In which one of the following places, was Asia's first Export Processing Zone (EPZ) set up in 1965 ?

Correct — B, (b) Kandla. The Kandla Free Trade Zone was set up in 1965 in the Kutch district of Gujarat, and it was the first export processing zone in Asia as well as India's own first. The choice of site followed from what had happened at Partition. Karachi, which had served as the port for north-western India, was now in Pakistan, and Kandla on the Gulf of Kutch was developed to take its place as the major port for Gujarat, Rajasthan, Punjab and the whole north-western hinterland. Attaching a duty-free enclave to that port was a way of using it to earn foreign exchange: firms inside the zone could import raw materials and capital goods without customs duty on condition that what they produced was exported, and the zone offered developed plots, sheds, power, and a single set of clearances in place of the licensing that governed industry outside. The model was new in the region at the time — Shannon in Ireland, opened in 1959, is generally taken as the world's first — and it spread widely across Asia afterwards. India's second such zone came only in 1973, when the Santacruz Electronics Export Processing Zone was set up in Mumbai to develop electronics exports, and five more followed at Noida, Falta, Cochin, Chennai and Visakhapatnam. In 2000 the government announced a special economic zone policy, and Kandla was among the export processing zones converted into a special economic zone; the framework was given statutory shape by the Special Economic Zones Act of 2005 and the rules made under it in 2006.

Why the others are wrong

• (a)Ahmedabad — The commercial capital of Gujarat and the historic centre of its cotton textile industry — the 'Manchester of India' — but not the site of the zone. An export processing zone needs a port to be worth having, since its whole purpose is to import inputs free of duty and ship finished goods out again, and Ahmedabad is an inland city. The Gujarat coast supplied the site, and the state's export enclave grew up around the new port at Kandla rather than around its oldest industrial city.
• (c)Mumbai — The right kind of place and the wrong date. Mumbai, with the country's busiest port, did receive an export processing zone — the Santacruz Electronics Export Processing Zone, set up in 1973 and devoted first to electronics and later also to gems and jewellery. But that was India's second such zone, eight years after Kandla. A candidate who remembers only that a famous export zone stands in Mumbai will pick this option; the question turns on which came first.
• (d)Jaipur — An inland city in Rajasthan with no coastline behind it and no early export enclave. Rajasthan's exporters of gems, jewellery and handicrafts have historically used the Gujarat ports, including Kandla, which is part of what the zone was built to serve. Special economic zones have since been notified in many inland states, but the first zone of 1965 was a port-based one.

An export processing zone is an enclave treated as being outside the customs territory of the country for the purposes of trade: goods entering it are not charged import duty, and units inside it are required to export what they produce, so the zone earns foreign exchange without exposing the domestic market to duty-free imports. In an economy that was otherwise tightly licensed and protected, this was a way of running an outward-looking experiment in a small, fenced space. Kandla in 1965 was the first such experiment in Asia, followed by Santacruz in 1973 and by zones at Noida, Falta, Cochin, Chennai and Visakhapatnam in the 1980s. Their record was mixed: the zones were small, the incentives were narrow, infrastructure and clearances remained problems, and the shares of national exports they produced stayed modest. The policy announced in 2000 replaced them with special economic zones on a more generous model, and the Special Economic Zones Act of 2005 gave that model a statutory basis, with a Board of Approval, a development commissioner for each zone, single-window clearance, and tax concessions for developers and units, along with a distinction between processing and non-processing areas. Existing export processing zones, Kandla among them, were converted into special economic zones. The debate that followed — over land acquisition, the loss of revenue through exemptions, and how much genuinely new investment and employment resulted — is part of the same story, and later changes have moved the emphasis towards larger, better-connected zones and towards manufacturing for export under other names.

Key facts

• The Kandla Free Trade Zone, established in 1965 in Kutch district of Gujarat, was the first export processing zone in Asia and the first in India.
• Kandla port was developed after Partition to replace Karachi as the port serving north-western India; the port was renamed Deendayal Port in 2017.
• India's second export processing zone was the Santacruz Electronics Export Processing Zone at Mumbai, set up in 1973.
• Later export processing zones were established at Noida, Falta, Cochin, Chennai and Visakhapatnam.
• A unit in such a zone may import inputs and capital goods free of customs duty on condition that its output is exported.
• India's special economic zone policy was announced in 2000, and the Special Economic Zones Act was passed in 2005 with rules following in 2006.
• Existing export processing zones, including Kandla, were converted into special economic zones under that policy.
• The Shannon zone in Ireland, opened in 1959, is generally regarded as the world's first export processing zone.

Common traps

• Answering Mumbai because of the Santacruz zone. That is India's second such zone, set up in 1973.
• Confusing an export processing zone with a special economic zone. The second replaced the first from 2000 onwards on wider terms.
• Placing the first zone after liberalisation. It was set up in 1965, decades before the reforms of 1991.
• Forgetting that Kandla is a port in Kutch, and looking for the answer among large industrial cities.
• Mixing up the world's first such zone, at Shannon in Ireland, with Asia's first, at Kandla.

• practice — not a real PYQ

  The Santacruz Electronics Export Processing Zone, set up in 1973, is located in which one of the following cities ?

  • (a)Chennai
  • (b)Mumbai
  • (c)Kolkata
  • (d)Kochi

  Answer(b) Mumbai

• practice — not a real PYQ

  The Special Economic Zones Act in India was enacted in which one of the following years ?

  • (a)1991
  • (b)2000
  • (c)2005
  • (d)2016

  Answer(c) 2005