Free Trade Warehousing Zones in India

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Free Trade Warehousing Zones (FTWZs) are areas deemed as foreign territories, ports, and warehouses for storage and various value-added activities as per Indian Customs Law. FTWZs come under the category of special economic zones (SEZ) in India.

Foreign companies can establish units in the FTWZ with 100 percent foreign direct investment (FDI) approval via the automatic route.

Where are FTWZs located in India?

Details Free Trade and Warehousing Zones (FTWZs) SEZs in India

S. No.

Name of the developer

Location

Area (hectares)

SEZ status

1

Arshiya International  Limited

Taluka Panvel, District Raigad, Maharashtra

57.898

Notified/Operational

2

J. Matadee  Free Trade Zone Private Limited

Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu

40

Notified/Operational

3

Arshiya Northern FTWZ Limited

Moujpur, Bulandshar,  Uttar Pradesh

51.4394

Notified/Operational 

4

Arshiya International Ltd.

Taluka & District Nagpur, Maharashtra

43.26

Notified

5

Lepakshi Knowledge Hub Private Limited

Chillamaturu Mandal, Ananthapur District, Andhra Pradesh

40

Formal approval

6

ISPRL FTWZ Padur (Indian Strategic Petroleum Reserves Ltd.)

Padur, Karnataka

41.20

Formal approval

7

Cochin Port Trust

ThoppumpadyRamesaram Village, Cochin, Kerala

40.85

Formal approval

8

Venkatesh Coke & Power Ltd.

Ponneri Taluk, Thiruvalur District, Tamil Nadu

46.71

Formal approval

Source: Ministry of Commerce, Parliament Q&A, 2019.

Spotlight: Sriperumbudur FTWZ

Sriperumbudur FTWZ or JMFTZ, India’s pioneering FTWZ, is a prominent multi-sector Special Economic Zone. It boasts top-tier Grade-A warehousing facilities and state-of-the-art industrial infrastructure, catering perfectly to the requirements of global operators and manufacturers. This makes it a top destination of choice and the zone’s occupiers include industry leaders DHL, DB Schenker, Kerry Indev, TVS Supply Chain, and Seaways Supply Chain.

Singapore-based Xander Investment Management acquired an additional one million square feet of premium warehousing space within the confines of Sriperumbudur FTWZ in 2021.

Sriperumbudur FTWZ enjoys a strategic location along the Chennai-Bengaluru Industrial Corridor (CBIC), boasting exceptional connectivity to key maritime hubs—Chennai, Ennore, and Kamrajar Ports. Collectively, these ports handle roughly 20 percent of India’s container traffic. Additionally, the FTWZ is conveniently situated in close proximity to significant industrial clusters, including Oragadam, Maraimalai Nagar, Tiruvallur, and Kanchipuram. These areas are renowned for hosting a substantial concentration of electronics, automotive, and auto ancillary companies.

READ: Tamil Nadu’s Industrial Parks and SEZs under SIPCOT: A Brief for Investors

What are the minimum requirements to set up an FTWZ?

To establish an FTWZ, a minimum land area of 50 hectares is necessary, with half of that space reserved for the designated processing area. Exceptions are for India’s hilly states, union territories, and the state of Goa where the minimum land area is 25 hectares.

What are the advantages of doing business in an FTWZ?

FTWZ units are permitted to maintain inventory on behalf of both foreign suppliers and domestic buyers. Further, FTWZ rules allow multiple ownership transfers—but only within the zone and without movement of goods outside the FTWZ. This strategic approach aims to maintain the trading chain as closely connected as necessary, preventing the accumulation of indirect taxes and compliance burdens while also avoiding an increase in transaction costs.

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Units within the FTWZ have the ability to import goods into the zone without incurring duty charges. They can store these goods in the FTWZ and subsequently re-export them without any duty obligations. Furthermore, they are allowed to procure goods from the Indian market exempt from excise duties. This exemption applies not only to the goods that the unit deals with but also extends to items necessary for the growth, functioning, and upkeep of the zone.

Activities allowed in an FTWZ

An FTWZ is a distinct area designated for activities, such as warehousing and trade. Within FTWZs, the following activities are permitted:

  • Storing goods on behalf of foreign suppliers for dispatch according to the owner’s instructions.
  • Trading, whether with or without labeling, packing, or repacking, without the need for processing.
  • Employing refrigeration for storage purposes.
  • Assembling completely knocked-down or semi-knocked-down kits.
  • Reselling, re-invoicing, or re-exporting imported goods.
  • Trade transactions in foreign currencies are permitted.

FTWZ units also reap the benefits of indirect tax advantages when engaged in non-Domestic Tariff Area (DTA) sales.

Customs Authority for Advanced Ruling (CAAR)

When goods are placed in the Free Trade Warehousing Zone, they are not acquired by a unit or developer. Consequently, the transfer of goods between the Domestic Tariff Area and FTWZ, or vice versa, does not fall within the definitions of ‘procure’ or ‘import,’ per the CAAR. As a result, such transfers or supplies of goods cannot be considered as ‘re-import’ in the context of the procedures and conditions that typically apply to the re-importation of goods from outside India. Therefore, the act of transferring goods from FTWZ to DTA cannot be categorized as ‘import/re-import,’ and it is thus not covered under Section 7 of the SEZ Act. Consequently, no exemption from duties or taxes is granted.

Utilizing the FTWZ market entry model in international trade

According to analysis from Flanders Investment & Trade, FTWZs provide various advantages for businesses, such as retail chains, manufacturers, and international traders. These zones eliminate regulatory constraints, offering cost-effective solutions for consolidating products from multiple suppliers in Asia. Companies can store and distribute products with lower costs and quicker payment to suppliers.

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For example, for industries such as automobile manufacturing and IT hardware production, FTWZ permits the duty-free storage of spares for seamless, low lead time supply to the Indian market. It also offers the flexibility to test spares before actual supply and duty payment. Surplus or defective spares can be re-exported without financial loss.

Foreign rubber suppliers can take advantage of FTWZ by procuring and storing materials from countries like Indonesia, Thailand, or Malaysia during production seasons, aligning with the requirements of Indian tire manufacturers.

Additionally, utilizing forward trading for foreign exchange hedging and cost equalization enhances the cost-effectiveness of FTWZ operations.

How can companies operate through an FTWZ in India?

Companies interested in operating through FTWZs have two options:

  1. Trading Unit: This option allows companies to engage in authorized activities within the FTWZ, which may include trading, warehousing, labeling, consolidation, and more.

  2. Service Unit: Alternatively, companies can opt to utilize the services provided by an authorized Trading Unit.

Companies registered as Trading Units must be Indian entities involved in activities such as import-export, trading, shipping, and other related fields. The specific authorized operations are outlined in the Letter of Approval (LOA), which is granted by the Unit Approval Committee. These LOAs have a standard validity of five years, with the possibility of extending them for an additional five years.

Attractiveness for Importers

FTWZ imports offer a range of advantageous benefits. Firstly, they provide a high degree of flexibility when it comes to the final distribution of goods within India. This flexibility enables businesses to adapt to changing market demands and streamline their supply chains.

Moreover, FTWZ imports come with duty deferment benefits, which can significantly benefit businesses. This means that working capital is freed up, allowing companies to invest in other aspects of their operations, ultimately leading to increased sales and growth.

Quality control is another advantage offered by FTWZ imports. Companies can ensure the quality of their products before paying duties, minimizing financial risks and maintaining high standards.

Furthermore, FTWZ operations enjoy an exemption from the Goods and Services Tax (GST) on both purchases and services. This exemption extends to various areas, including transportation, reducing the financial burden on businesses.

For businesses dealing with temperature-sensitive products, such as medicines and other human consumption items, FTWZ provides access to temperature-controlled storage facilities. This capability ensures the integrity of these products during storage and transportation.

Another significant benefit is the reduced need for maintaining buffer stocks. With FTWZ imports, businesses can optimize their inventory management, leading to lower product costs.

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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in India.

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