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
economies to achieve industrialization.
 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
 Urban Enterprise zones and others
 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
governments. notify
Generation of additional economic activity
Promotion of exports of goods & services
Promotion of investment from domestic &
foreign sources
Creation of employment opportunities
Development of infrastructure facilities
 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.
The BOA has 19 members.
400000

349203
350000

300000

250000 238242

200000 No. of employees

Investment
150000

100000 91093
74451

50000

0
2008 2009
 TrendIn Export performanceof SEZs
140000

125950
120000

100000

80000
66638
Exports(In Cr)
60000

40000 34615
22840
18309
20000 13854
8552 9190 10053

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
 PercentageGrowth in Exports
100%
92% 89%
90%

80%

70%

60%
52%
50%
Growth Rate(%)
39%
40% 32%

30% 25%

20%
9%
7%
10%

0%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
 SEZExportsAs %Share of Total Exports
18%

16% 15.73%

14%

12%
10.17%
10%

8%
6.14%
6% 5.10% 5.13%
4.70%
4.20% 4.40% 3.90%
4%

2%

0%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
 Sector-WiseExports(06-07) Sector-WiseExports(07-08)
Others Textiles&Garments
TextilesandGarments Others
14% Electronics 2%
4% 2% Electronics
19%
23%
TradingandService TradingandService
7% Engineering 31%
4%
FoodandAgro
2% Engineering
3%
PlasticandRubber Plastic
1% and
Rubber
1%
Chemicalsand
Pharmaceuticals
3% FoodandAgro
1% Drugsand
GemsandJewellery
Pharmaceuticals
GemsandJewellery 35%
2%
46%
 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
goods, raw materials, consumables, spares, etc.
 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
offered to farmers whose lands have been acquired.
 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 Apparel Manufacturing Facility, Mahindra World City
City in Tamilnadu in Tamilnadu

Nokia SEZ Complex 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
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.
The idea for SEZs, in its originality is a very
attractive one. If implemented according to
proper rules and regulations and most
importantly, with proper consideration for
farmers and project affected people (PAPs),
the SEZs provide a win-win situation.