A Project On

Impact of SEZs in

India

Guided By:

Prof. P.A. Johnson

Presented By:

Jatin Arora- PG12013

Brij Mohan - PG12017

Samiksha Kothari - PG12019

Mihir Ambedkar - PG12011

Rutika Kasat - PG12015

MET MET INSTITUTE OF MANAGEMENT

Acknowledgement

We would like to take this opportunity to express our sincere and heartfelt gratitude toProf.
P. A Johnson for his timely guidance and inspiration without which this project would not have been

possible.
Contents

Acknowledgement..........................................................................................................................................2

Introduction....................................................................................................................................................4

Transition of EPZs to SEZs in India.............................................................................................................5

Rationale behind SEZs...................................................................................................................................6

SEZ Act 2005.................................................................................................................................................. 7

SEZ’s Facilities and Incentives (SEZ Act 2005)..................................................................................................8

SEZ’s in India...............................................................................................................................................................10

Impact of SEZ’s...........................................................................................................................................................15

A. Export Performance of SEZs..........................................................................................................15

B. Human Development and Poverty Reduction Effects.........................................................................18

➢ Direct and Indirect Employment....................................................................................................... 18

➢ Female Employment............................................................................................................................ 19

C. Regional disparity..................................................................................Error! Bookmark not defined.

D. Land Acquisition & Displacement Effects.....................................................................................23

E. Labour Relations..............................................................................................................................28

F. Agriculture........................................................................................................................................28

G. Fiscal Losses..............................................................................................................................................29

H. Real Estate.......................................................................................................................................29

I. Water Scarcity................................................................................................................................. 30

Financial Viability of SEZ’s......................................................................................................................................31

Lessons from China.....................................................................................................................................35

Conclusion.....................................................................................................................................................37

Bibliography.................................................................................................................................................. 38
Introduction

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone
(EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965.

With a view to overcome the shortcomings experienced on account of the multiplicity of controls
and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view
to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was
announced in April 2000.

A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are
more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be
suspended inside a special economic zone.

The category SEZ covers, including free trade zones (FTZ), export processing Zones (EPZ), free
Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, urban
enterprise zones and others.

Usually the goal of a structure is to increase foreign direct investment by foreign investors,
typically an international business or a multinational corporation (MNC), development of
infrastructure and to increase the employment.

Special Economic Zone (SEZ) is mainly introduced to attract the foreign investment and
technology. SEZ has its own laws for trade and other business apart from the country's law. SEZ
covers the following zones:

• Free Trade Zone (FTZ)

• Export Processing Zones (EPZ)
• Free Zones (FZ)
• Industrial parks
• Free Ports
• Urban Enterprise Zones

This policy intended to make SEZs an engine for economic growth supported by quality infrastructure
complemented by an attractive fiscal package, both at the Centre and the State level, with the
minimum possible regulations
Transition of EPZs to SEZs in India

India was one of the earliest to have EPZs. Following Shannon in Ireland in 1956 and Mayaguez at
Puerto Rico in 1962, the first Asian EPZ came up at Kandla in India in 1965. This was followed by
the Santa Cruz Electronics Export Processing Zone (SEEPZ) at Mumbai in 1974. These were
succeeded by zones at Noida, Madras, Cochin, Falta and Vishakhapatnam. All these EPZs were
developed by the Central Government. The limited success of EPZs gave rise to the concept of
SEZ. SEZ has much more flexibility and is much larger in size than EPZ and has proved successful
in almost all countries.

Differences between SEZ and EPZ

• SEZ is much larger in geographical size than EPZ.

• SEZ has much larger scope of business than EPZ.

• Infrastructure of SEZ consist of manufacturing units, townships, roads, hospitals, schools

and other services but EPZ are confined to manufacturing establishments.

• The benefits of SEZ are more towards the growth of domestic business where as EPZ has the
main objective of developing exports business.

• SEZ is open to all fields of business like manufacturing, trading and services but EPZ has
more focus on manufacturing.

• Tax benefits in SEZ are much more than in EPZ.

• There is very limited accountability of export per formance in SEZ but it has great influence
over the business carried out in EPZ as the penalties and duty recovery is imposed in case of
shortfall.

• The consumption of raw material that is imported duty free has to be consumed over a period
of 5 years in SEZ but the time period in EPZ is only 1 year.

• Laws concerning the certification of the import goods are much more relaxed in SEZ than in
EPZ.

• Custom department has less interference in the inspection of the premises in SEZ but EPZ
requires routine customs inspection of cargo.

• FDI investment in manufacturing unite does not require sanctions from the board as it is in EPZ.
Rationale behind SEZs

The SEZ is a subset within the geographical boundaries of the state. The rest of the host state is
legally referred to as the Domestic Tariff Area or the DTA . Effectively, the SEZ is ―outside‖ the
territory of the host state with respect to trade and investment.

Figure 1 below explains this relationship.

The host states can expect inter alia to earn increased export earnings, benefit from increased
employment opportunities, improved training and skills, and transfer of modern technology

In return, foreign investors are offered incentives such as tax exemptions, duty free imports,
exemptions from import quotas, capital mobility to remit profits, export allowances and subsidised
interest rates within the SEZ.

A significant incentive offered by the host state involves the legal control of labour relations.
Specifically, the right to establish trade unions or take industrial action may be limited within the SEZ

Political and economic stability, reliable infrastructure, inexpensive labour, market access, and
efficient bureaucracy are factors that determine not only how attractive investors will find the SEZ,
but are factors that eventually determine the success of the SEZ.
 SEZ Act 2005

SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade
Policy and fiscal incentives were made effective through the provisions of relevant statutes.

To instil confidence in investors and signal the Government's commitment to a stable SEZ policy
regime and with a view to impart stability to the SEZ regime thereby generating greater economic
activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared
after extensive discussions with the stakeholders.

The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received
Presidential assent on the 23rd of June, 2005. After extensive consultations, the SEZ Act, 2005,
supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification
of procedures and for single window clearance on matters relating to central as well as state
governments.

The main objectives of the SEZ Act are:

(a) Promotion of exports of goods and services

(b) Promotion of investment from domestic and foreign sources

(c) Creation of employment opportunities

(d) Development of infrastructure facilities

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in
infrastructure and productive capacity, leading to generation of additional economic activity and
creation of employment opportunities.

The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation
of related infrastructure. A Single Window SEZ approval mechanism has been provided through a
19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended
by the respective State Governments/UT Administration are considered by this BoA
periodically. All

decisions of the Board of approvals are with consensus.

The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every
SEZ is divided into a processing area where alone the SEZ units would come up and the non-
processing area where the supporting infrastructure is to be created.

The SEZ Rules provide for:

• " Simplified procedures for development, operation, and maintenance of the Special Economic
Zones and for setting up units and conducting business in SEZs;
• Single window clearance for setting up of an SEZ;
• Single window clearance for setting up a unit in a Special Economic Zone;
• Single Window clearance on matters relating to Central as well as State Governments;
• Simplified compliance procedures and documentation with an emphasis on self certification.
SEZ‘s Facilities and Incentives (SEZ Act 2005)

CUSTOMS AND EXCISE :

✓ SEZ units may import or procure from the domestic sources, duty free, all their
requirements of capital goods, raw materials, consumables, spares, packing
materials, office equipment, DG sets etc. for implementation of their project in
the Zone without any licence or specific approval.
✓ Duty free import/domestic procurement of goods for setting up of SEZ units.
✓ Goods imported/procured locally duty free could be utilised over the approval
period of 5 years.
✓ Domestic sales by SEZ units will now be exempt from SAD.
✓ Domestic sale of finished products, by-products on payment of applicable
Custom duty.
✓ Domestic sale rejects and waste and scrap on payment of applicable Custom duty
on the transaction value.

INCOME TAX

✓ Physical export benefit

✓ 100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.
✓ Reinvestment allowance to the extend of 50% of ploughed back profits
✓ Carry forward of losses

FOREIGN DIRECT INVESTMENT

✓ 100% foreign direct investment is under the automatic route is allowed in

manufacturing sector in SEZ units except arms and ammunition, explosive, atomic
substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic
drinks and cigarettes , cigars and manufactured tobacco substitutes.
✓ No cap on foreign investments for SSI reserved items.

BANKING / INSURANCE/EXTERNAL COMMERCIAL BORROWINGS

✓ Setting up Off-shore Banking Units allowed in SEZs.

OBU's allowed 100% Income Tax exemption on profit for 3 years and 50 % for next
two years.
✓ External commercial borrowings by units up to $ 500 million a year allowed
without any maturity restrictions.
✓ Freedom to bring in export proceeds without any time limit.
✓ Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make
overseas investment from it.
 ✓ Commodity hedging permitted.
✓ Exemption from interest rate surcharge on import finance.
✓ SEZ units allowed to 'write-off' unrealized export bills.

CENTRAL SALES TAX ACT

✓ Exemption to sales made from Domestic Tariff Area to SEZ units.

SERVICE TAX

✓ Exemption from Service Tax to SEZ units

ENVIRONMENT

✓ SEZs permitted to have non-polluting industries in IT and facilities like golf

courses, desalination plants, hotels and non-polluting service industries in the
Coastal Regulation Zone area
✓ Exemption from public hearing under Environment Impact Assessment Notification

COMPANIES ACT

✓ Enhanced limit of Rs. 2.4 crores per annum allowed for managerial remuneration
✓ Agreement to opening of Regional office of Registrar of Companies in SEZs.
✓ Exemption from requirement of domicile in India for 12 months prior to
appointment as Director.

DRUGS AND COSMETICS

✓ Exemption from port restriction under Drugs & Cosmetics Rules.

SUB-CONTRACTING/CONTRACT FARMING

✓ SEZ units may sub-contract part of production or production process through

units in the Domestic Tariff Area or through other EOU/SEZ units
✓ SEZ units may also sub-contract part of their production process abroad.
✓ Agriculture/Horticulture processing SEZ units allowed to provide inputs and
equipments to contract farmers in DTA to promote production of goods as per the
requirement of importing countries.
 SEZ‘s in India

At present there are 158 SEZs (as of February 2012) operating throughout India. The government of
India formally approved additionally more than 500 SEZs (as on October 2010)

Tamil Nadu and Karnataka are the first two states with highest number of SEZs are working i.e. 20
and 18 respectively. In Chandigarh, Rajasthan and Orissa each one SEZs are functioning.

The government of India has also approved 109 SEZs, for Andhra Pradesh, 105 Maharashtra and 70
Tamil Nadu.

Names of the few SEZs set up by the Government / Private sector are:

• Kandla Special Economic Zone, Kandla (Gujarat)

• SEEPZ Special Economic Zone, Mumbai

• Noida Special Economic Zone, Noida (UP)

MEPZ Special Economic Zone, Chennai (TN)

• Cochin Special Economic Zone, Cochin (Kerala)

• Falta Special Economic Zone, Falta (West Bengal)

• Visakhapatnam SEZ, Vishakhapatnam (AP)

• Salt Lake Electronic City - WIPRO, West Bengal

• Mahindra City SEZ (IT), Tamil Nadu

• DLF Cyber City, Gurgaon

• Hiranandani Business Park, Mumbai, Maharashtra

• Tata Consultancy Services Limited, Tamil Nadu

 ❖ STATE WISE DISTRIBUTION OF SEZ’S

1) I.T SEZs in Maharashtra, AP, Karnataka, Tamil Nadu

From the map we can immediately see that the highest number of SEZs is in the states of
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. A majority of these, around 66%, are in
the information technology (IT) and information technology-enabled services (ITES) sectors.

Even before the enactment of the SEZ Act, these states were major centres of the IT industry,
mainly because the IT sector was given tax holiday till 2010 and other benefits such as land and
electricity at subsidized rates in these states. After the enactment of the SEZ Act, these same IT
companies vied with each other to get into SEZs so that they could continue enjoying tax breaks for
a further fifteen to twenty years. Which means that after earning super profits for the past two
decades riding on the IT boom, in a large part facilitated by generous subsidies and benefits from
the public exchequer, these corporations are now ensuring that they can continue to enjoy these
benefits for the foreseeable future.
As a result, on one hand as unfettered profiteering by capital has been facilitated, on the other hand
investment and expenditure in agriculture and social sectors have been curtailed. In this context it
would be useful to remember that the most number of suicides by debt-ridden farmers have also
taken place in these states.

2) SEZ clustering near big cities: Connection to real estate

After this we see that most of the SEZs are clustered around the big cities, specifically the metros.
A majority of the SEZs are situated in and around Delhi, Mumbai, Kolkata, Bengaluru, Hyderabad
and Chennai. From this it is clear that one of the original declared motivations behind the
development of SEZs, that SEZs would help in infrastructure development in the underdeveloped
regions of the country as SEZ developers would build roads, communication and power supply
networks in areas surrounding the SEZs, have completely failed. SEZ developers have invested
nothing for the development of infrastructure in interior areas, rather they have tried to locate the
SEZs mostly near cities where there is existent infrastructure thereby increasing the pressure on this
infrastructure.

3) SEZ clustering on agricultural areas

The third thing that becomes clear to us from this map is that many of the SEZs are coming up in
fertile, agricultural areas. These include the Gangetic plains of West Bengal, Vidarbha and coastal
areas of Maharashtra, south Karnataka, coastal areas of Kerala, Tamil Nadu and Orissa and the
agricultural areas of Punjab and Haryana. Although the central government had initially claimed
that not more than 0.5% of the arable land in the country would be acquired for SEZs, this amount
has now increased by fivefold to around 2.7%.

4) SEZ clustering along coastlines

The nextover
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national brings to our attention
and multinational is that
corporations forthe entireupcoastline
setting of SEZs.ofStarting
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beingGujarat
in the
west to West Bengal in the east, nearly the entire coastal regions of all the coastal states are dotted
with large and small SEZs. Many of these SEZs are being specially established for commodities
like petrochemicals and steel, which have large international markets. This means that raw
materials will enter these SEZs from either within the country or would be imported, to be
processed into various exportable commodities which will go out of the country. For this purpose,
huge tracts of coastal land in the states of Gujarat, Andhra Pradesh, Orissa and West Bengal is
proposed to be handed over to private operators for setting up what has been christened as
Petroleum, Petrochemical and Chemical Investment Regions (PCPIR).
 5) SEZ clustering in river valleys

Finally, this map also shows us that the SEZs have turned out to be a great way for the looting of
the water resources of the country. This is because we see that a large number of SEZs are coming
up in the major river valley regions of various states. This includes the Narmada-Tapti valley in
Maharashtra, the Godavari valley in Andhra Pradesh, the Kaveri valley in Karnataka-Tamil Nadu,
the

valley
Bengal.of the Mahanadi and its distributaries in Orissa and in the lower Gangetic valley in West

6) Where are there no SEZs

It is quite obvious from the map that there are nearly no SEZs in north-east India and Kashmir.
Because of the geo-political sensitivity of these border regions, the government apparently does not
give approvals for setting up SEZs in these states. Also, the higher costs of setting up SEZs in these
remote and less accessible areas, and also the higher costs of transport and communication, does
not make it a lucrative option for SEZ developers to set up SEZs in these states. Basically, all the
reasons
for setting up SEZs in a particular region enumerated above are generally absent from these
regions. Moreover, the long standing movements for self-determination in these regions would
have also
dissuaded corporations from setting up SEZs there. We also see that there are no SEZs in the desert
areas of Rajasthan or the arid regions of north Karnataka because of lack of water and other
infrastructure.

7) Probing the absence of SEZs in Bihar and UP

Two major states where there are few or no SEZs are Uttar Pradesh and Bihar. The Nitish Kumar
government of Bihar has taken a policy decision not to set up SEZs in Bihar. According to political
activists and analysts from Bihar, the reason is not that Nitish Kumar is anti-capital or hostile to the

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Ssaomcioe ehcolndotmruiec fco
ornUdtitaiornPsraspdecshif.ic to Bihar and the caste support base of

A look at the geographical distribution of SEZs on the map of India today clearly shows the scale
of the aggression of big capital over the resources of India, resources that include our agricultural
land, waters, sea coasts and infrastructure. However, we also see how a spe ctrum of peoples‘
struggles against this, ranging from the legal methods used in Goa, to the peaceful protests by the
villagers of Jagatsinhpur in Orissa against the POSCO SEZ, to the armed struggle being waged in
large parts of east-central India, has been able to stop the establishment of SEZs and successfully
resist this corporate onslaught.
 ❖ SECTOR WISE DISTRIBUTION OF SEZS

Of the sectors, the Information Technology and IT enabled services sector has a 61% share of SEZs,
while the biotech, pharmacy, textile sector and multi-product SEZs have less than 10% share each.

Apart from these, there are three airport based multi-product, and eight port-based multi-product
SEZs.

Source: SEZ India, 2011e

Impact of SEZ‘s - Positives

A. Export Performance of SEZs

Special Economic Zones Primarily aim at developing export potentials of the country through
export oriented individual complexes or industrial agglomerates.

The special economic zones in India were established with a view to bring expertise for the
country's exports sector. For this a policy was introduced on 01.04.2006. As to these policies, the
Government has set up SEZ's in the public, private, joint sector or by State Governments. In this regard
some of the existing Export processing zones were converted in to Special economic zones.

Fiscal incentives, financial assistance, infrastructural support and environment free of bureaucratic
interference, underlies the economic policy parameters promoting these zones. These incentives and
assistance schemes increase indirect competitive strength in the units in these zones to face
adequately the international competition in the world market. The valuable foreign exchange earned
by the units in the SEZs provides the needed investment resources and thus help the economic
development of the country.

Source: SEZ India, 2011e

Year Value (Rs. Crore) Growth Rate ( over previous year )

2003-2004 13,854 39%

2004-2005 18,314 32%

2005-2006 22 840 25%

2006-20007 34,615 52%

2007-2008 66,638 93%

2008-2009 99,689 50%

2009-2010 2,20,711.39 121.40%

Exports from the functioning SEZs have increased to Rs. 2.2 trillion in 2009-10 from Rs. 13,854 crore
in 2003-04. The value of exports was Rs. 18,314crore in 2004-05, Rs. 22,840 crore in 2005-06 and
Rs. 34,615 crore in 2006-07. It grew by a 43 percent and reached Rs. 3.16 Trillion in 2010-11
fiscal. As per the Ministry of Commerce and Industry, Gujarat has registered the highest exports of US$
32.6 billion.

An example of a successful SEZ in this regard would be the Mundra SEZ. This SEZ houses India‘s
largest private port and has been most successful in seeing an increase in exports. It is expected to
handle 100m tonnes of exports by 2013, with a growth rate of 40% in these years.

While the astounding figure of Rs 2 lakh crore exports from SEZs till March 2010 is used to
highlight the performance of SEZs in general, it is important to examine this figure. Nearly 50% of
these exports came from the same handful of functional zones in the state of Gujarat. Also, it may be
noted that Gujarat‘s functional SEZs, including Kandla, Mundra, Jamnagar, Surat and Dahej, which
contribute to the exports, existed or were projects that were planned and under construction before
the central and state SEZ Acts were put in place; hence their success can hardly be attributed to the
SEZ policy of 2005. Further, a single SEZ (Reliance Jamnagar) contributed Rs 75,000 crore to the
all-India figure, and this level of performance cannot be expected of all SEZs.

SEZs are a specifically delineated duty free enclave and are deemed foreign territory for the
purpose of trade operations, duties and tariffs. Accordingly, goods and services from domestic
tariff area (DTA) to SEZ are to be treated as exports and goods coming from SEZ into DTA are to
be treated as imports.

The incentives and facilities offered to the SEZs include duty free import/domestic procurement of
goods for development, operation and maintenance. At the same time, the SEZ law allows
import/export operations on self-certification basis.

Additionally, as per the EXIM Policy (2002-'07) and the Foreign Trade Policy (2004-'09) an SEZ unit
was required to achieve a positive NFE.

The issue of positive NFE (Net Foreign Exchange) and physical exports is also controversial, as
Rule 53 of the SEZ Act, which considers sale to DTAs from SEZs, is deemed exports. In fact, it
was the

NCAFEG mreapionrlyt othf o2u0g0h8 dtohmat eosbtiscersvaeleds thanatd ―t2h2is

S E Z u n it s h a d b ee n a ch ie v in g th e p re s c rib e d ‗ p os iti v e ‘
d e fea t s o n e o f th e su b -o b je c tiv e s o f t h e sc h e m e w h i c h
was to augment real exports.

Policy had not prescribed the extent of foreign exchange that should be earned by an SEZ unit through
actual physical export and that which could be earned through deemed export in DTA, to comply
with positive NFE provision.

However, the Comptroller and Auditor General of India has pointed out that most of the SEZs sell
goods within the country as ―deemed exports‖ rather than actually exporting them overseas. This
seems plausible as the exponential rise of exports from SEZs corresponds with stagnant national
exports. The Finance Ministry speculates that some units have merely shifted to these zones from
the DTA to avail tax benefits

The CAG found that duty was waived twice - first on the inputs used in manufacturing products in the
SEZs, and again when the finished products from the SEZs were allowed into DTA at nil rate of duty.
The duty foregone on the inputs utilized for manufacture of the finished products could not be
recovered, in the absence of the provisions of paying back.

CAG's audit scrutiny explains how this system turned out to be a huge favour for Nokia the well
known mobile manufacturer, while putting similar units in the DTA or even in other EOUs at
distinctly disadvantageous position. The audit report states without mincing words, "Audit scrutiny of
records of Nokia India Pvt. Ltd., a unit in Madras SEZ, revealed that the unit cleared mobile phones

with a value
Rs.681.38 of Rs.4,855.69
crores crores in
(Rs.86.76 crores in 2005-06
2005-06 and
and 2006-07 in crores
Rs.594.62 DTA atin'nil' rate of foregone
2006-07) duty. Duty
onofthe
inputs used in the manufacture of these mobile phones could not be recovered in the absence of
enabling provisions."

Exports – Trend Analysis (Value in crores)

 B. Human Development and Poverty Reduction Effects

Three channels through which SEZs may affect human capabilities

❖ Employment effects
❖ Human capital formation effects
❖ Technology upgrading effects

❖ Income effects

❖ EMPLOYMENT EFFECTS

➢ Direct and Indirect Employment

The employment effect of SEZs operates through three channels: one, SEZ generates direct
employment for skilled and unskilled labour; two, they also generate indirect employment; and
three, they generate employment for women workers.

It is believed that employment creation generates incomes, creates non pecuniary benefits,
improves the quality of life of labour and enhances their productivity. These, in turn, have poverty
reduction effect. SEZs have lead to employment generation.

The total employment by all types of SEZs across India as of 2011 was about 7, 00,000.

The indirect effect is manifested as ancillary employment opportunities generated in sectors of the
economy affected by the operations of the SEZ. These include, transport, communication, automobile,
civil aviation, shipping, tourism, hospitality, packaging, banking, and insurance. Employment
opportunities are, thus generated for both unskilled and skilled labour.

Critics however argue that employment opportunities created within SEZs will not be a net addition
to employment; they will replace old jobs outside the zones due to relocation/diversion of
investment activities from the domestic mainland to SEZs.
 ➢ Female Employment

Source: Based on the statistics provided by the Mi nistry of Labour

The above table shows that the female participation ratio in the SEZ sector is higher than that in the
organized sector but it is much lower than that in the unorganized sector in all the states. This
indicates that a large proportion of female workers have been working in the informal sector due to
lack of job opportunities in the organized sector. The informal sector is characterized by inadequate
safety, health and environmental standards. Poor working environment including inadequate premises
and often very unsatisfactory welfare facilities, as well as practically nonexistent occupational health
services are causing large human and material losses in this segment of the economy. SEZs provide an
opportunity to female workers to shift to the organized sector which are characterized by higher
wages and better conditions. In 2011, only 40% of the workforce was female .The claims of benefits
of the generation of employment by SEZs are hence called into question.

❖ SKILL FORMATION (HUMAN CAPITAL FORMATION) EFFECTS

Labour force acquires skills from within the firm through training and learning by doing on the job.
Zone units can thus directly affect the skill formation as workers are provided additional training
on- and off the job. Local employees of multinational corporations (MNCs) in some cases are sent
to their headquarters abroad or elsewhere for middle and, more often, higher management training,
and advanced technician training. Training may spread broader than enterprise programmes. It
also
involves upgrading of the education system to cater to the needs of the zone units. Zone units may
also be setting up training institutes to impart training to the labour to create the relevant pool of
skilled labour. Skill formation for the poor unskilled workers also occurs through assimilation of
industrial discipline. This might increase the welfare of poor unskilled workers by increasing the
range of job opportunities available to them . Improved skills and productivity increase workers‘
income earning capacity. Given the high labour turnover rate in the SEZs, domestic firms can
benefit from this training by hiring workers previously employed in the zone firms.

In the long-term, the creation of a macro environment in which returns to education and skill
development are high, is an important component of the skill formation effect of SEZs. Zone units
raise the demand for and wages of skilled workers through technology transfer and capital investment,
which in turn provides positive incentives for educational attainment and skill formation.

SEZs offer a highly conducive investment climate to attract FDI by making up for infrastructural
deficiencies and procedural complexities that characterize developing countries. Typically, FDI brings
with it technology transfer, managerial, and other skills (such as marketing and distribution), access
to markets and training for staff. Foreign entrepreneurs may set an important example for potential
domestic entrepreneurs by demonstrating that the right combination managerial, technical and
marketing know-how can allow organizations to profitably enter world markets The export
knowledge of foreign firms operating in SEZs is expected to spill-over to domestic firms in SEZs
and then to those in the domestic economy. Through such linkages SEZs may enable firms in the
rest of the economy to master production, distribution and marketing skills important for enhancing
international competitiveness. SEZs can thus play a crucial role in upgrading domestic entrepreneurial
skills.

❖ TECHNOLOGY UPGRADING EFFECTS

SEZs attract export-oriented FDI and promote other forms of collaboration between local firms and
MNCs. For instance, SEZs facilitate the insertion of domestic SMEs (small and medium
enterprises) into global value chains by offering them an enabling investment climate. Global
standards, low-cost competition, and advances in technology raise challenges for the SEZ units
competing in global value chains. This stimulates learning and innovation which are crucial aspects
of human development.

Learning and knowledge created in SEZs is eventually transmitted to domestic firms supplying to
the
SEZ firms through backward linkages when the companies within the SEZ buy inputs from the host
country. Direct transaction of technology and indirect spill-overs through various channels such as
copying, reverse engineering, and movement of workers and managers between foreign and domestic
companies also facilitate transmission of knowledge to the rest of the economy. Further, the trade
bodies, manufacturers‘ associations and export marketing bodies which provide a useful platform to
interact and to foster closer rapport among members act as valuable forums for information sharing
and spillovers.
 ❖ INCOME EFFECTS

The all-India per capital Net National Product (NNP), which in simpler terms is the country‘s per
capita income, stood at ₹ 53331 in 2010-11.

Five out of the seven top states that account for 76 per cent of total approved zones namely,

Maharashtra - ₹ 83471,

Haryana - ₹ 94680,

Karnataka - ₹

60946, Gujarat - ₹

75115,

Tamil Nadu - ₹ 72993, have per capita incomes higher than the national level.

The other two (Andhra Pradesh and West Bengal) have per capita marginally lower than the
national average.

The per capita income is one of the most common yardsticks for clubbing states into ‗rich‘ and ‗poor‘
categories. States with per capita incomes higher than the national level can be called richer than
the others.

Thus out of seven states that individually account for 5 per cent of the total SEZs approved, five are
more well-off, higher-income states. These five – Maharashtra, Haryana, Karnataka, Gujarat and
Tamil Nadu have 268 of the 500 + approved SEZs. Overall they account for 57.7 per cent of the
SEZs coming up in the country.

The two other states – Andhra Pradesh and West Bengal – are ‗middle income‘ states with 85 zones
or 18.3 per cent of total SEZs.

Bihar has the lowest per capita income of ₹ 20708. No SEZ has come up in Bihar till now.

Among the top ten poorest states of the country apart from Bihar, Assam, Arunachal Pradesh and
Manipur also do not have any SEZs. Jharkhand and Chhattisgarh have one and two each
 Linkages between SEZs and human development

The above analysis suggests that SEZs impact on human development through three broad
channels: employment generation, skill (human capital) formation and technology upgradation.
Each of them exerts two types of effects: direct and indirect. For instance, employment is generated
directly when zone units and administration hire labour. The demand for complementary goods and
services generates indirect employment. Similarly, the skill formation effect operates directly when
workers are given specific training by the firms or when they acquire skills by working in the zone
units. The indirect channel becomes operative when the spillovers take place through movement of
workers to domestic areas.

Finally, foreign collaborations are a direct source of new technology, managerial, and marketing
networks in the zones. But they also narrow the technology gap between the foreign and domestic
firms indirectly by promoting spill-overs within the zone and then outside the zone. Direct impact
in each case may be empirically analysed but indirect effects, which operate through backward and
forward linkages are difficult to measure. They can only be assessed by analysing the extent of such
linkages.

.
Impact of SEZ‘s - Negatives

A) Land Acquisition & Displacement Effects

Land acquisition is the ‗hot topic‘ of India‘s SEZ policy. The SEZ Act, 2005 makes no mention of it.

Land acquisition is especially contentious and problematic when the land being acquired is
populated with people living off the land, which is often the case with agricultural land, as was the
case in Nandigram, West Bengal.

In addition to this that real-estate developers can engage in major land grab in the guise of setting
up SEZs as the SEZ rules require only 25 per cent of the land to be used for industrial processing
purposes.

While approved SEZs are to consume 95,000 hectares of land, the land allocated to SEZs is about
0.070% of the total land area and 0.128% of the total agricultural area of the country. While this
may
seem low, it is proven to be problematic because of the high population density in some of these
areas.

An illustration of the flawed acquisition mechanism by the government would be the case of the state
of Andhra Pradesh, where land is being acquired from the poorest people who had been earlier
allocated land by the government in ― land-for-the-poor schemes‖. Legally, this land belongs to the
government, so the government takes it back often without compensation on the behalf of SEZ
developers.

On the other hand, the Commerce Ministry has cited examples of how rise in land rates in barren,
unproductive land has brought wealth to the poor and SEZs have brought infrastructure to the
hinterland, as is the case with Mundra in the state of Gujarat. The wastelands in the coastal regions
of Gujarat are mostly owned by the government, hence leaving out land acquisition out of the
picture.

Moreover, states
years of social like Tamil
upliftment byNadu have seen the
the government has rural
madepopulation welcome
the populace SEZs, because
less dependent several
on agriculture
for
their livelihood.
 ❖ CASE STUDY – NANDIGRAM VIOLENCE

The Nandigram SEZ controversy, which caused the Nandigram massacre, started when the West
Bengal government decided that the Salim Group of Indonesia would set up a chemical hub under
the SEZ policy at Nandigram, a rural area in the district of Purba Medinipur.

The chemical hub required the acquisition of over 14,000 acres (57 km²) of land. The special
economic zone spread over 29 mouzas (villages) of which 27 were in Nandigram. Most of the land
to be acquired was multi crop and would have affected over 40,000 people. Expectedly, the
prospect of losing land and thereby livelihood rose the heckles of the predominantly agricultural
populace. The villagers, who had been predominantly supporters of the party in power, CPI (M),
turned against it and organized a resistance movement under the banner of the newly formed
Bhumi Uchhed Pratirodh Committee or BUPC

The villagers took over the administration of the area and all the roads to the villages were cut off.
The administration was directed to break the Bhumi Ucched Protirodh Commitee‘s (BUPC) resistance
at Nandigram and a massive operation with at least 3,000 policemen was launched on March 14,
2007.

However, prior information of the impending action had leaked out to the BUPC who amassed a
crowd of roughly 2,000 villagers at the entry points into Nandigram with women and children
forming the front ranks. In the resulting mayhem, at least 14 people were killed.

After the bloodshed at Nandigram, and the stiff resistance from opposition parties and Left Front
partners over land acquisition, chief minister Buddhadeb Bhattacharjee on 3 September expressed
the government‘s preference for the sparsely populated island of Nayachar, 30 kilometres from Haldia,
to set up the much talked-about chemical hub.
 •!• CASE STUDY - POSCO SEZ

On June 22nd 2005, the state government ofOrissa signed aMemorandum ofUnderstanding
(MoU) with the Korean steel giant, the Pohang Steel Company (POSCO). Since then the company has
signed more than 40 MoUs with the government.

Valued at Rs. 52,000 Crores ($13 Billion), this is India's largest Foreign Direct Investment (FDI) yet,

and involves a 12 -roillion tonjntegrated steel plant, and the cQnstruction of adnew nort for which
over
4 3{0,u acres ot 1and has been designated. The proposed stee1 plant is expecte to anect seven villages
in three gram panchayats, namely Dhinkia, Nuagaon & Gadakujang, and will allow POSCO to extract
600 million tons of iron ore over the next 30 years.

The terms of the MoUs require the government to recommend, free of encumbrances to POSCO,
mining and prospecting licenses, clearances related to matters of forest and environment, and permits
for drawing water from the Mahanadi River. In addition, the government has agreed to defend various
recommendations made in favor of POSCO in the eventuality of litigation in the appropriate judicial,
quasi judicial areas. Similar facilitation of clearances by the state government for all aspects of the
project - the steel plant, mines, roads, railways and port - has been agreed upon.

In 2006, the project was granted "Special Economic Zone" (SEZ) status, and the Prime Minister
issued a statement saying that land acquisition by POSCO must be expedited.

While reports issued by the Government and by POSCO claim that about 400 families will be
displaced by the project, according to figures from the 2001 census, the three panchayats (villages)
have3,350 households, which adds up to 22,000 people who will be displaced.

This is fertile land, and an average family involved in cashew farming earns about Rs. 20,000 ($500)
per season. About 500/o of the families are also involved in pisciculture (mostly prawns), for which the
daily earnings per family can range between Rs. 100-5000 ($2.50-$125). In addition, there are many
landless families that depend on ancillary employment like making baskets for packaging Paan leaves
grown in the area.

POSCO has applied for environmental clearance for different parts of the project separately rather
than as a whole in the hope of expediting clearance.

Implications of SEZ status

POSCO gets a 10-year tax-break as a result of its being granted SEZ (Special Economic Zone) status
by the central Government. Land will also be sold to POSCO at a lower than market price. These
impose significant costs to the exchequer. The SEZ status of this project also removes it from the
purview of the local panchayat governments, thus further decreasing the control of the villagers over
their local environment. Further, the SEZ status also grants immunity to POSCO from adherence to
hard-won labor and environmental laws designed to protect employees.

Since government records recognize only a small fraction of the total number of affected people,
most of them will not receive the compensation or rehabilitation they are entitled to. The residents of
the area have been growing betel nuts, cashew nuts and paddy, and also engage in pisciculture. No
 other land in the immediate neighborhood is viable to grow these crops. The POSCO plant will
uproot the farmers from a livelihood that they are skilled at and trained for, and convert them to
unskilled labor, and transfer them to non-guaranteed jobs in the construction of the plant, port and
other facilities.

❖ The situation in Orissa and the tactics being used by the government are similar to those employed
in Kashipur, Kalinganagar, and more recently in Nandigram, West Bengal, where villagers resisting

the takeover of their farmland for the construction of an automobile plant were shot and killed by
the police. Villagers opposed to the POSCO steel plant are being intimidated by the use of force,
including the use of paramilitary troops. During the statutory public hearings in April 2007, the State
stationed 15 platoons of armed paramilitary forces in the area thus silencing the expression of local
opposition to the project. Amnesty International, the human rights organization, issued a report
urging the Government of Orissa against the use of force, and to follow the democratic process.
 ❖ CASE STUDY – BHARAT FORGE & MIDC SEZ – KHED (PUNE)

❖ The MIDC has proposed a special economic zone on this land measuring thousands of hectares. But
for three years, no decision could be taken and everybody waited patiently till an amicable solution
was found. And when it happened, the farmers of Khed set an example that, they hope, other
SEZs will now follow.

❖ The agreement signed between Bharat Forge — which has a 74 per cent share in the SEZ — MIDC
and over 1,200 farmers of the village says the farmers will have one company of their own in the
SEZ.

❖ Other conditions say 500 acres of the developed land will be given to the farmers' company; schools
and hospitals will be set up in the area and each member of the affected families will be trained
and given a job in the SEZ.

❖ "The farmers have 50 acres of the land and MIDC will add some per cent, say 50 acres more, to
become partners and then the entire land can be given out to one or two companies on rent basis.
Then this rent will be distributed to all farmers," Pune district collector Prabhakar Deshmukh
explains the fineprint.

❖ PROPOSED CHANGES IN THE LAND ACQUISITION BILL

Fresh changes have been made in the draft of Land Acquisition Bill under which the consent of
landowners for acquiring land for private purpose has been made stiffer following a suggestion
from UPA Chairperson Sonia Gandhi.

The percentage of land owners, whose consent is a must for acquiring land for private purpose, has
been raised from 67% to 80 in the proposed bill.

The draft of the bill approved by the Sharad Pawar-headed GoM now proposes consent of two-
thirds of "land losers" (from whom land would be purchased) for acquiring land for public-private-
partnership and private projects for public purpose, Rural Development Minister Jairam Ramesh said.

―Only after the two-thirds consent, the government acquires land for PPP or private projects for public
purpose. Social Impact Assessment (SIA) provision remains," Ramesh said after the meeting.

Also approval of gram sabha and other such institutions like panchayat will be required for
acquiring land in Scheduled Areas. "The law will also apply to Special Economic Zones," he said.

The bill is to be tabled in the Budget session of Parliament.

 B) Labour Relations

While the SEZ Act, 2005 makes no mention of changes in labour law, all units operating in SEZs
are categorised as ―Public Utility Service‖, meaning that many labour laws become irrelevant. A
Public Utility Service is defined to be a service that is of great value to the society, and the lack of
provision of which can affect the life of everyone.

In this case, employees have to give a 14 day notice before going on strike. Additionally,
employees in SEZs don‘t have protection in the form of a notice period or compensation against
retrenchment. It follows that employees will be reluctant to raise a voice against their employers
when the need arises.

Moreover, employers in SEZs have the right to change the terms and conditions of service at any
point of time. Critics raise concern regarding the lack of labour unions, stating that the possibility
of fall in real wages is high.

C. Agriculture

Agricultural land, and the non-agricultural common land in villages that is used by marginal
sections of the agricultural population for grazing livestock and other means of subsistence, is
being grabbed
for SEZs, thereby putting the lives and livelihoods of a large section of the rural population in
jeopardy.

Rising food prices on one hand, and ever-decreasing government investment in agriculture, is pushing
the country toward a food crisis in the near future. Under these circumstances, diverting this huge
amount of agricultural land for non-agricultural purposes will worsen the situation.

Together with this, states like Uttar Pradesh, where agriculture is the mainstay, and which have
been left behind in the race for setting up SEZs, are now trying to hand over huge tracts of
agricultural land to corporations, although not for setting up SEZs.

The case in point is the attempt by the UP government to transfer around 1 lakh acres of land to the
J P Group for building the Yamuna Expressway in Western UP and the three times larger
Ganga
Expressway in Eastern UP, and associated ―high-tech‖ cities. The recent police firing on farmers in
Aligarh, protesting against land acquisition for the Yamuna Expressway, should be mentioned in this
context
The SEZs policy will cause the following effects on Indian Agriculture:

i. The acquisition of huge tracts of prime and fertile agricultural land has caused reduction
in food grain production and ground water levels.

ii. Giving the land acquired at concessional rate, to rich corporate houses and other
concessions given to SEZs units and developers has added to fiscal deficit and agricultural
process.

iii. The acquisition of huge land more than requirement diverts prime agricultural land to non-
agricultural uses.
 iv. In practice, SEZ units do not provide sufficient employment, because modern units need
highly skilled workers in a limited strength only.

v. The SEZs policy creates dual economy, SEZs area/zones that will be developed, but non-SEZ
area will be backward comparatively.

vi. Acquiring fertile land producing two or three crops a year at concessional rate (low than
market rates) has caused clashes between the government and the farmers.

D. Fiscal Losses

i. Greatest problem with the SEZ Act in its current form is the huge fiscal losses that will
occur because of the tax incentives and hidden subsidies being provided to SEZ developers
and producers within the zone.

ii. The offer of tax holidays in the SEZs goes beyond generous — providing 100 per cent

exemption
for the nextfrom
five income-tax
years. Evenon profits
land for the are
developers firsttofive years tax
be given of production
breaks. and 50 per cent

iii. These amount to appalling losses in terms of foregone revenue — the Finance Ministry has
estimated that if total investment in SEZs is around Rs 3,60,000 crore, the revenue loss to
the state exchequer would be more than Rs 1,74,000 crore.

iv. To give up such a huge amount of government resources is, of course, a major crime given the
needs of Indian society today and in future. But once again, what is at stake is more than
the revenue losses, enormous as they are. Providing such massive tax giveaways
encourages investors to shift their production from other locations to SEZs, in order to
benefit from the tax holiday. This means NO net benefit to the economy from additional
investment, since it is simply moving from other areas.

E. Real Estate

It is for this reason that all the big real estate companies such as DLF, Emaar, Parsvanath, Raheja
etc. are in the business of developing SEZs today.

In most of the ITES SEZs, a couple of IT companies provide the façade behind which goes on a
lucrative business of running shopping malls, multiplexes, hotels and luxury housing. This has
been further facilitated by the government regulation that only 35-50% of the land in a SEZ need to
be used
for industrial purposes, the rest can be used for purposes such as real estate development.
Over the last two years as land prices had depreciated in the big cities due to the economic
recession, the government amended the SEZ rules to bring down the minimum land required for the
building of multi-product SEZs in fifteen medium-sized cities to 250 hectares from the erstwhile
500 hectares. These include cities such as Raipur, Varanasi, Dhanbad and Amritsar.

It has been further reduced to 125 hectares in the smaller cities. This means that the land around

these ceixtpi escthasfeawlsohubnedenreodpmenoerde SuEp Zfosrinretahlisesmtaatep

saproecu
unlda tihoenmvieadiSuEmZas nadndsminaltlheer-nsiezxetdfecwitieyse.ars we might

F. Water Scarcity

SEZs have turned out to be a great way for the looting of the water resources of the country. This is
because we see that a large number of SEZs are coming up in the major river valley regions of
various states.

This includes the Narmada-Tapti valley in Maharashtra, the Godavari valley in Andhra Pradesh, the
Kaveri valley in Karnataka-Tamil Nadu, the valley of the Mahanadi and its distributaries in Orissa
and in the lower Gangetic valley in West Bengal.

This means that the water of the major rivers of the land is going under the control of these SEZs at
a cheap rate. And this is happening in various places where thereis great scarcity of water for
drinking and irrigation or there are intra-state conflicts on water usage such as the conflict between
Karnataka and Tamil Nadu on Kaveri water.

In many places water from dams are being preferentially supplied to SEZs rather than to farmers, as
is happening for the Bharat Forge SEZ near Pune in Maharashtra, or has been proposed for the
Jindal SEZ in Salboni in West Bengal.

Today, while we see that because of scarcity of water for irrigation, crops are failing in different
parts of the country, the central and state governments are handing over the control of water
resources to

the private owners of these SEZs.

Financial Viability of SEZ‘s

Today SEZs have become some sort of a Business Model. There are three aspects to understand the
Business of SEZs. Main concern is the Economic Viability of the zone.

Any Economic Zone such as an SEZ should be a constellation of projects; which should be spun
off from a common economic activity. To make integrated use of the three factors of production,
capital and labour possible, countries provide a contiguous parcel of land to entrepreneurs, the
fourth factor of production.

The SEZs, therefore, attempt to maximize the use of each factor to produce the best possible quality
of goods and services. Only when these connections are established can the infrastructure provided
be optimally utilized. The connectivity can be then leveraged upon to keep costs low and the
margins stretched to maximize the revenue.

An SEZ plan has to be, therefore, substantially different from real estate projects. These zones are
not townships per se. Instead of being clustered around a hosing zone, an SEZ has to be clustered
around units.

The foregoing analysis shows up, therefore, two keys to evaluate the possible success of the
proposed

pSlEaZns .toThgenkeryastea,reliktheetrloancasptiornt olirnkthse. Ipnrothxeimciatsyet

ofanthecporno
odmucict shpuebc, iafincdStEheZsp,htyhseiccalucsotenrnoefctaivctiitvyitiyt would create
an economic hub that, in turn, would generate the momentum for the SEZs to become viable.

Financing an SEZ

❖ Assessment of scale of investment demand

❖ Control over size of the project
❖ Factoring in relative lack of debt windows in domestic market
❖ Possible upfront recoveries by government of some costs
❖ Match between external development and private development within the zones

SEZs are mega investment vehicles. The larger Indian developers have followed international
practices to develop the SEZ properties as special purpose vehicles, such as Reliance industries,
which has set up the Navi Mumbai SEZ.

Larger SEZs are all expected to adopt this route to firewall the parent company from the losses
which are certain in the initial years. If one draws a comparison of the SEZs projects with the
ongoing infrastructure projects in the other sectors, it can be seen that across the board Indian
companies prefer to work on such ventures through the special purpose vehicle route.

A key government supported report on development of infrastructure for the economy has outlined
the advantages of the special purpose vehicle route for the economy. These are as follows

❖ Able to vary the capital with ease.

❖ Easy to wind up.

❖ Tax transparency
Government has limited its role under SEZ act to provide land to promoters only, if they were unable
to procure it themselves. SPVs in India are created by Private sector instead of buying into
government floated entities.

In absence of Government intervention the private developers have to assume a deeper role. Lack of
Government funding has a led to a financial risk on top of lack of experience among developers in
handling Rrojects of such scale.

Additional Risks included are

Uncertainty over location decisions as private investors do not control investment climate.
Inability to develop corresponding infrastructure beyond the zone.
Investment promotion and Marketing activities especially abroad.
Since the investment risks are far more for the private parties in Indian SEZ models
Tax breaks may not seem too much of a giveaway. It could take more than a decade for the cost
incurred to break even.

Initially there was a model of financing an SEZ through Angel investor. Since it's not possible for a
developer to sell the land on which SEZ is situated (just a lease holder), the equity participation route
is preferred route but given the current scale of investment, it is very unlikely that any of the SEZ
promoters would be in the position to tap the capital markets for a listing soon. Valuations may not be
very attractive at this point.

Lendin2 to SEZ's by Banks

Banks have to be solving issues before they can lend to SEZs. This is because SEZs cost of money
with a long gestation period and a possible moratorium on any recovery. As banks raise a large
percentage of funds in short term deposits we observe that there is asset liability mismatch in lending
Portfolios. Another issue is that there is a need to keep a check on non performing assets in Banking
Industry.

Result
The pace of withdrawals is increasing, with 60 leaving in the past two years alone. These include
companies that were looking to set up SEZs for captive purposes (Bata, Dr Reddy's and Essar) or to
lease it out (DLF, Omaxe and Unitech). It's no different for tenants.

About one-third of India's exports come from SEZs. Impressive as that headline number is, it is
boosted by some migrating exporters -- for example, IT companies moved from software
technology parks to SEZs. Further, it hides the skew of just five states and five sectors account for 90%
of exports from SEZs.

Of the 583 SEZs the Indian government had approved till October 2011, only 143 were operational.
The running SEZs are operating under capacity as well. The government recently changed land
acquisition, incentives and taxation provisions.

In 2008, the Indian government transferred the responsibility of land acquisition from government
to developer itself.
In 2009, the government changed the basis of incentives from profits to investments in the draft of
the direct tax code (DTC).

In 2011, the budget removed income tax exemption for 15-year period and slapped 18.5%
minimum alternate tax and 15% dividend distribution tax. Investors argue that once the DTC is
enacted, SEZs won't be an attractive option anymore.
Lessons from China

One of the reasons why China is such a success story is its concentration and focus on world class
infrastructure within the specifics zones. Thus, with a cumulative FDI of around $70 billion, the
five SEZs namely Shenzen, Zhuhai, Shantou, Xiamen and Hainan together account for 20 per cent
of the exports from China, providing direct employment to over 8 million persons.

China attracted investors by offering a slew of tax sops, flexible labour regime and quick
clearances. PRC (SEZs are established by PRC in china) invests significant resources into
developing and improving the infrastructure located within the SEZ and other infrastructure
facilities, which are required to support SEZs.

Although one should also remember that the development of SEZ will require some time. China‘s
SEZ policy was essentially state-driven, having FDI and export markets as its main focus.

Unlike China, India‘s focus is not so much on FDI as on generation of economic activity. The
philosophy driving India‘s policy is to boost manufacturing, generate jobs while attracting FDI.

Few points of comparison are:

Location

The most prudent strategy for developing a SEZ is to have an essential and quality zone infrastructure.
This will help attract industries. The private sector has limited experience in development of these
world class infrastructure zones. Therefore SEZ projects should evolve under the public private
partnership format.

An important factor that should be kept in mind while deciding the location of SEZ is it should
provide a natural gateway that could serve as a source of capital and a conduit for the movement of
goods in the manner that Hong Kong and Taiwan function for China. India is yet to focus on this
approach but Singapore is taking a lead in providing a similar natural gateway. If a SEZ is located
near the urban areas then the labour needs of the units can also be easily satisfied, it would also
ensure

accessibility and uninterrupted

having proximity to a bigger citysupply of essential
have shown more utilities,
progress SEZs located
than the near sites.
industrial ports or airports or

Unlike India, where 200-odd SEZs are spread over the length and breadth of India, China's five
SEZs are strategically located in the southeast, three of them in Guandong province and are close to
ports and trade nations like Hong Kong, Macau and Taiwan.

Positra in Gujarat which claimed to be a pioneer SEZ, has neither got a rail link nor an airport in the
vicinity till now.

All the major ports in India are located 500-1,000 km apart. Shenzhen SEZ has many major ports
within a radius of 50 km
Size ofSEZs

With the governing philosophy being the scale of operations, China emphasised on establishing zones
which were very big in size.

Shenzhen, which is the largest SEZ, has an area of 33,000 hectares. In case of Hainan, the entire

o.tovince was. declared..as. SEZ. E.ach of the five SEZs in China is the size of a mega city. Even the
2),UUU-acre Ke1rnnce SbZ m Nav1 Mumbai pales m companson

The Indian variants tend to be smaller than their Chinese equivalents, sectorally focused (in such
sectors as handicrafts, leather products, auto parts, apparel, electronics and IT services, gems and
jewellery, food processing) and separated from their surrounding communities. Chinese SEZs are
large, multi-sectoral, and no longer have formal boundaries separating them from surrounding
communities.

There is no minimum area requirement to set up an SEZ in China, unlike as in India. And China does
not offer tax incentives across the board to all companies, as India does.

Impact of Governance

China has been able to provide efficient bureaucratic and economic services, a clear and transparent
legal and regulatory structure and an unfettered and stable policy framework in order to ensure the
success of the zones. In contrast the biggest problem persisting is lack of coherence and
synchronisation between centre and state executive, which is affecting the rate of progress of these
SEZs. China's SEZ initiative is government driven. But in India the private sector will develop most
of them.
Conclusion

The SEZs have high investment and employment potentials. The country has been an important
investment destination for the foreign investors apart from the domestic private corporate bodies. The
surge in the investment activities during last 60 years of planning has created lot of employment
opportunities particularly for the skilled manpower. India is in the forefront of supply of skilled man
power, particularly in the area of software engineering.

Due to the world trend of recession in the advanced countries of the west, Indian skilled manpower
had more employment opportunities within the country. Hence the schemes like SEZs have great
employment potentials for the software engineers and other skilled workers. Hence there is need for
social and political awareness among the people to support such schemes for the all-round economic
development of the country

It is imperative that laws are amended in order to make trade and flourish without disempowering the
people who are displaced or the workforce in SEZs. The Land Acquisition Act of 1894 need to be
looked into and a transparent rehabilitation law needs to be put in place. In fact, the people need to be

made further prove former Indian

Prime stakeholders
Minister VP inSingh
the progress
correct inofhis
theassessment
nation. Failure
of thetoSEZ
do so may of
policy India, when he said, ―the
current promotion of SEZs is unjust‖, and that it acts as a ―trigger for massive social unrest, which
may even take the form of armed struggle
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