‘FTWZs can boost import-export trade in India’

Arshiya International Ltd will have three free trade warehousing zones operational by the end of 2010. Ajay S Mittal, chairman and managing director, speaks to Moneylife’s Amritha Pillay about the commercial logic behind such zones

Amritha Pillay (ML): Do you think that this is an ideal time to invest in free trade warehousing zones (FTWZs) in India?
Ajay S Mittal (ASM):
Although it is a bit late, I think this is the most appropriate time for FTWZs in India. There is an urgent need for them. Currently, most companies use Singapore and Dubai as FTWZ hubs for product movements in India. These companies assemble or package their products either in Singapore or Dubai FTWZs and send them to India. The moment these products enter India, duty is paid on the entire packed product. These products are then forwarded to the respective channel partners for sale. In case the product remains unsold, then channel partners re-export them to some other country where there is a demand for them and apply for a duty refund from the Indian government. This, however, is a time-consuming process.

So the basic idea behind setting up our own FTWZs in India was to cut down the cost and time. Now with our FTWZ, what will happen is that companies would be able to import their products directly into the zone. As and when required, they can take these products out for sale after paying the duty. And in case the product remains unsold, they would be able to re-export it to some other country, without any tax or duty. So the companies would be able to save on time, as the product would be available to them locally, and their money would not be blocked during the duty refund process.

In a way, our FTWZs would become duty-free import and export hubs that can boost the business of domestic companies.

ML: Out of your three FTWZs at Mumbai, New Delhi and Nagpur, two are located far away from ports. Don’t you think that FTWZs near ports would be more suitable for the kind of business you are planning?
ASM:
The FTWZ hub, as a concept, is more profitable when located near a port. However, when you are setting up FTWZs in a large country like India, you need to think about location-specific services. So, we think, there would not be any dearth of business at our FTWZ hubs at Nagpur, which is ideally located at the centre of the country and at New Delhi.

ML: What is the role Arshiya would play in this entire process of import and export?
ASM:
Using our freight forwarding arm, we will import products into our FTWZs. Companies can take them out from the FTWZ for sale after paying necessary duty and other charges. If they have to distribute the product across the country, we can help on that front as well. And if the companies want to re-export the product to some other country, that can also be done at the FTWZs.{break}

ML: Do you think that such FTWZs can boost the import-export trade in India?
ASM:
FTWZs do have a huge potential to boost the import-export trade in India. For example, Singapore and Dubai are just providing infrastructure for duty-free trade but the main trade or action takes place in India. So if we can have our own FTWZs then the same trade can be routed directly into our country. FTWZs certainly carry big potential for import-export trade, in terms of revenues and volumes.
 
ML: What kind of labour opportunities would be there in these zones?
ASM:
The employment opportunities depend on activities of the customer, whether they are labour intensive or not. However, as per our estimates, each FTWZ should be able to provide job opportunities for around 15,000 to 30,000 people, directly or indirectly.

ML: How has been the progress of your three FTWZs in terms of bookings and operations?
ASM:
We are building all the three FTWZS in a phased manner. The Mumbai FTWZ will be operational by March-April this year. Almost all the space available in the Mumbai FTWZ has been booked. However, for the Nagpur and New Delhi FTWZs, we haven’t sold much space as these hubs are in the initial stages. This doesn’t imply that there is no business or opportunity as both these places offer huge potential. We think that there would be more bookings once we come close to completion. At present, we have signed memorandums of understanding with a number of companies and will sign the final agreements, when we will come close to completion.

ML: What is your revenue-earning model for these FTWZs? What would be the share of rental revenues and allied services revenues?
ASM:
Even though we would be renting out the space in the FTWZs, we are not looking at it (rental revenues) as the only source. For every rupee we earn from rent, there is a possibility to earn two, three or four rupees from other services like rail transport, freight forwarding, supply-chain distribution, warehouse management and information technology visibility. For Arshiya, the opportunity is not in the zone, but we see more opportunities from the varied service activities. 

ML: What about the competition in the FTWZ business?
ASM:
At present, I don’t know of any other company which can or is providing the services which we would be offering at one place. There are some multinational companies in the business, but they are investing more in land purchase than developing FTWZs. The smaller domestic companies are not offering any kind of integrated services. So, even though Arshiya is the first to enter this business, we don’t think it would be the sole player. The first mover or player advantage would always be with Arshiya, at least for some time.

ML: Land acquisition has created many problems in India. So how is Arshiya tackling it and would it affect the future of FTWZs?
ASM:
We as a company did not take help from any government (Union or state) to buy land. We directly negotiated with the farmers and paid them accordingly, besides offering them jobs during the construction period. We may offer them more jobs as the zone becomes operational. I think when there is land available for sale, what you need to do is offer the seller incentives along with the price. But when there are no incentives coupled with price, things may become difficult.

ML: Besides these three FTWZs, Arshiya is also setting up two additional FTWZs. Could you elaborate on your plans?
ASM:
We will start looking for land for the other two FTWZs from December 2010. By that time, all our three zones at Mumbai, Nagpur and Delhi will be operational. We are looking at various options in the southern region of the country; Chennai and Ennore seem to be the best options. I believe there is a port being developed near Cochin, which is going to act as a transhipment point like Colombo. If that comes up, then I think that (setting up a FTWZ there) makes more sense, rather than anything else.
 

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