Export Oriented Units (EOUs) - Introduction

Introduction

The Export Oriented Units (EOUs) scheme, introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. As on 31st December 2005, 1924 units are in operation under the EOU scheme.

Objectives of the Export oriented unit:

The main objectives of the EOU scheme is to increase exports, earn foreign exchange to the country, transfer of latest technologies stimulate direct foreign investment and to generate additional employment.

Major Sectors in EOUs:

• GRANITE
• TEXTILES / GARMENTS
• FOOD PROCESSING
• CHEMICALS
• COMPUTER SOFTWARE
• COFFEE
• PHARMACEUTICALS
• GEM & JEWELLERY
• ENGINEERING GOODS
• ELECTRICAL & ELECTRONICS
• AQUA & PEARL CULTURE

Exports from EOUs during 2004-2005 were of the order of Rs.36806.17 crores as compared to the export of Rs.28827.58 crores achieved during 2003-2004, registering a growth of 27.68%.

Initially, EOUs were mainly concentrated in Textiles and Yarn, Food Processing, Electronics, Chemicals, Plastics, Granites and Minerals/Ores. But now a day, EOU has extended it area of work which includes functions like manufacturing, servicing, development of software, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisiculture, viticulture, poultry, sericulture and granites.

Need for Special License

To set up an EOU for the following sectors, an EOU owner needs a special license.

• Arms and ammunition,
• Explosives and allied items of defense equipment,
• Defense aircraft and warships,
• Atomic substances,
• Narcotics and psychotropic substances and hazardous chemicals,
• Distillation and brewing of alcoholic drinks,
• Cigarettes/cigars and manufactured tobacco substitutes.

In the above mention cases, EOU owner are required to submit the application form to the Development Commissioner who will then put them up to the Board of Approvals (BOA).

EOUs can be set up anywhere in the country and may be engaged in the manufacture and production of software, floriculture, horticulture, agriculture, aquaculture, animal husbandry, pisciculture, poultry and sericulture or other similar activities.

However, it should be noted that in case of large cities where the population is more than one million, such as Bangalore and Cochin, the proposed location should be at least 25 km away from the Standard Urban Area limits of that city unless, it is to be located in an area designated as an "industrial area" before the 25th July, 1991. Non-polluting EOUs such as electronics, computer software and printing are exempt from such restriction while choosing the area.

Apart from local zonal office and state government, setting up of an EOU is also strictly guided by the environmental rules and regulations. Therefore, an even if the EOU unit has fulfilled all locational policy but not suitable from environmental point of view then the Ministry of Environment, Government of India has right to cancel the proposal. In such situation industrialist would be required to abide by that decision.

EOU Unit Obligations

The EOUs are required to achieve the minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export Performance) as per the provisions of EXIM Policy which vary from sector to sector. As for instance, the units with investment in plant and machinery of Rs.5 crore and above are required to achieve positive NFEP and export US$ 3.5 million or 3 times the CIF value of imported capital goods, whichever is higher, for 5 years. For electronics hardware sector, minimum NFEP has to be ‘positive’ and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods, whichever is higher. NFEP is calculated cumulatively for a period of 5 years from the commencement of commercial production according to a prescribed formula.

The EOUs are licensed to manufacture goods within the bonded time period for the purpose of export. As per the Exim Policy, the period of bonding is initially for five years, which is extendable to another five years by the Development Commissioner. However on a request of EOU Unit, time period can also be extended for another five year by the Commissioner / Chief Commissioner of Customs.

Currently EOU scheme is mentioned in the Chapter 9 of the Foreign Trade Policy (1997-2002) and Chapter 9 of the Handbook of Procedures, Volume-I (HOP). The EOUs can export all products except prohibited items of exports in ITC (HS).

Recent Policy Changes in the EOUs Scheme (w.e.f. 7th April, 2006)

• The export of goods up to one and half percent of the FOB value.
• In order to facilitate the smooth functioning of the EOU units, the Development Commissioners will fix time limits for finalizing the disposal of matters relating to EOUs.
• New units engaged in export of Agriculture/Horticulture/Aqua-Culture products have been now allowed to remove capital goods inputs to the DTA on producing bank guarantee equivalent to the duty foregone on the capital goods/input proposed to be taken out.
• The EOU units in Textile Sector are allowed to dispose off the left over material/fabrics up to 2 per cent of Cost Insurance Freight (CIF) value of imports, on consignment basis. Recognizing that settling the accounts for every consignment is complex and time consuming it has been decided to allow disposal of left over material on the basis of previous year's imports.