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Special Economic Zones (Sez)

The document discusses Special Economic Zones (SEZs) in India. It provides background on SEZs, their concept and features. Some key points are that SEZs are meant to promote exports by providing world-class infrastructure and tax incentives. Exports from SEZs have increased significantly in recent years. However, some argue SEZs displace farmers and take up prime agricultural land.

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23 views3 pages

Special Economic Zones (Sez)

The document discusses Special Economic Zones (SEZs) in India. It provides background on SEZs, their concept and features. Some key points are that SEZs are meant to promote exports by providing world-class infrastructure and tax incentives. Exports from SEZs have increased significantly in recent years. However, some argue SEZs displace farmers and take up prime agricultural land.

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kunalagrey.mils
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© © All Rights Reserved
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SPECIAL ECONOMIC ZONES (SEZ)

India was one of the first countries in Asia to reorganize the effectiveness of Export
Processing Zones (EPZ) model in promoting export, with Asia’s first EPZ set up in Kandla
in 1965. Seven more zones were set up thereafter. However, the zones were not able to
emerge as effective instruments for export promotion on account of the multiplicity of
controls and clearances, the absence of world class infrastructure ,and an unstable regime.
The idea of SEZS is borrowed from China where such zones are operation efficiently and
are contributing nearly 40 percent of total exports. The concept of special economic zones
(SEZS) was suggested by the commerce and industry minister late Mr. Murasoli Maran
while introducing third revision to EXIM policy 1997-2002. The SEZs are in addition to EPZs
and FTZs operating in India. A scheme for setting up SEZs in country to promote export
was announced by the government in the EXIM policy announced on 31st March, 2000.
The SEZs intend to provide an internationally competitive and hassle free environment for
export and are expected to give a further boost to the country’s exports. The SEZ scheme is
expected to give a further boost to country’s exports. The state governments are expected
to participate in export promotion by starting SEZs in their states. The SEZs can be set-up
in the public, private joint sector or by state governments. The government policy is to
provide convenient infrastructure facilities and various incentives to such SEZS so as to
make them key engines of export growth

Concept of SEZ:
The concept of SEZ would be clear from the following description given by Arwind
Pangariya , “Conceptually, SEZs operate like foreign entities within the territory of a
country .They are usually separated by physical barriers from each other and from the rest
of the
country .They have no trade barriers. The countries trade barriers apply strictly within the
area excluding the SEZs ,which is called the domestic tariff area(DTA) .Any goods sold by
agents within the DTA to agent inside the SEZ are treated as export of the country ,and
those purchased by agents in the DTA from those in the SEZ, as imports subject to custom
duty. Any trade between the SEZ and the outside world is allowed to bypass all customs
requirements applicable to the DTA .That is foreign goods enter the SEZ free of customs
duty ,and exit abroad without being subject to any domestic taxes or customers
regulations.”

Features of SEZ
The following are the features of special economic zones.
(a) Domestic sales/purchases: Goods going into the SEZ area from DTA (Domestic Tariff
Area) shall be traded as deemed exports and goods coming from the SEZ area into DTA
shall be treated as if the goods are being imported.
(b) Export and import of goods:SEZ units may export goods and services including agro-
products, partly processed jewellery, sub-assemblies and components. It may also export
by products, rejects, waste-scrap arising out of the production process. SEZ units import
without payment of duty, all types of goods, including capital goods, whether second hand
or new. The SEZ units can import goods free of cost or loan from clients.
(c) Net foreign exchange earning (NFE): A SEZ unit shall be a positive net foreign exchange
earner. NFE shall calculate cumulatively for a period of five years from the commencement
of commercial production.
(d) Domestic tariff area (DTA) sales and supplies: Sales of SEZS from DTA are to be
treated as exports. Sales to DTA from SEZ are to be exempted from special additional duty
(SAD). This would make the sales to DTA from SEZ 4% cheaper than import. DTA sale by
service/trading units shall be subject to achievement of positive NFE.
(e) Export through status holder:A EZ units may also export goods manufactured by it
though a merchant exporter/status holder or any other EOU/EPZ/SEZ units.
(f) Inter-limit transfer: Transfer of manufactured goods or imported goods from one SEZ
units to another EPZ/EOU/SEZ unit is allowed, but not counted towards export
performance.
(g) Administration and setting up of SEZ:SEZ will be under the administrative control of
development commissioner. A SEZ may be set up in the public, private or joint sector. The
existing EPZS may also be converted into SEZ by the ministry of commerce and industry.
(h) Export proceeds:SEZ unit can bring back their export proceeds in 360 days as against
normal period of 180 days and can retain 100% of the proceeds in the EEFC Account.

INCENTIVES TO UNITS IN SEZS


The SEZ offers to entrepreneurs as attractive package of incentives and concessions,
gradually introduced over a period of time.
(1) All imports into the zone such as capital goods, raw materials, packing materials,
components, office equipment etc. are permitted duty free entry into the zone.
(2) Indigenous goods such as capital goods, raw materials and other production
requirement can be procured from domestic tariff area (DTA) into the zone free of central
excise duty.
(3) Central excise is also exempted on the products manufactured within the zone for export
purposes.
(4) A five year tax holiday is the most significant fiscal benefit to units.
(5) The import policy permits sales up to 25% of their annual production in the home market
without requirement of import license.
(6) For attracting foreign investors equity participation even up to 100% is permitted in the
industrial ventures promoted in SEZ.
(7) Repatriation of dividends and profits is freely permitted, subject to payment of taxes as
applicable.
(8) For export promotion, units in SEZ are given a special facility of blanket permits.
(9) Units in SEZ can given a longer credit period of up to 360 days.

Special Economic Zones In India:


Since the SEZ Act and rules were notified in February 2006 ,formal approvals have been
granted for setting up 583 SEZs out of which 380 have been notified .Out of the
employment provided to 8,15,308 persons in SEZs as a whole ,incremental employment
generation after Feb.2006 when SEZ Act came into force was 6,80,609 persons .This is
apart from million maydays of employment created by the developer for infrastructure
activities .
Physical export from the SEZs have increased from Rs.2.20.711 crore in 2009-10 to
Rs.3,15,868 crore in 2010-11 ,registering a growth of 43.1 % in rupee term. There has been
overall growth of exports of 2180 % over the past eight years (2003-04 to 2010-11)
The total investment in SEZs till Dec.31, 2011 was Rs.2.49.631 crore. As per the provision
of the SEZ Act 2005, 100 % foreign direct investment (FDI) is allowed in SEZs through the
automatic route. A total of 154 SEZs are making exports, out of which 88 are IT, 17 multi
product and 49 sector-specific SEZs. The total number of units in these SEZs is 3,400.
Benefits of SEZs:
 As per the above explanation SEZ helps to boost the export .Export from the SEZs have
increased from Rs.2.20.711 crore in 2009-10 to Rs.3,15,868 crore in 2010-11.
 Through the promotion of SEZs it would become possible to provide world-class
infrastructure.
 Due to SEZ the employment level in India have been increasing contently specifically in
rural area.
 SEZ can reduce procedural complexities, bureaucratichassles and barriers raised by
monetary, trade, fiscal, taxation ,tariff and labour policies.

SEZ offers numerous benefits like: 1) tax incentives,2) provisions of standard factories at
low rent,3) provision of world class infrastructure,4) single window clearance,5) simplified
procedures,6) exemptions from various restrictions etc,. These benefits create a business
environment to attractlocal and foreign investment.
 SEZ are expected to give big push to export, employment and investment.
 SEZ helps to boost economic growth at a extremely fast rate.
 SEZ provide large number of jobs in manufacturing and other services.
 SEZ attract global manufacturing and technological skills.
 SEZ attracts private and public sector investment from both home and foreign.
 SEZ can make Indian firms more competitive and efficient.
 SEZ helps to slow down rural-urban migration.

Arguments Against SEZs:


 SEZ Act will lead to a large land acquisition by developers ,displacement of
farmers ,meagre compensation and no alternative livelihood for them.
 SEZs will be built on the prime agricultural land . This is bound to have serious
implications for food security in India.
 Tax concessions, incentives, exemptions etc. being granted to units set up in SEZ will
result in huge revenue loss to the government.
 Companies will simply relocate to SEZs to take advantage of the tax concessions being
offered and little net activity will be generated.
 Providing Benefits and incentives to units in SEZ would result in lower operational
efficiency.
 SEZs are being set up in states where there is already a strong tradition of manufacturing
and export. This will aggravate regional disparities.
 SEZs can provide jobs to technically skilled persons but it will fail to provide employment
facilities to the rural unskilled labours.
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