Module V

Economic Planning and Development

Planning in India: Needs and Objectives

Planning is a systematic process of setting goals and determining the actions required to
achieve them. In the context of India, planning refers to the planned development and
allocation of resources to achieve specific economic, social, and environmental goals. It is an
essential tool for managing and guiding the country's economic growth, development, and
welfare.

Needs for Planning in India

1. Resource Management:
o India has limited resources (land, labor, capital, etc.), and proper planning is needed to
ensure their optimal utilization. This helps avoid waste, ensures efficiency, and
promotes sustainable development.
2. Balanced Economic Growth:
o India is a vast country with regions that are highly developed and others that are
underdeveloped. Planning helps in balancing economic growth by promoting
development in backward areas and addressing regional disparities.
3. Industrialization and Infrastructure Development:
o Planning is necessary to drive industrialization and improve infrastructure, including
transportation, communication, and energy, which are key drivers of economic growth.
4. Poverty Alleviation:
o India has a large section of its population living in poverty. Planning helps target
resources and interventions in areas like rural development, employment generation,
and welfare schemes to lift people out of poverty.
5. Economic Stability:
o Planning enables the government to control inflation, manage economic cycles, and
stabilize the economy by coordinating investment, production, and consumption
activities.
6. Social Welfare:
o Proper planning is required to improve access to health, education, sanitation, and
social security. It ensures that government programs reach the most vulnerable sections
of society, thereby enhancing overall welfare.
7. Environmental Sustainability:
o Planning in India also focuses on environmental concerns, ensuring that development is
in line with sustainable practices, addressing issues like deforestation, pollution, and
climate change.
8. Employment Generation:
o Planning helps in creating job opportunities, particularly in labor-intensive sectors like
agriculture, manufacturing, and services, which are crucial for absorbing India’s large
workforce.

Objectives of Planning in India

1. Achieving Economic Growth:

o The primary objective of planning is to achieve rapid and sustained economic
growth. This includes increasing the national income, GDP, and the standard of
living of people.
2. Reduction of Poverty:
o Poverty reduction is a central focus of planning. Plans aim to improve living
conditions, enhance access to basic services, and create income-generating
opportunities for the poor.
3. Industrialization:
o Developing industries is a key objective of planning to transform India into a
manufacturing hub. The aim is to diversify the economy, reduce dependence on
agriculture, and enhance exports.
4. Increasing Employment Opportunities:
o Generating employment is a critical objective. Planning focuses on creating jobs for
India’s large population, reducing unemployment, and providing opportunities for
skill development.
5. Social Justice and Equity:
o Ensuring social justice is a major goal. Planning aims to reduce inequalities in
income, wealth, and access to resources, ensuring equitable distribution of benefits
across various sections of society.
 6. Balanced Regional Development:
o Addressing regional imbalances in terms of economic development, infrastructure,
and quality of life. Planning ensures that all regions, whether urban or rural, have
equal access to development resources.
7. Sustainable Development:
o Ensuring that economic development does not harm the environment is an important
goal. Planning incorporates environmental conservation into development projects,
focusing on energy efficiency, waste management, and preserving biodiversity.
8. Strengthening Infrastructure:
o Improving and modernizing infrastructure—such as transportation, communication,
energy, and water—is a key objective to support economic activities and improve
living standards.
9. Promotion of Agriculture:
o India’s economy is still largely dependent on agriculture, and planning focuses on
modernizing agriculture, increasing productivity, improving rural infrastructure, and
providing better market access for farmers.
10. Human Capital Development:
o Ensuring improvements in health, education, and skill development is essential.
Planning aims to enhance the quality of education, healthcare, and skill development
to make the workforce more competitive globally.
11. Self-Reliance:
o A key objective of planning, especially during the early years after independence,
was to achieve self-reliance in essential sectors like agriculture, defense, energy, and
technology, reducing dependence on foreign aid.
12. Economic and Financial Stability:
o Maintaining economic stability through sound financial management, controlling
inflation, and ensuring fiscal discipline is an important objective of planning.

Five-Year Plans in India

The Five-Year Plans in India were a series of centralized and planned economic and social
development initiatives to achieve economic goals over a five-year period. The plans were
developed and monitored by the Planning Commission (which was later replaced by NITI
Aayog in 2015). The first plan began in 1951, and these plans played a pivotal role in shaping
India's economic structure and development trajectory.
Planning Commission of India

The Planning Commission was established in 1950 by the Government of India, with the
objective of formulating and overseeing the implementation of the Five-Year Plans. It was
tasked with mobilizing resources and ensuring coordinated economic growth.

 Functions of the Planning Commission:

1. Formulating Plans: It prepared the Five-Year Plans, outlining objectives,
strategies, and the allocation of resources for various sectors of the economy.
2. Resource Allocation: It was responsible for setting priorities for resource
allocation, ensuring that funds were utilized efficiently.
3. Monitoring and Evaluation: It monitored the progress of the plans and made
adjustments based on performance.
4. Advisory Role: The Commission advised the central and state governments
on economic policies, strategies, and implementation.
 Structure of the Planning Commission: The Planning Commission was headed by
the Prime Minister as the Chairman. It consisted of members who were responsible
for different sectors, such as agriculture, industry, finance, and social services.
 Abolition of Planning Commission: In 2015, the Planning Commission was
dissolved and replaced by NITI Aayog (National Institution for Transforming
India), which focuses more on cooperative federalism, encouraging state participation
in planning, and involving a broader set of stakeholders in policy making.

11th Five-Year Plan (2007-2012)

The 11th Five-Year Plan (2007-2012) of India was focused on inclusive growth, meaning
economic growth that was broad-based, ensuring that all sections of society benefitted,
particularly the disadvantaged groups.

Key Objectives:

1. Annual Growth Rate Target: The plan aimed for an annual GDP growth rate
of 9%, with a focus on equitable development.
2. Inclusive Growth: The plan emphasized reducing poverty, enhancing rural
development, and improving education and healthcare services.
3. Employment Generation: The plan aimed to generate adequate employment
opportunities, especially in the rural areas, and create productive jobs.
 4. Infrastructure Development: Significant investments were made to improve
infrastructure, including roads, electricity, telecommunications, and water
supply.
5. Sustainable Development: The plan included a focus on environmental
sustainability, with policies to reduce pollution and conserve natural resources.
 Key Areas of Focus:
1. Agriculture and Rural Development: The plan focused on modernizing
agriculture, increasing productivity, and improving rural infrastructure.
Special schemes were introduced for irrigation, rural employment, and poverty
alleviation.
2. Education and Skill Development: Increasing the literacy rate, expanding
the reach of education to rural areas, and improving vocational training and
skill development.
3. Healthcare: Strengthening public healthcare systems, reducing infant
mortality rates, and improving access to medical care.
4. Energy and Environment: Improving energy efficiency, increasing the share
of renewable energy, and reducing carbon emissions were key components.
5. Social Inclusion: Aimed at improving the social and economic position of
marginalized groups, such as women, Scheduled Castes (SC), Scheduled
Tribes (ST), and Other Backward Classes (OBC).
 Challenges and Criticism:
1. Slow Implementation: While the objectives were ambitious, the
implementation of the plan faced challenges due to slow decision-making,
political interference, and bureaucratic inefficiency.
2. Infrastructure Bottlenecks: Despite efforts, India's infrastructure growth was
not fast enough to match the rapid pace of economic growth.
3. High Inflation: Inflation remained high during the 11th Plan period, driven
by rising commodity prices, affecting the poor and middle classes.
 Achievements:
1. GDP Growth: India achieved a growth rate of 8% per year during the 11th
Plan, despite the global financial crisis.
2. Poverty Reduction: The poverty rate declined, particularly in rural areas, as a
result of increased employment opportunities.
 3. Increased Access to Education: There was significant progress in primary
and secondary education, and the number of children enrolled in schools
increased.
4. Infrastructure Development: Significant investments in roads, highways,
electricity, and telecommunications led to better connectivity and access to
basic services.

Green Revolution: Achievements and Failures

The Green Revolution refers to the set of agricultural reforms introduced in India in the
1960s, aimed at increasing food production, particularly through the use of high-yielding
varieties of seeds, chemical fertilizers, pesticides, and modern irrigation techniques. This
revolution was driven by advancements in agricultural technology and innovations, with the
goal of making India self-sufficient in food production and addressing the challenges of
famine and food shortages.

Achievements of the Green Revolution:

1. Increase in Food Production:

o The Green Revolution led to a significant increase in food grain production,
particularly wheat and rice. India's food grain production rose from 82 million
tonnes in 1960 to 212 million tonnes by 2015.
o Wheat production, in particular, saw remarkable growth, from 12 million
tonnes in the 1960s to over 95 million tonnes by 2014.
2. Self-Sufficiency in Food Grains:
o India achieved food self-sufficiency, reducing its dependence on food imports
and international aid. This was particularly crucial during the period of food
crises in the 1960s and 1970s.
o By the 1970s, India became a net exporter of food grains.
3. Increased Agricultural Productivity:
o The adoption of high-yielding varieties (HYVs) of seeds, coupled with the use
of modern fertilizers and pesticides, improved crop productivity.
o A major increase in crop yields was achieved, especially in states like Punjab,
Haryana, and Uttar Pradesh, which became the primary beneficiaries of Green
Revolution technologies.
4. Poverty Reduction:
 o The increased agricultural productivity helped raise farmers' incomes,
reducing rural poverty in some regions. The Green Revolution also provided
greater employment in rural areas due to increased agricultural activities.
5. Technological Advancements:
o The revolution introduced advanced technologies such as mechanization of
farming, irrigation systems like tube wells, and modern agricultural
equipment. It marked a shift from traditional farming practices to more
efficient, technology-driven methods.
6. Improvement in Nutrition:
o The increased production of food grains, especially wheat and rice, improved
the availability of staple foods for the population, which contributed to better
food security and nutrition for a large segment of the population.

Failures and Criticisms of the Green Revolution:

1. Environmental Degradation:
o The extensive use of chemical fertilizers and pesticides led to soil degradation,
water pollution, and the loss of biodiversity. Overuse of chemical inputs
created long-term environmental issues, such as the depletion of soil fertility
and contamination of water sources.
o The over-reliance on groundwater for irrigation, especially through tube wells,
has led to the depletion of aquifers, resulting in severe water scarcity in several
regions.
2. Regional Disparities:
o The Green Revolution primarily benefited regions like Punjab, Haryana, and
western Uttar Pradesh, while many other parts of the country, particularly the
rain-fed areas and states with less developed infrastructure, did not benefit
equally from these advancements.
o States like Bihar, Odisha, and Madhya Pradesh saw relatively lower gains in
food production, resulting in unequal distribution of the benefits of the
revolution.
3. Increased Inequality:
o The Green Revolution favored large farmers with access to capital,
technology, and land. Small and marginal farmers, particularly those in poorer
 regions, faced difficulties in adopting the new technologies due to high costs
of inputs and lack of credit facilities.
o This led to a widening gap between rich and poor farmers, contributing to
increased rural inequality.
4. Unsustainable Agricultural Practices:
o The Green Revolution promoted monoculture farming, focusing primarily on
high-yielding varieties of wheat and rice. This resulted in the neglect of other
crops, leading to reduced crop diversity and making the agricultural system
vulnerable to pests, diseases, and market fluctuations.
o The overuse of water-intensive crops like rice in areas with limited water
resources contributed to water stress and long-term sustainability issues.
5. Social and Economic Costs:
o The revolution led to rising costs for inputs like seeds, fertilizers, and
pesticides. Many farmers went into debt to finance these expenses, and some
were unable to repay loans, leading to economic distress and even farmer
suicides in certain regions.
o The increased mechanization of farming led to a reduction in labor demand,
which affected agricultural workers, particularly those dependent on seasonal
employment.
6. Impact on Traditional Farming Knowledge:
o The focus on high-yielding varieties and industrialized farming methods
overshadowed traditional agricultural practices and local knowledge systems.
This has led to the erosion of indigenous farming techniques and crop
varieties.

White Revolution: Achievements and Failures

The White Revolution, also known as Operation Flood, was a dairy development program
initiated by the National Dairy Development Board (NDDB) in 1970. The goal was to
increase milk production, create a nationwide milk grid, and make India self-sufficient in
milk production.

Achievements of the White Revolution:

1. Increase in Milk Production:

 o The White Revolution turned India from a milk-deficient nation into the
largest producer of milk in the world. Milk production grew from 22 million
tonnes in 1970 to over 140 million tonnes by the early 2000s.
2. Improved Rural Economy:
o The White Revolution improved the livelihoods of millions of rural farmers,
especially small-scale dairy producers. It helped farmers diversify their
income sources and reduced poverty in rural areas.
o The creation of dairy cooperatives, such as Amul, helped empower farmers by
providing them with a fair share of the profits from milk production.
3. Development of Dairy Infrastructure:
o The revolution led to the establishment of a vast network of dairy processing
plants, cooling units, and milk collection centers, improving the efficiency and
reach of milk production and distribution.
4. Self-Sufficiency in Milk:
o By the late 1990s, India became self-sufficient in milk production, and the
availability of milk and milk products increased across the country, improving
nutrition, especially for children.
5. Improvement in Animal Breeding:
o The White Revolution introduced better breeding techniques, including
artificial insemination, which improved the quality of dairy cattle, leading to
increased milk yield.

Failures and Criticisms of the White Revolution:

1. Regional Disparities:
o While states like Gujarat, Maharashtra, and Rajasthan benefitted immensely
from the White Revolution, other regions with poor infrastructure and weaker
dairy cooperatives, such as the northeastern states and certain parts of southern
India, did not experience the same level of success.
2. Overemphasis on Dairy:
o The White Revolution led to the overexpansion of the dairy sector at the
expense of other agricultural sectors, such as crop cultivation. This has created
an imbalance in rural development, as some areas became overly dependent on
dairy farming.
3. Environmental Concerns:
 o The increase in milk production led to higher demand for cattle, contributing
to land degradation and overgrazing in some regions. This, coupled with the
expansion of dairy farming, has raised concerns about its environmental
sustainability.
4. Animal Welfare Issues:
o The focus on maximizing milk production has sometimes led to poor animal
welfare conditions. Cattle are often overworked, and the breeding practices
aimed at increasing milk yield have sometimes led to health problems in
animals.

Second Green Revolution

The Second Green Revolution refers to a renewed push for agricultural development in
India with a focus on sustainable practices, technology adoption, and enhancing production in
regions that did not benefit from the original Green Revolution (1960s-1980s). Unlike the
first Green Revolution, which focused on high-yielding varieties (HYVs) of wheat and rice,
the Second Green Revolution aims to enhance agricultural production across a more diverse
range of crops while addressing environmental concerns.

Objectives of the Second Green Revolution:

1. Diversification of Crops:
o Focus on a wider range of crops beyond rice and wheat, including pulses,
oilseeds, fruits, and vegetables, to ensure food security and nutritional
diversity.
2. Sustainability:
o The aim is to promote sustainable agricultural practices that minimize
environmental degradation, such as reducing the excessive use of chemical
fertilizers and pesticides, and improving water management.
3. Technological Advancements:
o Leveraging new technologies like biotechnology, precision farming,
genetically modified (GM) crops, and advanced irrigation systems to boost
crop productivity in a sustainable manner.
4. Inclusive Growth:
 o A key goal is to make the benefits of the Green Revolution accessible to all
farmers, including small and marginal ones, through better credit facilities,
extension services, and market access.
5. Regional Focus:
o Focus on improving agricultural productivity in regions that were left out of
the first Green Revolution, particularly in the eastern and southern parts of
India, where agrarian productivity is still low.
6. Addressing Climate Change:
o Develop agricultural systems that are more resilient to climate change through
better water conservation methods, drought-resistant crops, and improved soil
health management.

Challenges of the Second Green Revolution:

 Soil Degradation and Water Scarcity: Overuse of fertilizers and water-intensive

crops, especially in regions like Punjab and Haryana, has led to soil depletion and
groundwater depletion.
 Market and Infrastructure Issues: The second revolution needs to address market
inefficiencies and inadequate infrastructure, particularly for small-scale farmers.
 Inclusivity: The benefits of the revolution need to be more inclusive, ensuring that
marginal farmers also benefit.
 Environmental Concerns: There is a need to balance increasing productivity with
environmental sustainability.

Foreign Trade Policy (2009)

The Foreign Trade Policy (FTP) of 2009, also known as the Foreign Trade Policy 2009-
14, was introduced by the Ministry of Commerce and Industry in India to promote exports,
improve the balance of payments, and enhance India's position in the global trade
environment. It laid down a roadmap for increasing India's exports and integrating the Indian
economy into global markets.

Objectives of the 2009 Foreign Trade Policy:

1. Enhancing Export Growth:

 o The primary goal was to increase India's exports, particularly in non-
traditional sectors, to boost economic growth and job creation.
2. Diversifying Export Markets:
o The policy aimed to reduce dependence on traditional export markets like the
U.S. and Europe and to explore newer markets such as Africa, Latin America,
and Asia.

3. Support for Small and Medium Enterprises (SMEs):

o The policy emphasized the need to support SMEs, which are vital for India's
export growth, by offering financial assistance, reducing export duties, and
improving access to export markets.
4. Focus on New Export Sectors:
o It focused on diversifying India's export basket, with emphasis on sectors such
as agriculture, textiles, engineering goods, and IT/ITES services.
5. Promoting FDI and Technology Transfer:
o The policy aimed to encourage Foreign Direct Investment (FDI) in sectors like
infrastructure, technology, and manufacturing to make Indian exports more
competitive in global markets.
6. Easing Export Procedures:
o Simplification of export procedures and reducing transaction costs were key
aspects, with a focus on eliminating bottlenecks in export documentation,
customs, and logistics.

Key Features of the 2009 FTP:

1. Export Credit:
o The policy aimed to provide easier access to export credit, particularly for
SMEs, by extending the validity of pre-shipment and post-shipment credit.
2. Interest Rate Subvention Scheme:
o A scheme for providing an interest rate subsidy to exporters was introduced to
make Indian products more competitive in global markets.
3. Export Promotion Schemes:
o Special Focus Initiative (SFI): Focused on promoting exports from identified
sectors like textiles, agriculture, and engineering.
 o Focus Market Scheme (FMS): To promote exports to new and untapped
markets.
o Focus Product Scheme (FPS): To provide incentives for the export of
specific products identified as having high potential.
4. Incentives for Exporters:
o Duty Credit Scrip Scheme: The policy introduced schemes like MEIS
(Merchandise Exports from India Scheme) and SEIS (Services Exports
from India Scheme) to provide incentives for exporters in the form of duty
credit scrips, which could be used to pay customs duties or sold to others.
5. Technology Upgradation:
o It encouraged the use of modern technology and innovations in the export
sector, particularly for SMEs, by providing financial assistance.
6. Promoting Export Infrastructure:
o The policy promoted the development of export infrastructure, including ports,
airports, and logistics, to reduce transaction costs and improve efficiency in
global trade.

Impact of the 2009 Foreign Trade Policy:

 Increased Exports: There was a noticeable rise in India's exports, especially in non-
traditional sectors like engineering goods, chemicals, and textiles.
 Diversification of Markets: Indian exporters gained access to newer markets,
reducing dependence on traditional Western markets.
 Support for SMEs: The policy provided SMEs with better access to financing and
markets, which helped them expand their export activities.
 Challenges: Despite the incentives and policy changes, the global recession in 2008-
2009 and global trade barriers impacted the overall export growth.

The FTP 2009 was later succeeded by the Foreign Trade Policy 2015-2020, which
continued some of these initiatives while further strengthening India's position in global
trade.

Export Processing Zones (EPZs)

Export Processing Zones (EPZs) are designated areas within a country where goods can be
manufactured, processed, and exported without the imposition of customs duties or other
barriers that typically apply to products meant for domestic consumption. These zones aim to
promote exports by providing a favorable environment for businesses to operate and focus on
production for the global market.

Key Features of EPZs:

1. Tax Incentives:
o Businesses operating in EPZs are usually exempt from several taxes, including
income tax, customs duties, and import/export duties, to encourage foreign
investment and export-oriented industries.
2. Customs Facilitation:
o Goods entering and leaving EPZs are often allowed to pass through customs
without the usual formalities, simplifying export procedures and reducing
delays.
3. Infrastructure Support:
o EPZs typically offer superior infrastructure, including better transportation
(ports, roads, and airports), communication facilities, and power supply to
support export businesses.
4. Employment Generation:
o EPZs are designed to create job opportunities, particularly in export-oriented
industries, and often contribute to employment growth in the host country.
5. Foreign Investment:
o EPZs aim to attract foreign direct investment (FDI) by providing a more
business-friendly regulatory environment and lower operational costs.

Objectives of EPZs:

 Boosting Exports: EPZs are primarily set up to increase the country's export
performance, contributing to higher foreign exchange earnings.
  Technology Transfer: By attracting foreign companies, EPZs help in the transfer of
advanced technologies and skills to the host country.
 Regional Development: EPZs often help in promoting regional economic
development by encouraging industrial activity in underdeveloped or economically
backward areas.

Examples of EPZs:

 India: India has set up several EPZs, and the concept was later extended to Special
Economic Zones (SEZs), which offer a broader set of incentives.
 China: Special Economic Zones like Shenzhen have significantly boosted the
country’s manufacturing and export sectors.

Export Oriented Units (EOUs)

Export Oriented Units (EOUs) are businesses that are set up with the primary objective of
producing goods for export. They can be either new ventures or existing businesses that
decide to shift their focus to the export market. These units are granted specific incentives to
encourage export production, as part of a broader strategy to promote exports and foreign
exchange earnings.

Key Features of EOUs:

1. Incentives and Exemptions:

o EOUs are typically granted various benefits like exemption from customs
duties, exemption from excise duties, and other tax breaks to encourage
them to produce for export markets rather than for domestic consumption.
2. Foreign Exchange Earnings:
o EOUs are required to export a specified percentage of their output, ensuring
that the country earns foreign exchange through these exports.
3. Import and Export Freedom:
 o EOUs are allowed to import raw materials, components, and machinery
required for production at concessional duties, provided these are used for the
manufacture of goods meant for export.
4. Operational Flexibility:
o EOUs enjoy greater operational flexibility, including easier access to external
financing, labor, and technology, as well as enhanced infrastructure support.
5. Production for Export Only:
o The key feature of EOUs is that their production is geared exclusively for
export, although in certain cases, a small portion of the output may be allowed
for domestic consumption.

Objectives of EOUs:

 Promotion of Exports: The main aim is to increase the country’s export earnings by
encouraging domestic industries to shift their focus toward export markets.
 Foreign Exchange Reserve Growth: EOUs help generate foreign exchange, which
contributes to the country’s foreign reserves.
 Technological Upgradation: EOUs often involve the use of advanced technology
and manufacturing techniques to meet international quality standards, leading to
overall improvements in domestic industry standards.
 Job Creation: By encouraging new businesses and expanding existing ones, EOUs
help create employment opportunities in the country.

Benefits of EOUs:

1. Duty Exemptions and Rebates: EOUs enjoy several duty exemptions, making it
easier for them to procure raw materials and inputs.
2. Improved Competitiveness: The incentives and support structures help EOUs to
compete effectively in the global market.
3. Technology Transfer and Upgradation: EOUs are often better equipped to access
new technologies and manufacturing methods, which enhances the overall
competitiveness of the sector.

Examples of EOUs:

 India: India has promoted the setting up of EOUs through the Export Oriented Unit
Scheme, which allows both large and small enterprises to participate in export
 production. Examples include manufacturing units in sectors like textiles, electronics,
and handicrafts.
 China: Many electronics and apparel manufacturers operate as EOUs, exporting a
significant portion of their production to global markets.

Comparison: EPZs vs EOUs

Feature EPZs EOUs

Special zones set up for export-based Units focused on producing goods for
Focus
production export

Defined, often designated zones or Can be located anywhere, no specific

Location
regions location requirement

Custom duties exemption, tax Tax breaks, duty exemptions,

Incentives
exemptions, infrastructure support simplified export procedures

Type of
Entire zone focuses on exports Individual units focus on exports
Production

Foreign Encourages foreign investment Can also attract foreign investment

Investment through favorable policies but not a focus of the scheme

Aims at large-scale employment in Employment opportunities may vary

Employment
specific regions by unit

1. Export Processing Zones (EPZs) in India

Export Processing Zones (EPZs) are designated areas where businesses engaged in export
activities are provided with various incentives, including tax exemptions and exemptions
from certain customs duties, to promote export-driven growth. They are designed to provide
world-class infrastructure and foster export-based industries.
Key Features of EPZs:

1. Customs Duty Exemptions: Goods brought into the EPZ are exempt from import
duties and export duties.
2. Tax Exemptions: EPZs offer tax exemptions for income tax, excise duty, and other
local taxes.
3. Export-Focused: Businesses operating in EPZs must focus on export production,
although some local sales may be allowed under certain conditions.
4. Foreign Investment: They attract foreign direct investment (FDI) by providing a
conducive environment for businesses to set up export-oriented units.

Examples:

 Kandla EPZ in Gujarat was one of the first EPZs in India, established in 1965.
 Santacruz EPZ in Maharashtra and Noida EPZ in Uttar Pradesh are also notable
examples.

Note: The concept of EPZs has been largely replaced by Special Economic Zones (SEZs) in
India, which provide more comprehensive benefits and flexibility.

2. Export-Oriented Units (EOUs) in India

Export-Oriented Units (EOUs) are individual units or companies established with the
primary objective of producing goods for export markets. EOUs can be located anywhere in
India and are not restricted to specific zones like EPZs. These units are granted incentives for
exporting their products and services.

Key Features of EOUs:

1. Duty Exemptions: EOUs benefit from customs duty exemptions on raw materials
imported for manufacturing products that are meant for export.
2. Tax Relief: They are exempt from excise duties on goods used for export production.
3. Incentives for Foreign Exchange: EOUs help generate foreign exchange through
their exports, contributing to the country's economy.
4. Export Obligation: EOUs must export a minimum percentage of their output, though
they may be allowed to sell a limited amount in the domestic market.
Benefits of EOUs:

 Boost to Exports: EOUs contribute to the country’s export growth.

 Technology and Skill Upgradation: These units often use advanced technologies to
meet international standards.
 Attracting Foreign Investment: EOUs are attractive to foreign investors due to the
regulatory reliefs provided.

3. Special Economic Zones (SEZs) in India

Special Economic Zones (SEZs) are geographically defined areas in which businesses are
provided with a favorable regulatory framework to encourage export-oriented activities. The
SEZ scheme replaced the earlier EPZ system in India and has more extensive benefits for
companies setting up units in these zones.

Key Features of SEZs:

1. Customs Duty Exemption: Similar to EPZs, SEZs offer exemption from customs
duties on imports used for producing goods meant for export.
2. Income Tax Exemptions: Companies operating in SEZs are exempt from income tax
for a certain period (5 years tax exemption, 50% for the next 5 years, and 50% of the
profit reinvested for the next 5 years).
3. No Capital Gains Tax: Companies in SEZs are exempt from capital gains tax for a
specified period.
4. State and Central Tax Exemptions: SEZs provide exemptions from state taxes such
as sales tax and other duties.
5. Modern Infrastructure: SEZs provide superior infrastructure including world-class
transport, power, and telecommunications.

SEZ Act, 2005:

 The Special Economic Zones Act, 2005, provides the legal framework for
establishing and operating SEZs in India.
 The government of India offers incentives for companies to set up operations within
SEZs, including capital subsidies, duty exemptions, and other financial benefits.

Examples of SEZs in India:

  Navi Mumbai SEZ: Located in Maharashtra, it is one of the largest SEZs in India.
 Sri City SEZ: Located in Andhra Pradesh, known for its manufacturing and industrial
sectors.
 Kolkata SEZ: Focuses on IT and electronics industries.
 Udhampur SEZ: Located in Jammu & Kashmir, focusing on electronics and textiles.

Comparison: EPZs, EOUs, and SEZs

Feature EPZs EOUs SEZs

Export-oriented Export production by
Primary Focus Export-oriented activities
production individual units
Specific zones
Can be located Specific zones designated
Location designated by the
anywhere by the government
government
Customs duty Duty exemptions,
Customs duty exemptions,
Incentives exemptions, tax excise duty
income tax exemptions
exemptions exemptions
Foreign Highly encouraged with
Encouraged Encouraged
Investment liberal policies
Operational Limited to export Limited to export More flexible and includes
Freedom production production infrastructure support
Regulatory More operational Comprehensive framework
Less flexibility
Framework flexibility with benefits

4. Trading Houses in India

Trading Houses in India are entities that facilitate international trade by acting as
intermediaries between exporters and foreign buyers. These trading houses often play a
significant role in promoting Indian exports to international markets by providing market
access, managing logistics, and coordinating with foreign partners.

Key Features of Trading Houses:

 1. Market Access: Trading houses have established relationships with foreign buyers,
facilitating market entry for Indian businesses.
2. Risk Management: They help manage the risks associated with international trade,
such as currency fluctuations, political instability, and payment risks.
3. Logistics and Financing: They often provide financing and logistics support to
exporters, easing the process of international trade.
4. Export Promotion: Trading houses actively promote Indian goods and services in
foreign markets, contributing to India's export growth.

Types of Trading Houses in India:

 Star Trading Houses: These are large trading entities recognized by the Indian
government for their contribution to export promotion.
 Trading Firms: Small or medium-sized firms that focus on specific industries or
regions for trade activities.