Requiem For Epzs

plagued by infrastructural problems. Nor was it surprising that before 1991, EOUs were preferred to setting up units in EPZs. For both EOUs and units in EPZs, one obtained duty free access to capital goods and raw materials and fewer procedural hassles. These were important considerations when one could not liberalize across the board and had to liberalize in selected enclaves. But the post-1991 economic reforms have changed all this. With the average duty on capital goods down to 20 percent, the relative attractiveness of EPZs and EOUs has gone down correspondingly.

This shift in incentives surfaced when the export processing capital goods scheme (EPCG) was introduced. The EPCG had no restrictions on sales in the domestic tariff area (DTA), while free DTA sales were not permitted for EPZs and EOUs. Therefore, units asked for debonding and switched to the EPCG scheme. In addition to the EPCG, there is the general phenomenon of reductions in import duties. Even in the case of procedures, the progressive introduction of electronic data interchanges (EDI), which was promised by the Commerce Ministry in the new exim policy, should reduce procedural hassles and thus eliminate the additional advantage that EPZs obtain on account of this. Therefore, the EPZs should have no future role to play. It is pointless for the Commerce Minister to argue that procedural and other constraints faced by EPZs will be resolved on a priority basis. Instead, he should argue that there need be no further restrictions on sales in the DTA, barring of course the payment of requisite customs

 

duties. However, the problem with the Commerce Ministry is that it still suffers from the hangover of a mindset of selective liberalization. Hence notifications that increase the percentage of production that can be sold in the DTA are hailed as significant reforms. Why should one bother about the development of EPZs in the private or joint sectors? The Parliamentary Consultative Committee has reccomended that these schemes should be given due publicity. Actually what one needs to publicise is a requiem for EPZs.