Special Economic Zones

 Special Economic Zone

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote exports from the country and realising the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.

A legislation has been passed permitting SEZs to offer tax breaks to foreign investors. Over half a decade has passed since its inception, but the SEZ Bill has certain drawbacks due to the omission of key provisions that would have relaxed rigid labour rules. This has lessened India's chance of emulating the success of the Chinese SEZ model, through foreign direct investment (FDI) in export-oriented manufacturing.

The policy relating to SEZs, so far contained in the foreign trade policy, was originally implemented through piecemeal and ad hoc amendments to different laws, besides executive orders. In order to avoid these pitfalls and to give a long-term and stable policy framework with minimum regulation, the SEZ Act, '05, was enacted. The Act provides the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
Since the rules will take care of many issues, the Special Economic Zone Act is likely to take some more time and the government is unlikely to notify them before September 1. The commerce and industry ministry is examining the domestic industry's comments on draft SEZ rules. A meeting of development commissioners of all SEZs will be convened soon to discuss the changes that need to be incorporated before they are notified to be placed before the parliament for final  approval.

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country's typical economic laws. Usually the goal is to increase foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North Korea has also attempted this to a degree.

Where are SEZs located in India?

At present there are eight functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (Uttar Pradesh) in India. Further an SEZ in Indore (Madhya Pradesh) is now ready for operation.

In addition 18 approvals have been given for setting up of SEZs at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (UP), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur ( Rajasthan) on the basis of proposals received from the state governments. 

What is the role of state governments in establishing SEZs?

State governments will have a very important role to play in the establishment of SEZs. Representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

In all SEZs the statutory functions are controlled by the government. Government also controls the operation and maintenance function in the seven central government controlled SEZs. The rest of the operations and maintenance are privatised.

Normal labour laws are applicable to SEZs, which are enforced by the respective state governments. The state governments have been requested to simplify the procedures/returns and for introduction of a single window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

The performance of the SEZ units are monitored by a unit approval committee consisting of development commissioner, custom and representative of state government on an annual basis.

Business units that set up establishments in an SEZ would be entitled for a package of incentives and a simplified operating environment. Besides, no license is required for imports, including second hand machineries.

SEZs play a key role in rapid economic development of a country. In the early 1990s, it helped China and there were hopes (perhaps never very high ones, admittedly) that the establishment in India of similar export-processing zones could offer similar benefits -- provided, however, that the zones offered attractive enough concessions.

Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red tape and strict labour laws. To date, these restrictions have ensured that India has been unable to compete with China's massively successful light-industrial export machine. India's goods exports in 2004 were an estimated $68 bn compared with $594 bn for China, and the stock of inward FDI, at $42 bn, was less than a tenth of China's $544 bn.

Source- Economic Times