Special Economic Zones and Export Promotion in India: GK Notes

The correct answer is B, Kandla in Gujarat. The Kandla export processing zone, set up in 1965 beside the port of Kandla, was the first such zone in Asia, and it was later converted into a special economic zone under the Act of 2005. A is wrong because the Santacruz Electronics Export Processing Zone near Mumbai came eight years later, in 1973, and was the second zone in the country, reserved at first for electronics. C is wrong because the Noida zone in Uttar Pradesh was one of the zones set up in the 1980s, well after the first two. D is wrong because the Falta zone in West Bengal also belongs to that later group of zones and was never the first; the examiner usually offers Santacruz as the trap option here.

The correct answer is C, 2005. The Special Economic Zones Act was passed by Parliament in 2005 and was brought into force in February 2006 together with the Special Economic Zones Rules, giving the zones a single law of their own in place of a chapter of the trade policy. A is wrong because April 2000 is the date of the policy announcement made as part of the export and import policy, not of the Act, and this is the commonest confusion in the question. B is wrong because 2003 saw amendments to the customs and other laws for the zones but no separate SEZ Act. D is wrong because 2008 is later than both the Act and the Rules, by which time zones were already being notified under the new law.

The correct answer is B, foreign territory. The law deems a special economic zone to be outside the customs territory of India for trade operations, duties and tariffs, which is why a supply from the rest of the country into the zone is an export and a sale from the zone into the rest of the country is an import attracting customs duty. A is wrong because the domestic tariff area is defined as the part of India outside the zones, so a zone is precisely what the domestic tariff area is not. C is wrong because a union territory is a unit of the political map administered by the Union, and a zone has no such constitutional status. D is wrong because a bonded warehouse only stores goods on which duty is deferred, and it is licensed under the customs law rather than deemed foreign territory.

The correct answer is B, RoDTEP, the remission of duties and taxes on exported products. The earlier merchandise exports scheme was held to be inconsistent with world trade rules because it gave an incentive directly on exports, so it was replaced by a scheme that only refunds the duties and taxes embedded in an exported product which no other scheme refunds. A is wrong because RoSCTL, the rebate of state and central taxes and levies, is confined to apparel and made-up garments and came earlier, in 2019. C is wrong because the export promotion capital goods scheme allows duty-free import of machinery against an export obligation and is a wholly different instrument. D is wrong because the service exports scheme applied to the export of services, not of merchandise, and did not replace the merchandise scheme.

The correct answer is B, the Ministry of Commerce and Industry. The Directorate General of Foreign Trade works under the Department of Commerce in that ministry; it issues the importer-exporter code without which no one can trade across the border, administers the Foreign Trade Policy, and exercises powers under the Foreign Trade (Development and Regulation) Act of 1992. A is wrong because the Ministry of Finance, through the Central Board of Indirect Taxes and Customs, collects the duties but does not license traders or frame the trade policy. C is wrong because the Ministry of External Affairs conducts relations with other countries and has no part in issuing trade licences. D is wrong because the ministry for small enterprises promotes that sector, including its exporters, without any power over foreign trade itself.

The correct answer is B, 1982. The Export-Import Bank of India was set up in 1982 under the Export-Import Bank of India Act of 1981, as the country's apex institution for financing and promoting foreign trade; it lends to exporters, finances overseas buyers of Indian goods and operates the lines of credit extended by the Government of India. A is wrong because 1964 is the year the Industrial Development Bank of India was established, an institution for industrial finance rather than trade. C is wrong because 1991 is the year of the balance of payments crisis and the opening of the economy, when the bank was already nine years old. D is wrong because 2000 is the year the special economic zone policy was announced, and no bank was created then.

The correct answer is A. The Export Credit Guarantee Corporation, founded in 1957 and first called the Export Risks Insurance Corporation, insures an Indian exporter against the commercial risk of a buyer failing to pay and the political risk of war, exchange restrictions or a ban in the buyer's country, and it also guarantees the banks that lend to exporters. B is wrong because long-term project finance is the business of the EXIM Bank and of commercial banks, not of a credit insurer. C is wrong because a direct subsidy on the price of exported goods is barred by world trade rules, which is why Indian schemes now refund embedded duties instead. D is wrong because warehousing at ports is provided by the port trusts, by customs-bonded warehouses and by free trade warehousing zones.

The correct answer is A, the Secretary of the Department of Commerce. Under the Act of 2005 proposals for a zone go to the Board of Approval in the Department of Commerce, which the Commerce Secretary chairs and on which the revenue, finance and other departments are represented; below it each notified zone has a Development Commissioner and a Unit Approval Committee for individual units. B is wrong because the Reserve Bank regulates banking and the external payments system and has no role in clearing a zone. C is wrong because the state government recommends the proposal and provides land and state-level exemptions, but the approval itself is central. D is wrong because the Revenue Secretary sits on the Board as a member for tax questions and does not chair it.

The correct answer is A. The central obligation of a zone unit is a positive net foreign exchange earning, that is the value of its exports must exceed the value of its imports, measured over a block of five years counted from the date the unit begins production, and not year by year. B is wrong because a zone unit may sell into the domestic tariff area, though such a sale is treated as an import and pays the applicable duties, so it is not barred from the Indian market. C is wrong because the law lays down no condition about hiring local workers; employment generation is an objective of the policy but not a legal requirement on a unit. D is wrong because the minimum alternate tax was extended to zone units and developers by the Finance Act of 2011 and the income tax holiday carries sunset dates.

The correct answer is B, zero-rated. A supply to a developer or a unit of a special economic zone for authorised operations is a zero-rated supply, so the supplier either pays the tax and claims a refund or supplies under a letter of undertaking without paying it, and in either case the credit of the tax on inputs is preserved. A is wrong because no slab is applied to such a supply at all. C is wrong because an exempt supply blocks the credit of input tax and so leaves the tax buried in the price, which is exactly what zero-rating is designed to avoid, and this is the commonest trap in the question. D is wrong because the supply is very much within the law; it is dealt with by a special provision of the integrated tax Act rather than left outside the tax.

The correct answer is B, Baba Kalyani. The committee headed by the industrialist Baba Kalyani submitted its report on the special economic zone policy in 2018, arguing that the zones should be judged by the economic activity and employment they create rather than by exports alone, and recommending a new framework of employment and economic enclaves serving the domestic market as well. A is wrong because Bimal Jalan, a former Governor of the Reserve Bank, headed committees on other subjects, including one on the central bank's economic capital framework. C is wrong because Arvind Subramanian served as Chief Economic Adviser and is associated with reports on other questions of policy. D is wrong because Bibek Debroy is known for the committee on the restructuring of the Indian Railways, not for the review of the zones.