Govardhan Swamy Shaji Nambiar
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
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
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.
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
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
Generation of additional economic activity
Promotion of exports of goods & services
Promotion of investment from domestic &
foreign sources
Creation of employment opportunities
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.
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.
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.
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.
238242 349203 74451 91093 0 50000 100000 150000 200000 250000 300000 350000 400000 2008 2009 No. of employees Investment
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
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
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
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%
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
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.
“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.
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
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.
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
Hardware Manufacturing Facility, Mahindra World
City in Tamilnadu Apparel Manufacturing Facility, Mahindra World City in Tamilnadu
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.
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.
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.
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.