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(1)

Govardhan Swamy Shaji Nambiar

(2)

A Special Economic Zone (SEZ) is a geographical

region that has economic laws that are more liberal than a country’s typical economic laws.

It is a geographically bound zone where the economic

laws, in matters, related to export and import are more broadminded and liberal as compared to other parts of the country.

SEZs are projected as duty-free areas for the purpose

of trade and operations.

SEZ units are self-contained and integrated having

their own infrastructure & support services.

SEZs are believed to create a conducive atmosphere to

promote investment and exports. And hence many

countries are developing the SEZs with the expectation that they will act as engines of growth for their

(3)

Within SEZs, a unit may be setup for the

manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning etc.

The category ‘SEZ’ covers a broad range of

specific zone types, including

Free Trade Zones (FTZ)

Export Processing Zones (EPZ) Free Zones (FZ)

Industrial Estates (IE) Free Ports

(4)
(5)

 First known SEZ - Puerto Rico, 1947

 Ireland & Taiwan followed - 1960s

 China made SEZs gain global currency with its largest SEZ at

Shenzen in 1980

 Today, there are approx 3000 SEZs operating in 120 countries

which account for over US $600 billion in exports and about 50 million jobs.

(6)

The first ever Export Processing Zone (EPZ) in

Asia was set up by Government of India in

Kandla in 1965.

Based on the success of Kandla EPZ, in the

beginning of eighties, seven more EPZs were set

up in Bombay, Noida, Surat, Madras, Falta,

Visakhapaptnam and Cochin.

However the EPZ policy faced several problems

like limited power of zonal authorities, absence

of single window facility, rigid custom

procedures for bank guarantees, restrictive FDI

policy, procedural constraints and severe

(7)

Thus the EXIM policy introduced a new scheme

from April 1, 2000 for the establishment of the SEZs in different parts of the country and these EPZs were converted into Special Economic

Zones (SEZs) in the year 2000 under a new policy announced by the Government of India.

SEZs in India functioned from Nov 2000 under

the provisions of foreign trade and fiscal incentives were made effective.

After extensive consultation, the SEZ Act, 2005

supported by SEZ rules, came into effect on 10th

Feb 2006 providing for drastic simplification of procedures and for single window clearance on matters relating to both central & state

(8)

Generation of additional economic activity

Promotion of exports of goods & services

Promotion of investment from domestic &

foreign sources

Creation of employment opportunities

(9)

 The SEZ units shall abide by local laws, rules,

regulations or laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labor laws, as may be locally applicable.

 Such SEZs shall make security arrangements to

fulfill all the requirements of the laws, rules and procedures applicable to such SEZs.

 The SEZ should have a minimum area of 1000

hectares and at least 35 % of the area is to be earmarked for developing industrial area for setting up of processing units.

(10)

Minimum area of 1000 hectares will not be

applicable to product specific and

port/airport based SEZs.

Wherever the SEZs are landlocked, an

Inland Container Depot (ICD) will be an

integral part of SEZs.

(11)

The developer submits the proposal for

establishment of SEZ to the concerned

State government.

The State Govt has to forward the proposal

with its recommendation within 45 days of

the receipt of the proposal to the Board of

Approval (BOA)

The applicant also has the option of

submitting the proposal directly to the

BOA.

(12)

The BOA has been constituted by the Central

govt in exercise of the powers conferred

under the SEZ Act.

The functioning of SEZs is governed by a

three-tier administrative set-up. The Board

of Approval is the apex body and is headed

by the Secretary, Department of Commerce.

All the decisions are taken in the BOA by

consensus.

(13)

238242 349203 74451 91093 0 50000 100000 150000 200000 250000 300000 350000 400000 2008 2009 No. of employees Investment

(14)

8552 9190 10053 13854 18309 22840 34615 66638 125950 0 20000 40000 60000 80000 100000 120000 140000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Trend In Export performance of SEZs

(15)

7% 9% 39% 32% 25% 52% 92% 89% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Percentage Growth in Exports

(16)

4.20% 4.40% 3.90% 4.70% 5.10% 5.13% 6.14% 10.17% 15.73% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

(17)

Electronics 19%

Engineering 4%

Gems and Jewellery 46% Chemicals and

Pharmaceuticals 3% Plastic and Rubber

1% Food and Agro

2% Trading and Service

7%

Textiles and Garments 4% Others 14% Sector-Wise Exports (06-07) Electronics 23% Engineering 3%

Gems and Jewellery 35% Drugs and Pharmaceuticals 2% Plastic and Rubber 1%

Food and Agro 1% Trading and Service

31%

Textiles & Garments

2% Others 2%

(18)

15 year corporate tax holiday on export profit –

100% for initial 5 years, 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment.

Allowed to carry forward losses.

No license required for import made under SEZ

units.

Duty free import  or domestic procurement of

goods for setting up of the SEZ units.

Goods imported/procured locally are duty free and

could be utilized over the period of 5 years.

Exemption from customs duty on import of capital

(19)

Exemption from Central Excise duty on the

procurement of capital goods, raw materials, and consumable spares, etc. from the domestic

market.

Exemption from payment of Central Sales Tax on

the sale or purchase of goods.

Exemption from payment of Service Tax. The sale of goods or merchandise that is

manufactured outside the SEZ and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports.

The SEZ unit is permitted to realize and repatriate

to India the full export value of goods or software within a period of twelve months from the date of export.

(20)

 “Write-off” of unrealized export bills is permitted up to an

annual limit of 5% of their average annual realization.

 No routine examination by Customs officials of export and

import cargo.

 Setting up Off-shore Banking Units (OBU) allowed in SEZs.

 OBU's allowed 100% income tax exemption on profit earned

for three years and 50 % for next two years.

 Exemption from requirement of domicile in India for 12

months prior to appointment as Director.

 Since SEZ units are considered as ‘public utility services’, no

strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act, 1947.

(21)

SEZs would result in the Finance Ministry losing

revenue to the tune of over Rs.1,00,000 cr annually due to various tax concessions and exemptions.

The SEZs are mainly coming up in Maharashtra,

Gujarat, Tamilnadu, Karnataka, Haryana, Orissa. There is a lack of focus on other regions of the country. This could lead to regional imbalances. For ex, no SEZ has yet come up in the North-east region which already

suffers from the problem of alienation.

In India, farmers are emotional about the land that

they have farmed for years and just giving it up is not something that can be easily digested. There have also been concerns about the compensation package

(22)

 Huge tracts of agricultural and forested land will be

converted for industrial purposes for the setting up of SEZs. This can have grave impact on the ecosystem. The

developers fail to follow the minimum environmental

guidelines for SEZs leading to severe environmental impact.

 Clusters of development - Rather than promoting the

overall economic development, SEZs would result into clusters of heightened economic activity widening the

already existing gap between developed and impoverished areas.

 Employee Working Conditions – Since relaxed labor laws are

applicable in the SEZs, workers enjoy no rights including the fundamental rights of association and protests.

(23)

Some of the SEZs in India are:

 SEEPZ SEZ, Mumbai

 Kandla SEZ, Kutch, Gujarat  Cochin SEZ, Kerala,

 Vishakapatnam SEZ, AP  Falta SEZ, Kolkata

 Surat SEZ, Gujarat

 Indore SEZ, (Multi product)

 Jaipur SEZ (Gems and Jewellery)  Santa Cruz, Mumbai

(24)

Hardware Manufacturing Facility, Mahindra World

City in Tamilnadu Apparel Manufacturing Facility, Mahindra World City in Tamilnadu

(25)

India has more or less adopted the same China

model of SEZ development,

Chinese SEZs are mostly public funded and thus the

responsibility was primarily shouldered by govts. On the contrary, the Indian model encourages private sector led development.

China continues to score as it provides an attractive

tax environment with world class infrastructure and a liberal labor environment. On the contrary,

Democratic India, under pressure from strong labor unions failed to implement liberal labor laws.

India has significantly larger English-speaking

workforce than does China. India also has an edge in a number of key knowledge based industries like

software, IT enabled services etc. Indian SEZs will more likely attract investments in high end human skill based industries and services sector.

(26)

Size – Each SEZ in China is well over 1000

hectares, the minimum recommended area. In India, the EPZs converted into SEZs are not even a third of this

Strong Domestic demand – In China, about 50% of

SEZ sales are to the domestic market. Though

India has a large domestic market, it has failed to project this to lure SEZ investors.

Decentralization of Power – In China, provincial

and local authorities were made partners and stakeholders be delegating powers to approve

foreign investments. In India, only state govts are allowed to set up SEZs and the powers for foreign investment approvals lie with the Central govt.

(27)

Jamnagar Incidence

In November 2006, farmers from the Jamnagar District in Gujarat moved the High Court of

Gujarat and the Supreme Court in order to

challenge the setting-up of a 10,000-acre (approx. 4,000-ha) SEZ by Reliance Infrastructure. They

claimed that the acquisition of large tracts of

agricultural land in the villages of the district not only violated the Land Acquisition Act of 1894, but was also in breach of the public interest. This led the Government to “consider” putting a ceiling on the maximum land area that can be acquired for multi-product zones and decide to “go slow” in approving SEZs.

(28)

This controversy started when the West Bengal Govt decided that the Salim Group of Indonesia would set up a chemical hub under the SEZ policy at Nandigram. The chemical hub would require the acquisition of over 14,000 acres of land. The SEZ would be spread over 29 villages, most of which are in Nadigram.

 There was massive resistance movement again this

proposed investment by the villages with the active support of some political parties. So, 14 March, 2007, more than

3,000 heavily armed police stormed the Nandigram area. The main objective was to remove the protestors in order to expropriate 10,000 acres of land for a Special Economic Zone (SEZ) to be developed by the Indonesian-based Salim Group. During this incidence, police shot dead at least 14 villagers and wounded 70 more including children and women.

(29)

The idea for SEZs, in its originality is a very

attractive one. If implemented according to

proper rules and regulations and most

importantly, with proper consideration for

farmers and project affected people (PAPs),

the SEZs provide a win-win situation.

References

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