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India may go in for 4 free ports

Sandesh Prabhudesai in Panaji.

Finally, the cat is out of the bag, breaking the five-year-long suspense over India having a free port. The final proposal is not for one full-fledged free port, but at least four different free ports spread all over the country. Concrete models for the same have been spelt out by the Indian Institute of Foreign Trade, New Delhi.

The four different models identified are in the financial sector, technological services, ship maintenance, and hospitality. As per the changing economic scenario, India may also go in for an airport-based free port and island-based free port, states the IIFT report.

Though the final report by IIFT contradicts the Rounaq Singh Committee's recommendations, the final proposal is based on the former after it had been vetted through the interministerial committee and a subcommittee of the commerce ministry.

The report would be now approved by the government. But its implementation would start only after the concerned state governments are consulted, based on their proposals.

"The idea of free port is still feasible," states Dr Ashok Prasad, who headed the IIFT committee which prepared the final proposal, "as convertibility on the capital account will still take time to come into India. Moreover, this is the right time when Southeast Asian economy is on the verge of collapse today."

The IIFT has rejected Rounaq Singh Committee's recommendation of converting the whole state into the free port or the need to have a contiguous area from the port. "Just as southern China is being developed with Hong Kong as the free port, our hinterland can also be developed by developing only the port area," opines Prasad.

The basic idea however would be to provide a level-playing field for the overseas investors in the industrial or financial sector, providing them five-year-tax holiday, while also evading customs duty, excluding consumer goods items from negative list, simplifying documentation system and providing special licences for vehicles carrying goods in the free port areas.

In the industrial model of the free port, Prasad suggests the concept of existing export promotion zones to continue, leasing out pieces of land for a notified free port area in various places in the hinterland.

The need for providing domestic market as the base for overseas investors and flexible labour laws are also being stressed upon. If need be, it may also require major constitutional amendments, states Prasad, to adopt the concept of "one nation, two systems."

Liberal taxation policy has been stressed in the free port area, with low, simple and predictable tax structure, while also suggesting severe penalties than the existing ones for tax evasion. "The government would in fact earn more with such a policy," feels Prasad.

Ten per cent income tax after five-year tax holiday, abolition of sales tax, not more than five per cent of entertainment tax, personal income tax of 15 per cent, lower amount of stamp duty and property tax as well as continuation of services tax are a few concrete proposals.

The three major aspects of the financial free port would be the long-term policy on offshore banking, no check on flow of funds, and setting up a board of investment to specify activity of funding.

The Reserve Bank of India, points out Prasad, would have to play the role of a special monitor of the Indian currency rather than go in for another currency.

Models of ship maintenance and hospitality free ports are to be developed as part of the infrastructural plans where, feels Prasad, Goa has an edge over all other states.

Following the Hong Kong model, he suggests to develop these ports with active private sector participation.

The IIFT expert strongly proposes that Goa selects either a ship maintenance free port or a hospitality free port as the tourist state, which is also having several shipyards in its well-knit river waters, rather than going for offshore banking or a free port providing technological services.

Theme parks, folk villages and casinos is a must for hospitality free ports, states Prasad, dismissing opposition to casinos in Goa. On the contrary, he strongly advocates making best use of Goa's historical ties with Portugal and Macao to exploit the situation and attract Portuguese investors here.

While he appreciated efforts of the state government to go for a modern international air port, which is the need of all four models of the free port, he feels there are checks and balances to tackle the environmental impact such free ports would have in any part of the country.

Goa was the first choice of the Rounaq Singh committee, even before any modalities of the free port were decided. "But Goa missed the bus, asking for more time to study the legal and financial implications," adds Prasad.

During his visit to Panaji to discuss the issue, he also suggested the state government immediately select a model and prepare a feasibility report, while seeking a consensus on the issue. "There are many states having a consensus on free port," he cautioned.