the stock of inward FDI, at $42 bn, was less than a tenth of China’s $544 bn.

Real-World Example

In the case of China, mainstream economists agree that the country’s SEZs helped liberalize the once traditional state. China was able to use the SEZs as a way to slowly implement national reform that would have been otherwise impossible. Studies have also found that SEZs elsewhere increase export levels for the implementing country and other countries that supply it with intermediate products. However, there is a risk that countries may abuse the system and use it to retain protectionist barriers in the form of taxes and fees. SEZs also create an excessive bureaucracy that funnels money away from the system, which makes it less efficient.