SPECIAL ECONOMIC ZONE’S IN INDIA

SEJAL VISAWADIA

WHAT IS A SEZ ?

The concept of SEZ is expected to bring large dividends to the State in terms of economic and industrial development and the generation of new employment opportunities.

The SEZs are expected to be engines for economic growth.

Special Economic Zone (SEZ) is defined as "a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs".

SEZ: A BRIEF REVIEW

It covers a broad range of more specific zones including :-

• Free Trade Zones (FTZ) • Export Processing Zones (EPZ) • Free Zones (FZ)• Industrial Estates (IE)• Free Ports (FP)• Urban Enterprise Zones and others

History of Free Trade Zones

• First Free Trade Zone in the world had started on 1st January 1965 at Kandla Port , Kutch, India.

• By 1978 India had another four free trade zones at Mumbai , Chennai , Noida and Falta.

• In 1978 China had gone through major economic make over and they had realized power in concept of Free Trade Zone’s.

Cont..

• First Chinese Free Trade Zone became operational in 1984 – Shenzhen

• In year 2000 one zone of Shenzhen was Exporting thrice of India.

• As on today there are about 2000 operation free trade zones spread over 150 countries in world

Kinds of SEZ

Fundamentals of SEZs SEZs (special economic zones) are fundamentally

different from the traditional free zones.

They are much larger in size; offer broader range of activities such as

a single-window management, streamlined procedures, duty-free privileges, also access to the domestic market on a duty-

paid basis.

Cont..

Whether the enclave is termed an EPZ, FTZ or SEZ, the cardinal factors are appropriate infrastructure and transport facilities, low factor cost, flexible labour laws, convertibility of currency, stable legal and administrative regime, and a commitment to the canons of an open economy

OBJECTIVES OF SEZ ACT

Generation of additional economic activity

Promotion of exports of goods and services

Promotion of investment from domestic and foreign sources

Creation of employment opportunities

Development of infrastructure facilities

ROLE OF SEZ IN INDIAN ECONOMY

• To provide internationally competitive environment

• To encourage FDI and enhance GDP• To increase share in global exports SEZ exports accounting for 26% of India’s total

export in 2011.

SALIENT FEATURES OF SEZ• Self certification for export and import

Import and export movements of goods are based on

self declaration

No routine examination is made unless specific order

from Development Commissioner or authority.

• Sub contracting

A SEZ unit may sub contract a part of it’s product or

production process to different units, even in abroad.

• Fiscal incentives-Tax

Exemption from excise and customers duty on

procurement of capital assets, consumable stores, raw-

materials from domestic market

Exemption from sales tax, import duty, Income tax,

minimum alternative tax and dividend distribution tax

• Single Window Clearance

Submit regularity documents at single locations

Less proceedings and save time

SOME OF IMPORTANT SEZ IN INDIA

INDIA

• Karnataka Biotechnology and Information Technology Services - SEZ on biotechnology sector in Bangalore's Electronics City, over an area of 43 acres

• Shree Renuka Sugars Limited - SEZ on sugarcane processing complex covering 100 hectares, comprising a sugar plant, power station and distillery, at Burlatti in Belgaum district

Ittina Properties Private Limited and three other - SEZs in IT sector, covering electronics, hardware and software sectors in Bangalore, over an area of 15.732 hectares

Wipro Infotech - SEZ on IT / ITES at Electronics City, Sarajpur Bangalore

Hewlett Packard India Software Operation Pvt. Ltd. - SEZ on IT

• Food processing and related SEZ services in Hassan, over an area of 157.91 hectares

• SEZs on pharmaceuticals, biotechnology and chemical sectors in Hassan, covering of 281.21 hectares

• SEEPZ - Andheri (East), Mumbai• Khopata - Multi-product, Mumbai• Navi Mumbai - Multi-product, Mumbai• Salt Lake Electronic City, West Bengal• Manikanchan - Jems and jewelery, West Bengal• Calcutta Leather Complex, West Bengal• Falta food processing unit, West Bengal

Area Allocation in terms of use.

Area Requirements

Entities in SEZ

Sectoral Focus

ADVANTAGES OF SEZ

• Growth and development

• Attracts Foreign Direct Investment

• Exposure to technology and global market

• Increasing GDP and Economic Model

• Employment opportunities are created

DISADVANTAGES OF SEZ

• Land acquisition at very low prices

• Farmers loose their livelihood

• Tax holidays affect GDP

Benefits & Incentives for SEZ Units

Benefits & Incentives for SEZ Units

SEZ Policy of 2000

New Policy in April 2000. SEZs permitted to be set up in the public, private, joint sector or by the State Governments

Minimum size of 1000 hectares (4 sq. miles)

Simplified procedures and more incentives

Main measures were: Conditions for automatic approval relaxed

considerably Customs procedures simplified Units could produce items reserved for SSI units in

domestic market 100% FDI investment for manufacturing Profits could be repatriated fully Freedom for sub-contracting 100% I.T. exemption for five years Exemption from Central Excise Duty on capital

goods, raw materials, consumable spares from domestic market

Reimbursement of CST paid on domestic purchases

Positive Impacts

• To Nation– World class business environment– Increased FDI– Higher economic growth– Infrastructural development– Export growth– Employment Opportunities– Exposure to technology and global markets

Positive Impacts

• TO Business houses– Hassle free operating environment– Single window clearance– Simplified procedure for setting up business,

compliance proc with with self certification– Duty free import– Tax exemption- VAT, CST, ST, other levies– External commercial borrowings– 100% profit reptriation from export earnings

Positive Impacts

• To People– Employment opportunities– Impact on lifestyle and standard of living– Business infrastructure combined with social

facilities– Better work culture , good education, leadership

vision

Hurdles

• To Nation– Loss of revenue

• To Business– Land acquisition– Single window actually is not– No strategic planning for electicity, water

Hurdles• To People

– Grabbing of fertile land– Water scarcity- Threat to access– Food scarcity– Exploitation of labour– Landless farmers

• To Environment Mangrove destruction Destruction of ground water recharge system Pollution

SWOT ANALYSIS OF INDIAN SEZ

STRENGTH• Based on Western model or SEZ in China• An established legal redress system • Relatively low labour costs• Employment opportunities• India’s large English speaking and skilled

workforce• Exposure to technology and global market

• Worldwide acceptance of capabilities in fields like• Pharmaceutical manufacturing & research• Clinical trials• Manufacturing auto parts• Engineering designing & consultancy, IT & ITES• Malls and hotels• Hospital

• Financial & other institutional Networks like Insurance Companies

WEAKNESS

• Poor infrastructure and transport facilities

• High cost of capital

• Inadequate institutional support

• Political changes

• Inappropriate locations

OPPORTUNITIES

• An alternative manufacturing base, particularly compared to

Chinese SEZs

• Investments in core strength areas like IT and software products and

services.

• New small ports & airports are also being developed keeping SEZ

concept in mind

• A large NRI base who have traditionally invested less in Greenfield

development in India

THREATS

• The pattern of buying & selling may not continue. With relocations of industries in other third world countries, new competitors will emerge

• opposing interests • Prospect of even more restrictive labour laws being

introduced • Increasing rejection rate for proposals to establish SEZs

Flow Chart for Setting up SEZ

Flow Chart for Setting up SEZ contd..

REASONS FOR FAILURESEZs in India

(ii) Inadequate infrastructure

(iii) Restrictive policies

(iv) Lengthy procedures – No Single Window

(v) Locational disadvantages

(vi) Stringent labour laws

- In the 1990s, as a part of reforms, powers delegated to zone authorities, additional fiscal incentives were given, policy provisions were simplified and greater facilities were provided leading to some, not very significant, improvements.

SMALL SIZE OF EPZs

Current Status of SEZ’s in India

Performance of SEZ’s In India

The government does not provide information on jobs lost, only on jobs created.

• Finance Minister P. Chidambaram wrote to Cabinet colleagues saying: “SPECIAL ECONOMIC ZONEs per se will distort land, capital, and labour cost, which will encourage relocation or shifting of industries in clever ways that can’t be stopped. This will be further aggravated by the proliferation of a large number of SPECIAL ECONOMIC ZONEs in and around metros.”)

Impact of the Special Economic Zone

• Affluent of the industry will deteriorate physical condition of soil.

• The chemical affluents from the industries will also effect the bio-resources.

• The sub-surface and under ground water quality will be impaired, because of heavy metals etc., through the contaminated water from the surface.

• The fertile land will become unproductive for the agriculture.

• The environment will be affected by such pollution.• The land value will be decreased.• The Socio-economic conditions of the people in the

area will be effected.

• Environment (Protection) Act is inapplicable to SPECIAL ECONOMIC ZONEs. No environmental clearance needed.

• Violates Panchayat Raj Act (1996) for local self government.

• Violates laws granting rights and control to Adivasi communities over their land.

• Violates many international conventions on human rights.

CONCLUSION

• SEZ policy has no doubt given a boost to the Indian Economy but comparison of implementation with other countries brings out lacunas in India’s SEZ Policy.

• The reasons for disparities can be attributed to many reasons as listed below.

Improper SEZ policy Irresponsible planning while locating SEZ Ineffective Land Acquisition Policies Improper Rehabilitation Policy

CONCLUSION

• Key challenges in the SEZs programme will be

•Due exercise of control while approving and locating SEZ’s. •Compensation for acquisition shall be on the basis of market prices . •Give share of acquired land in the developed area to the owners. •Provision of employment for Landless labourers . •Provision of revenue for ULBs on sharing basis to compensate their

withdrawal once the area is notified as SEZ. •Development of SEZs needs to be integrated with existing Master

Plans and Regional Plans. •There is need to develop regional/sub regional plan around the SEZ

areas.

Thank you