Special Economic Zones in India

Definition of SEZ SEZ is geographically bound zone where the economic laws in matter related to export and import are broadminded and liberal compared to the rest of the country.

SEZ SEZ are specified as an enclave that is duty free and is treated as a foreign territory for various purpose such as tariff, trade operations, and duties. As per law, SEZ units are deemed to be outside the custom territory of India. Goods and Services coming into SEZ from the Domestic Tariff Area (DTA) are treated as exports from India and goods and services rendered from SEZ to the DTA are treated as imports into India. The category ‘SEZ’ covers a broad range of more specific zone types, including free trade zones (FTZ), EPZ, FZ, Industrial estates, Free ports, Urban Enterprise Zones (UEZs).

SEZ in India: The Origin The concept was incorporated into Exim policy by Murasoli Maran, the then commerce minister after his tour to southern provinces of China in the year 2000 SEZ Act was introduced in 2005 The act came into effect on February 2006 supported by the SEZ rules

SEZ: Objectives 1.Generation of additional economic activity 2.Promotion of exports of goods and services 3.Creation of employment 4.Development of infrastructure facilities 5.Simplified procedures for development, operation and maintenance of SEZ 6.Single window system for setting up a SEZ and a unit in SEZ

SEZ in India The SEZ policy announced in 2000 intends to male SEZs an engine for economic growth. SEZ is provided with Quality Infrastructure Attractive Fiscal Package, both at central and state level Minimum possible regulations

Facilities and Incentives Offered to the SEZs Fiscal Benefits to a unit established in SEZ 1.Duty free imports/domestic procurement of goods for development, operations and maintenance of SEZ units 2.100% Income tax exemption on export income for SEZ unit for the first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. 3.Exemption from minimum alternate tax 4.External commercial borrowing by SEZ units upto $500 million in a year without any maturity restriction through recognized banking channels. CONT.

Facilities and Incentives Offered to the SEZs Fiscal Benefits to a unit established in SEZ 5. Exemption from Central Sales Tax 6.Exemption from Service Tax 7.Single Window Clearance for Central and State level approvals 8.Exemption from State sales tax and other levies as extended by the respective state governments

Facilities and Incentives Offered to the SEZs Other Benefits 1.No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation 2.About 100% FDI is freely allowed in the manufacturing sector on SEZ units under automatic route- except arms and ammunition, explosives, atomic substances, narcotics, hazardous chemicals, alcoholic drinks, cigarettes and manufactured tobacco substitutes. 3.Offshore Banking Unit (OBUs) is allowed in SEZ. They are entitled for 100% income tax exemption for the first three years and 50 percent for the next two years. 4.Procedural Ease and efficiency for speedy approvals, clearances and custom procedures and dispute resolution

Facilities and Incentives Offered to the SEZs Other Benefits 5.Simplification of procedures and self-certification in the labour act 6.Artificial harbor and handling bulk containers made operational through out the year 7.SEZs are permitted to have non-polluting industries and services in the Coastal Regulation Zone Act 8.SEZ units are exempted from public hearing under Environment Impact Assessment Notification 9.National labour laws are applicable which are enforces by the respective state governments. However, state governments have been requested to simplify the procedures

Exports from the functioning SEZs YEARVALUE (Rs. Crores) Growth Rate (Over Previous Year) ,85432% ,84025% ,61552% ,63893% ,68950%

SEZ and Export Promotion The Govt of India eased the export policy to facilitate easy growth of SEZ and export promotion All benefits given by the govt. has attracted investment in SEZ

SEZ controversy Causing major revenue loss to the government as huge tax exemptions are sanctioned Existing industries are expected to shift the SEZ to obtain tax concessions. That means very little of new activities are likely to be generated. Large scale land acquisition is causing displacement of farmers without appropriate compensation. Loss of productive agriculture land may also pause problem of food security. Proposed flexibility in the labour laws by the state government is making labour insecure