SPECIAL ECONOMIC ZONES AND THERE IMPACT ON INDIA

PREPARED BY:UBAID MUSHTAQ
SCHOOL OF BUSINESS STUDIES
IUST KASHMIR

SOURCES:GOVT.OF INDIA RECORDS,GDP,GNF OF INDIA AND VARIOUS NEWSPAPER
SPECIAL ECONOMIC ZONES AND ITS IMPACT ON INDIAN ECONOMY
Grab today’s copy of Economic times and go to editorial page. There is interesting discussion over SEZ issue.
Also, mamta also has some point in opposing the coming of TATAs plant. She is not ‘absolutely’ stupid (note the word absolutely)
What basically is Sez’s?
Special economic zone is a particular area inside a state which acts as foreign territory for tariff and trade operations. Govt. provides tax exemption (IT, Excise, customs, sales etc.), subsidized water and electricity etc. 3
The Special Economic Zone policy is essentially geared to liberalize a country’s trade and
Investment environment in a pre-defined area or zone. In April 2000 Government of India
Announced a policy for setting up of Special Economic Zones (SEZ) in India. The SEZ
Policy aims at creating competitive, convenient and integrated Zones offering world class
Infrastructure, utilities and services for globally oriented businesses.
SEZs have been declared as “Deemed Foreign territories” i.e. duty free enclaves with no
SEZ can be sector specific or multi product sez. It helps in the development of infrastructure of the area around the SEZ, provides employment to ppl, and makes the exports more viable. All this will helps the country’s products to become more competitive vis-à-vis providing all round development of region.
It should be noted that if 100 acres are allotted for SEZ, then only 30-35% of area is used for setting up plants. Rest of the area is used to provide housing facilities, malls, multiplexes etc.
Also Tax exemption is for specific period say for 10 yrs or so.
Although u have not asked but think where the land for SEZ will come from as land is a finite source. So, there are controversies regarding snatching of arable/cultivated land or buying land at very discounted arts from farmers or poor ppl and then selling it to corporates at exorbitant prices. There’s much more to SEZ.
Considering the need to enhance foreign investment and promote exports from the country and realising the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, The Government of India had in April 2000 announced the introduction of Special Economic Zones policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of 2007, more than 500 SEZs have been proposed, 220 of which have been created. This has raised the concern of the World Bank, which questions the sustainability of such a large number of SEZs. The Special Economic Zones in India closely follow the PRC model. India passed special economic zone act in 2005
LIST OF SEZ’S IN INDIA
The policy provides for setting up of SEZs in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones. Accordingly, the Government has converted Export Processing zones located at
Kandla, Baroda, Ahmedabad and Surat (Gujarat)
Cochin (Kerala)
Santa Cruz (Mumbai-Maharashtra)
Falta (West Bengal)
Greater NOIDA (Uttar Pradesh) UP
Chennai (Tamil Nadu)
Visakhapatnam (Andhra Pradesh)
NOIDA (Uttar Pradesh) UP
Ilandaikulam Madurai (Tamil Nadu)
Nanguneri and Tirunelveli (Tamil Nadu)
Nagpur (Maharashtra) also refer MIHAN
Pune (Maharashtra)
Pithampur (Madhya Pradesh)
Currently, India has 1022 units in operations in 9 functional SEZs, each an average size of 200 acres. 8 Export Processing Zones (EPZs) have been converted into SEZs. These are fully functional. All these SEZs are in various parts of the country in the private/joint sectors or by the State Government. But this process of planning and development is under question, as the states in which the SEZs have been approved are facing intense protests, from the farming community, accusing the government of forcibly snatching fertile land from them, at heavily discounted prices as against the prevailing prices in the commercial real estate industry. Also some reputed companies like Bajaj and others have commented against this policy and have suggested using barren and wasteland for setting up of SEZs.the special economic zones
Attempts to set up a Special Economic Zone in Nandigram have led to protests by villagers in the area. A Parliamentary Committee to study and give recommendations on SEZs has said that no further SEZs be notified unless the existing law is amended to incorporate the changes related to the land acquisitions.
Genpact has announced its plans to expand its presence in Hyderabad by setting up a Special Economic Zone (SEZ) across 50 acres in the city at Jawahar Nagar.
the term SEZ has acquired a multi-headed persona in a very short time. It has ignited passions across the country. There are people who are either against SEZs or with SEZs. Very few, mostly the unaffected and the uninformed, have no opinion about the matter. But, otherwise, it has people sharply divided across regions, professions, languages and political affiliations.
But the time has probably come to redefine the popular meaning of an SEZ. Over time, the term has come to denote a special, designated area that’s exempt from the local tax regime and some economic laws, for attracting foreign investment. SEZs included other designated areas as well, such as free trade zones or even export processing zones. For instance, the Indian government has converted some of the existing EPZs in the country into SEZs - such as Falta in West Bengal, Kandla ands Surat in Gujarat, Santa Cruz in Mumbai, Cochin in Kerala. SEZs are typically owned by the government or by the private sector or can even be in the joint sector.
But then, as is inevitable with any such a contentious issue, the constituent words forming the term SEZ - special economic zone — seem to have pretty much lost their meaning. It could mean any place with a special economic model. Why does it necessarily have to include tax breaks, land-grab, and rehabilitation? The term SEZ is now being used loosely to denote a special meaning, wracked by vested interests, hemmed in by a surfeit of laws and rules and generally rendered dry-as-dust by the raging debate surrounding the concept. In all this heated discussion, there is one form of SEZ that actually seems to be working.
It’s a brand of wildlife tourism that’s being practised by a bunch of committed wildlife enthusiasts. These SEZs are all located largely in the eastern part of the country - Sunderbans in West Bengal, Kaziranga and Manas in Assam, Sikkim and a variety of other places. The model is usually all-inclusive and, apart from the bottom-line issues, the success of these projects is usually measured by the improvement in the living standards of the people living in and around these areas. Let’s take the example of Sunder bans, a region chronicled faithfully by numerous hunters of the past and so magically portrayed by award-winning authors in recent times.
The Sunderbans is a deltaic region, marked by a congregation of small islands floating on brown brackish water that’s neither sea nor river but is both. Most of these islands - characterised by mangrove forests and other dense foliage — have sparse habitation. There is wildlife too, largely overshadowed by the presence of the Royal Bengal Tiger, a majestic but fierce beast threatened to extinction by poachers and forced out of its habitat into human settlements frequently by the changing balance of the region’s delicate bio-diversity. The conflict between man and animal is lived out here every living second. Given the hostile terrain, the forest (firewood, honey) is the only source of livelihood for many human beings. For the tiger, human flesh is often the only choice of nutrition. The race to the bottom, therefore, is violent and inexorable.
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.
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. 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 instill 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. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. 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) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) 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. Incentives and facilities offered to the SEZs
The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the respective State Governments.
The major incentives and facilities available to SEZ developers include:-
• Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
• Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
• Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
• Exemption from Central Sales Tax (CST).
• Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
SEZ Approval Status
Consequent upon the SEZ Rules coming into effect w.e.f. 10th February, 2006, Twenty-one meetings of the Board of Approvals have since been held. During these meetings, formal approval has been granted to 439 SEZ proposals. There are 138 valid in-principle approvals. Out of the 439 formal approvals, 195 SEZs have been notified.
Land requirements for approved Special Economic Zones:
The total land requirement for the formal approvals granted till date is approximately 59685 hectares out of which about 97 approvals are for State Industrial Development Corporations/State Government Ventures which account for over 20000 hectares. In these cases, the land already available with the State Governments or SIDCs or with private companies has been utilized for setting up SEZ. The land for the 195 notified SEZs where operations have since commenced involved is approximately over 26072 hectares only.
Out of the total land area of 2973190 sq km in India, total agricultural land is of the order of 1620388 sq km (54.5%). It is interesting to note that out of this total land area, the land in possession of the 195 SEZs notified amounts to approximately over 260 sq km only. The formal approvals granted also works out to only around 596 sq km.
SEZ’S AND THERE IMPACT ON INDIAN ECONOMY
SEZs- leading to the growth of labour intensive manufacturing industry:
Out of the 439 formal approvals given till date, 150 approvals are for sector specific and multi product SEZs for manufacture of Textiles & Apparels, Leather Footwear, Automobile components, Engineering etc.. which would involve labour intensive manufacturing. SEZs are going to lead to creation of employment for large number of unemployed rural youth. Nokia and Flextronics electronics hardware SEZs in Sriperumbudur are already providing employment to 9645 and 2069 persons, majority of which are women. Hyderabad Gems SEZ for JewelerY manufacturing in Hyderabad has already employed 2000 persons, out of which 1200 are women, majority of whom are from landless families, after providing training to them. They have a projected direct employment for about 30,000 persons. Apache SEZ being set up in Andhra Pradesh will employ 20, 000 persons to manufacture 10,00,000 pairs of shoes every month. Current employment in Apache SEZ is 4500 persons. Brandix Apparels, a Sri Lankan FDI project would provide employment to 60,000 workers over a period of 3 years. Even in the services sector, 12.5 million sq meters space is expected in the IT/ITES SEZs which as per the NASSCOM standards translates into 12.5 lakh jobs. It is, therefore, expected that establishment of SEZs would lead to fast growth of labour intensive manufacturing and services in the country.
Benefits derived from SEZs
Benefit derived from SEZs is evident from the investment, employment, exports and infrastructural developments additionally generated. The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition. Stability in fiscal concession is absolutely essential to ensure credibility of Government intensions.
Exports from the functioning SEZs during the last three years are as under:
Year Value (Rs. Crore) Growth Rate ( over previous year )
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22 840 25%
2006-07 34,615 52%
Projected exports from all SEZs for 2007-08: Rs. 67088 crores
(b) Investment and employment in the SEZs set up prior to the SEZ Act, 2005:
At present, 1277 units are in operation in the SEZs. In the SEZs established prior to the Act coming into force, there are 998 units providing direct employment to over 1.83 lakh persons; about 40% of whom are women. Private investment by entrepreneurs in these SEZs established prior to the SEZ Act is of the order of over Rs. 7104 crore.
© Investment and employment in the SEZs notified under the SEZ Act 2005:

Current investment and employment:
o Investment: Rs. 67347 crore
o Employment: 61015 persons
Impact of the scheme
The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the list of Developers who have set up SEZs:
• Nokia SEZ in Tamil Nadu
• Quark City SEZ in Chandigarh
• Flextronics SEZ in Tamil Nadu
• Mahindra World City in Tamil Nadu
• Motorola, DELL and Foxconn
• Apache SEZ (Adidas Group) in Andhra Pradesh
• Divvy’s Laboratories, Andhra Pradesh
• Rajiv Gandhi Technology Park, Chandigarh
• ETL Infrastructure IT SEZ, Chennai
• Hyderabad Gems Limited, Hyderabad
Indian economy has witnessed tremendous growth in the last decade primarily due to the contribution made by exports. The total value of exports has grown by 25% to reach US$
101 billion in the year ended March 31, 2006. In order to further augment the growth of the
Exports the Government has set up Special Economic Zone (SEZs) which would provide a
Hassle free and internationally competitive environment for companies. The exports have
Been facilitated by the growth in a number of industries such as chemicals and
Pharmaceuticals, readymade garments, iron ore, machinery and equipment etc.
The performance of these SEZs has encouraged the Government to facilitate development
Of more SEZs. As on 31.03.2005, there were 811 units operational in the 8 functional
SEZs. Investments by the units in these zones are to the tune of USD 406 million. The SEZ
Units provide employment to about 100,650 persons out of which 32,185 are females.
However, the competition has increased substantially over the years with the approvals of
About 403 SEZs. Southern India houses the majority of SEZs with 150 approvals thus far.
Maharashtra leads the roster with 75 SEZs followed by Andhra Pradesh (54).
Madhya Pradesh in all has 10 SEZs which are principally/ formally approved of these 4 are
multi-products/ services. Based on industry demand it can be assumed that the demand for
SEZs would be higher than the project supply especially south eastern part of the State.
Hence, with a view to facilitate large scale development of a number of industries, in
Madhya Pradesh (MP), the State Government proposes to establish an multi-product SEZ
In the State. The SEZ would provide infrastructure support and other incentives for the
Growth of most lucrative businesses in the State.
The SEZ would encompass firms from different industries such as textiles, automotive
Industry, engineering industry etc. The SEZ would extend various fiscal and non fiscal
Benefits to the tenants. The fiscal incentives would include the tax benefits, customs
Benefits etc provided by an SEZ. Non fiscal benefits would include increase market
Linkages, improve international competitiveness etc. It would also help attract Foreign Direct Investments into the industry.
For the envisaged project 2,500 acres of land would be appropriated and would be
Developed by the private developer. Catering to the specific needs of the services
Companies the complex would be the right blend of commercial, office and residential
Facilities. The SEZ would also provide housing and commercial facilities
SEZ would be occupied by companies in the following sectors:
o Agro-Processing
o IT/ITeS
o Automobile Industry
o Textiles
o Pharmaceutical
o Engineering
o Chemicals
o Healthcare units
SEZs have a tremendous socio-economic impact on Indian economy. SEZs have
contributed to the growth and development of the Indian economy in terms of exports,
Employment and investments. It is infact a key in Indian economy
Special Economic Zones Boon or Disaster?
The sizzling controversy of whether setting up Special Economic Zones is good for India or would spell disaster is one that is not going to go away too soon. The media often forgets stories a couple of weeks old, but this one will be on the front pages for a long time to come. It is a controversy that is ironically pitting the Finance Ministry against the Commerce Ministry, the ruling coalition with its partners, farmers with their state governments and activists against what they call, “people unfriendly” projects that can spin out of control by marginalizing a huge section of poor people. In the last few weeks there has been a lot of political posturing, differences of opinion and stance on the SEZ, as it becomes a hot potato.

As Indian growth rates manage to keep its head high above stormy waters, the idea to many seem as one way of boosting the economy, setting up of new infrastructure, helping ancillary units sprout and creating millions of jobs. The idea of setting up Special Economic Zones was mooted in March 2000 as specially demarcated growth centers, to boost exports. It would have special laws protecting it, did not have to pay customs duties on machinery or goods it imported or bought locally. It would be treated as a foreign territory doing business with various partners abroad. It would have liberal laws as far as labor and foreign investment was concerned. Apart from attractive tax and duty exemptions, it would be allowed to distribute its own gas, power and water. It was touted to have its unique style of governance. In short, be economic drivers.
When it was spelt out, it seemed good as its advocates kept pointing to China that attracted $30 billion in Shenzhen, just one of its SEZ’s. The investment here was more than what all the SEZ’s in India were projected to get. Another SEZ doing extremely well was Pudong, near Shanghai changing the entire skyline. Observers say China attracts nearly $45 billion per year in foreign direct investment compared to India's figures of $2 billion annually as it has used its huge SEZ's to boost its economy. India hoped to replicate it. The SEZ’s sounded like an unique idea when it was described as being swank with its own malls, restaurants, flyovers, hospitals, golf courses, luxury apartments, recreation centers and even airports or jetties that would jostle to become among the best in the world. The Commerce Ministry says it is a great real estate opportunity for commercial complexes, offices, malls, golf courses and so on. But SEZ’s need land to build such a massive infrastructure. All the contiguous land that is easily available and connected to the mainland is productive, fertile, agricultural land. Both the centre and the states are eager to acquire this land as they see it as the only way to put up what they think will soon be their economic drivers. The Union Ministry of Commerce and Industries are in a great hurry to see it happen as visualize the zones will revive growth and investment......

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