EPZ and Foreign Direct Investment in India

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EPZ and Foreign Direct Investment in India work hand in hand to ensure a rapid economic growth in the units set up in the export processing zones in India. The foreign direct investment is allowed up to 100 percent in these units of the EPZs in India.

FDI is one of the most significant factors for the success of the export processing zones in India. It has been playing a key role in fueling the economic growth of these sectors. These units of EPZ in India are generally 100 percent export-oriented. The foreign direct investments made in such export processing zones in the country comes from the non-residential Indians as well as the Overseas Corporate Bodies. These corporate bodies are ruled by the owners itself or the NRIs who have set them up in order to aid the domestic investments.
The FDI policy has made investments in India more flexible and attractive for the investors. However, there are some exceptional cases, which are bonded by certain confinements such as lock-in period on original investment, dividend cap, and foreign exchange neutrality, as per the notified sectoral policy. Initially there was a clause regarding the dividends from consumer good industries, which has been withdrawn from 14th July 2000. EPZ and Foreign Direct Investment in India has been concomitant in every activity of the units in export processing zones. FDI is allowed in almost all the sectors including the service sectors up to 100 percent but there are few segments, which have to abide certain restrictions that hinder such a huge amount of FDI flows in those particular sectors.

Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB) approve the FDI flows made in the industrial units in EPZ in India. The export processing zones in India are highly labor intensive, comprising of competent manpower, and a steadfast macroeconomic ambiance. In 1989, the foreign direct investment in the export processing zones in India was 12 percent. It witnessed a minuscule increase of 18 percent in the year 2000. Nonetheless, ever since 2000, the FDI flows in the EPZ in India started increasing at a massive pace and by the year 2003, the FDI inflows grew by 25 percent.

Share of foreign direct investments in the export processing zones in India during 1997-2003 (in %):

Kandla 1.3 4.9
Santacruz 8.4 9.2
Noida 12.3 12.7
Chennai 28.4 30.7
Cochin 9.6 13.7
Falta 3.1 4.0
Vizag 38.8

The Government of India decided upon aiding the EPZ in India with financial incentives in the beginning to attract remarkable FDI inflows. EPZ and Foreign Direct Investment in India seems to be inconsistent at some areas. For example, the Santacruz export processing zone which is supposed to be one of the largest zones in India experiences very less of FDI whereas surprisingly, Vizag being the lowest growing EPZ in India has higher proportion of FDI inflows. Thereby, the FDI flows in EPZ in India are never constant and changes accordingly.