One of the prerequisites of providing total integrated logistics solutions is well equipped warehousing. The necessity to store perishable goods generates a need for convenient and ample warehousing.
The management of warehouses is crucial for manufactured goods and equipment and other products and commodities to reach their markets efficiently. Warehouse management is basically a system to control movement and storage of materials intra and inter warehouse.
Over the years and with extensive modernized techniques of logistics solutions, the evolution of quality warehouse management systems (WMS) has gained momentum. The role of WMS is expanding to include light manufacturing, transportation management, order management, and complete accounting systems. Any department that deals with warehouses should be able to access information related to them. Even though WMS continues to gain added functionality, the core purpose has not really changed. The primary purpose of WMS is to control the movement and storage of materials and process associated transactions, including directed picking and replenishment.
There is a lack of sustained investment in planned infrastructure like warehouses and transport centres. The government makes major investments through agencies like the Container Warehousing Corporation and the Container Corporation of India but there is still a need for effort among export and import-based logistics companies to increase the number of inland container depots.
The FDI policy aims to deal with inadequate infrastructure and procedural hardships, which require the development of facilities like ports, airports, road and rail networks, power generation, water supply, and cheaper telecom facilities. The gap is in WMS.
The government has announced a scheme to establish Free Trade and Warehousing Zones (FTWZ) under the Foreign Trade Policy, 2004-09, to create trade infrastructure for import and export of goods and services with the freedom to carry out trade transactions in free currency. FTWZ can house logistics and distribution centres and integrate various aspects of logistics operation. An FTWZ is a “sanitized zone” designated as foreign territory.
The main objective of this scheme is to create world-class infrastructure for warehousing, state-of-the-art equipment, transportation and handling facilities, commercial office space, water, power, communications and connectivity, with one-stop clearance of trade formalities. These zones would be established near seaports, airports or dry ports to offer easy access.
Public sector undertakings, limited companies or joint ventures may apply to set up in these zones, subject to consideration by the Board of Approval in the Department of Commerce. If approved, the developer or user would be able to import duty free materials and equipment required for the development and infrastructure of the zone.
The scheme also aims at encouraging duty free import of all goods (except certain prohibited items) for warehousing, which would boost the efficiency of companies providing logistics solutions. These units would be subject to provisions similar to units in special economic zones (SEZ) as far as bonds for customs duty on imports.
An establishment in an FTWZ would be permitted to warehouse goods for a period depending on the relevant legislation and approval issued to it.
The government has put in place a liberal and transparent policy that allows up to 100% foreign direct investment in these FTWZ; the development of townships within SEZs; construction and maintenance of roads and highways and ports and harbours; electricity generation, transmission and distribution (except atomic reactor plants). FDI up to 100% is permitted in trading companies engaged in bulk imports with export or bonded warehouse sales.
The opening of FDI in this sector is due to external factors like macroeconomic considerations, the global economic environment, corporate strategy and the fact that better infrastructural gateways promote economic growth and encourage investment, technological development and competitiveness.
There are many upsides to the FTWZ including tax benefits under section 80IA and duty deferment benefits for products requiring longer storage time.
Infrastructure benefits include assistance in meeting specific warehousing requirements and the ability to meet short-term requirements though temporary storage facilities. Users also have a flexibility to take on lease equipment provided by the zone.
At the same time, FTWZs reduce customs clearance time and lead to better logistics and improved delivery times.
The overall benefits to the country include increased employment, more exports and imports, a rise in the number of ancillary industries and higher levels of competitiveness and increases in FDI.
Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.
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