In today’s globalized economy, Free Trade Zones (FTZs) are powerful enablers of international commerce and industrial growth. India, recognizing their transformative impact, has steadily expanded its network of Free Trade & Warehousing Zones (FTWZs) under the Special Economic Zone (SEZ) framework. These designated areas—operating under regulations distinct from the domestic economy—are designed to attract foreign direct investment (FDI), promote imports and exports, accelerate industrialization, and create employment.

Responsible Usage Unlocks Value

While concerns have emerged about misuse by a few entities—through practices like under-invoicing, round-tripping, or non-trade activities—the broader role of FTWZs remains highly strategic. For genuine businesses, they deliver tangible benefits:

  • Duty deferment and working capital efficiency
  • Streamlined regulatory compliance
  • Seamless access to value-added services for market entry

Misuse by a minority should not overshadow the opportunity FTWZs present for strengthening Indian supply chains and positioning India as a global trade hub.

1. Enabling Vendor Managed Inventory (VMI) through FTWZs

Rule 18/5 of the SEZ Rules, 2006, permits FTWZ units to hold cargo on behalf of overseas entities in India, acting as Importer on Record (IOR). This framework unlocks Vendor Managed Inventory (VMI) models in two ways:

  • Overseas entities can stock goods within India while retaining flexibility for just-in-time (JIT) supply to manufacturers.
  • Indian manufacturers can direct OEMs to maintain inventory inside FTWZs, drawing cargo only when needed.

This enables seamless production planning, reduces inventory carrying costs, and accelerates responsiveness to market demand.

2. Duty Deferment & Unlocking Working Capital

FTWZs are considered beyond Indian customs boundaries—treated as foreign soil. Duties and taxes are payable only when goods move into the Domestic Tariff Area (DTA). This mechanism allows businesses to:

  • Defer duty payments until cargo clearance, rather than at landing
  • Unlock working capital for redeployment in operations, scaling, or demand generation

The result is a powerful financial advantage for global suppliers, distributors, and Indian manufacturers.

3. Positioning India as a Trading Hub

placed to evolve into a global trading and re-export hub. Rapid development of ports, logistics corridors, and multimodal infrastructure, combined with FTWZ frameworks, supports:

  • Cargo consolidation across origins
  • Re-exports to global destinations
  • Value-added services for international markets
Case Study: A U.S. Major Optimizing Furniture Supply Chain via India FTWZ

A leading U.S. furniture retailer sources from China, Vietnam, Thailand, and India. Traditionally, cargo moved to the U.S., where it was deconsolidated and repacked based on store-level requirements. By creating a Pick & Pack Export Consolidation Hub in India FTWZs, the company can now:

  • Consolidate India-origin cargo with imports from other Asian countries
  • Perform kitting, labelling, and repacking in India
  • Ship store-ready containers directly to U.S. destinations

This eliminates handling at destination, reduces cost, shortens lead times, and leverages India as a global supply chain node.

4. Value-Added Services Driving Compliance & Efficiency

FTWZs allow a broad spectrum of services without altering product composition, such as:

  • Labelling, kitting, packing/repacking, and barcoding
  • Assembly of CKD/SKD kits
  • Sorting, re-bundling, and compliance labelling (MRP, FSSAI, Drug & Cosmetic Act)

These services deliver three key advantages:

  1. Cost efficiency – No need for dedicated India-specific production/packaging overseas
  2. Job creation in India – Shifting packaging/labelling activities to FTWZs
  3. Regulatory safety net – Cargo can be quarantined, re-exported, or destroyed if irregularities are found, all without breaching customs boundaries

Industries such as pharma, cosmetics, apparel, retail, and FMCG stand to gain significantly from these capabilities.

Challenges & The Way Forward

Despite their potential, FTWZs face hurdles: regulatory complexities, infrastructure bottlenecks, and the need for consistent enforcement. Regular policy reviews, stronger governance, and greater stakeholder collaboration will be crucial in unlocking their full potential.

Beyond Sqfeet’s Commitment

At Beyond Sqfeet, we operate FTWZ facilities across India’s three major gateways—Mumbai, Chennai, and Mundra—supporting both imports and exports alongside value-added services. Our philosophy is rooted in ethical, compliant, and transparent FTWZ usage. We believe India’s shift from a consumption-led economy to a global trading hub is inevitable, and our mission is to help businesses unlock this transformation through FTWZ-driven solutions.

Author – Pratap Hazra – Director, Beyond Sqfeet Supply Chain Solutions Pvt Ltd