Sanjeev Bhardwaj Pragati Jain Sa"#hi G$lati Sonali %alder )n$j *$+ar

: : : : :

CG0290093 NR042 !93 NR03 969! &G00'0!(9 NR0332(!6

Serial No. 06 Serial No. !6 Serial No. 26 Serial No. 36 Serial No. 46

Prepared in pursuance of the 120th Secretarial Modular Training Programme conducted by the Northern India Regional Council of the Institute of Company Secretaries of India

We acknowledge, with all our sincerity, Northern India Regional Council of The Institute of Company Secretaries of India for giving us an opportunity to participate in the 1 !th Secretarial "odular Training #rogramme$ It has %een an e&ercise of self'discovery and enlightenment$ The faculty mem%ers, staff, coordinator and the Institute, in general were very keen on giving their inputs and presenting an invalua%le opportunity to interact with them$ This has, certainly made us reali(e that humility is the cardinal virtue that would make us a )true professional*$

#lace+ New ,elhi ,ate+ 1-th Septem%er . /th 0cto%er, !!1 0ur Team

!. 2. 3. 4. '. 6. . (. 9. !0. !!. !2.

,ntrod$-tion &vol$tion S&/ Poli-0 in ,ndia Bene1it# Given )22roval 3e-hani#+ 4 )d+ini#trative Set $2 Per1or+an-e o1 S&/ in ,ndia S$--e## Storie# S$#taina5ilit0 o1 S&/ Controver#0 Ca#e St$d0 Con-l$#ion 6re7$entl0 )#"ed 8$e#tion#

4 '. (.!2 !3.! !(.!9 20.23 24 2'.26 2 .3! 32.33 34 3'.39

Chapter-1

Special 2conomic 3one 4S235 is a geographical region that has economic laws that are more li%eral than a country6s typical economic laws$ It is a trade capacity development tool, with the goal to promote rapid economic growth %y using ta& and %usiness incentives to attract foreign investment and technology$ The category 6S236 covers a %road range of more specific (one types, including 7ree Trade 3ones 47T35, 2&port #rocessing 3ones 42#35, 7ree 3ones 4735, Industrial 2states 4I25, 7ree #orts, 8r%an 2nterprise 3ones and others$ 8sually the goal of an S23 structure is to increase foreign investment$ 9 single S23 can contain multiple 6specific6 (ones within its %oundaries$ The two most prominent e&amples of this layered approach are Su%ic :ay in the #hilippines and the 9;a%a Special 2conomic 3one in <ordan$ Today, there are appro&imately =,!!! S23s operating in 1 ! countries, which account for over 8S> ?!! %illion in e&ports and a%out @! million Ao%s$ :y offering privileged terms, S23s attract investment and foreign e&change, spur employment and %oost the development of improved technologies and infrastructure$ "ost developing countries in the world have recogni(ed the importance of S23s in facilitating international trade for the sustained growth of the economy and increased contri%ution to the B,# of the nation$ 9s part of its continuing commitment to li%erali(ation, the Bovernment of India has also, since the last decade, adopted a multi'pronged approach to promote foreign investment in India$ The Bovernment of India has pushed ahead with second'generation reforms and has made several policy changes to achieve this o%Aective$ There are 1= functional S23s and a%out ?1 S23s, which have %een approved and are under the process of esta%lishment in India$ Chapter-2

&vol$tion

Though S23s have %ecome a %u((word among advocates of economic li%erali(ation in recent years, they are not entirely a new concept and were %asically modeled on the 2&port #rocessing 3ones 42#35 that came up nearly a Century ago$

The original idea %ehind the creation of 2#3s was to allow employers to import materials to %e worked on and then re'e&ported without having to pay duty$ It was seen as a cheap way of creating Ao%s without spending scarce ta&payers6 money and avoiding a %ureaucratic system of reim%ursing import ta&es on goods intended for e&port$ Cowever, from the %eginning, this seductive idea had a maAor draw%ack$ It re;uires the sealing off of the (one or of designated factories, often %ehind high fences, to prevent unta&ed goods %eing smuggled into the rest of the economy$

The first 2#3 was esta%lished in 1-@- in Ireland %ut it was in 2ast and South 2ast 9sia that the idea found most enthusiastic support$ Countries like Taiwan, Singapore , "alaysia and the :ritish colony of Cong Dong em%raced the concept that economic growth can %e promoted %est through encouraging e&ports rather than through import su%stitution$ Thus setting up e&clusive, privileged (ones with a li%eral ta& and la%our regime would attract investors from developed countries interested in taking advantage of cheaper costs and fewer regulations to set up manufacturing units that would send %ack products for sale to richer markets$ Importantly, these (ones were used as a )test %ase6 for li%eralisation of trade, ta& and other policies that were then gradually applied to the rest of the economy$ 9s the 2#3 concept spread around the world, governments found that they had to add more and more incentives to attract footloose investors to their enclaveE su%sidised factory %uildings, telecommunication links, energy supplies and most worrying of all, guarantees that the la%our force would stay cheap and uncomplaining$ Deeping the intense glo%al competition for attracting 7oreign ,irect Investment 47,I5 in mind the #eople6s Repu%lic of China in the early eighties pioneered the concept of Special 2conomic 3ones that offered much greater incentives than the 2#3s had done till then$ 0ne of the earliest and the most famous Special 2conomic 3ones was founded %y the Chinese government under ,eng Fiaoping$ The most successful Special 2conomic 3one in China, Shen(hen, has developed from a small village into a city with a population over 1! million within ! years$ In the past two decades, more than 8S>=! %illion has %een invested %y outsiders in Shen(hen, which has %ecome the showcase of capitalist reforms in China $ 7ollowing the Chinese e&amples, Special 2conomic 3ones have %een esta%lished in several

countries, including :ra(il, India, Iran, <ordan, Da(akhstan, #akistan, the #hilippines, #oland, Russia, and 8kraine$ North Dorea has also attempted this to a degree, %ut failed$ #uno, #eru has %een slated to %ecome a G3ona 2conomicaG %y its #resident$ In the si&ties there were Aust 1! such (ones around the world, which %y the mid'eighties had increased to 1/? (ones across H/ countries$ In !!=, the num%er of (ones increased to over =!!! across 11? countries$ !"olution of S!#s in India The Cistory of S23s in India suggests that the seeds of the %asic concept of Special 2conomic 3one 4S235 were sown in the mid si&ties$The %asic model of the present day Indian Special 2conomic 3one was structured with the esta%lishment of the first 2&port #rocessing 3one 42#35 at Dandla in the year 1-?@$ Several other 2&port #rocessing 3ones were set up at various parts of India in the su%se;uent years$The lack of good 2conomic #olicy and inefficient management soon %ecame the detrimental factors for the success of these 2&port #rocessing 3ones$Thus, the performance of these 2&port #rocessing 3ones of India fell short of e&pectations$ The modern day Special 2conomic 3one came in to e&istence %ecause the economic reforms incorporated in the early 1--!s did not resulted in the overall growth of the Indian economy$ It was an o%vious attempt to copy the model evolved in China$The S23 policy of India was devised to act as a catalyst to promote the economic growth attained in the early 1--!$ The economic reforms incorporated during the 1--!s did not produce the desired results$ The Indian manufacturing sector witnessed a sudden dip in the overall growth of the industry, during the second'half of 1--!s$ The red tape, lengthy administrative procedures, rigid la%or laws and poor physical infrastructural facilities were the main causes of deterioration of 7oreign ,irect Investments 47,I5 inflow in to India$ 7urther, the Indian markets were not mature enough to facilitate easy entry of 7oreign Institutional Investors 47IIs5 in to the Indian economic system$ 7urthermore, the legal framework of Indian economy was not strong enough to prevent misuse of Indian markets %y the foreign investors$ Thus, the lack of investor friendly environment in India prevented growth of Indian industry, in spite of implementation of li%eral economic policy %y the central government$ This resulted in the formation of a much larger and more efficient form of their predecessors with world'class infrastructural facility$ The present day Special 2conomic 3one policies of India are well

complimented %y the provisions of the 9cts and Rules of Special 2conomic 3one$ 9 num%er of meetings were held across India for the formulation of ' 6The Special 2conomic 3ones 9ct, !!@6, which was su%se;uently passed %y #arliament in "ay !!@$ The S23 9ct, !!@ and S23 Rules %ecame effective on and from 1!th 7e%ruary !!?$ The 9ct was e&pected to give a %ig thrust to e&ports and conse;uently to the foreign direct investment 4I7,IJ5 inflows into India, and is considered to %e one of the finest pieces of legislation that may well represent the future of the industrial development strategy in India$ The new law was aimed at encouraging pu%lic'private partnership to develop world'class infrastructure and attract private investment 4domestic and foreign5, %oosting economic growth, e&ports and employment$

Chapter-3

S&/ P9:,C; ,N ,N<,)

The S23 policy was intended to make S23s an engine for economic growth supported %y ;uality infrastructure and %y an attractive fiscal package, %oth at the Centre and the State level, with the minimum possi%le regulations$ The functioning of the S23s in India is guided %y the provisions of the 7oreign Trade #olicy and fiscal incentives were made effective through the provisions of relevant statutes$ S23s can save the crum%ling infrastructure of e&isting manufacturing cities to lend impetus to the country*s growth plans$ 9 press release %y Confederation of Indian Industries 4CII5 ;uoted #resident R$Seshasayee urging Indian industry to e&pand its hori(ons to decongest e&isting hu%s across the country$ 2&isting industrial cities are %uckling under pressure, and new S23s located at reasona%le, %ut not close pro&imity could supplement their activities$ The construction of the S23 ideally ought to cover an area large enough to meet all the re;uirements of the resident population$ S23s would necessarily have to %e multi'product in nature, providing for economy of costs$ "anufacturing costs have a high element of ta& em%edded in them, and the new mega S23s should address this issue$ Inade;uate infrastructure has added to prices, and the new economic (ones with %etter planning should definitely help make our products more competitive, feels Seshasayee$ With a view to overcome the shortcomings e&perienced on account of the multiplicity of controls and clearancesE a%sence of world'class infrastructure, and an unsta%le fiscal regime and with a view to attract larger foreign investments in India, the Special 2conomic

3ones 4S23s5 #olicy was announced in 9pril !!!$ The main o%Aectives of the S23 9ct are+ 4a5 generation of additional economic activity 4%5 promotion of e&ports of goods and servicesE 4c5 promotion of investment from domestic and foreign sourcesE 4d5 creation of employment opportunitiesE 4e5 development of infrastructure facilitiesE It is e&pected that this will trigger a large flow of foreign and domestic investment in S23s, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities$ The S23 9ct !!@ envisages key role for the State Bovernments in 2&port #romotion and creation of related infrastructure$ 9 Single Window S23 approval mechanism has %een provided through a 1- mem%er inter'ministerial S23 :oard of 9pproval 4:o95$ The applications duly recommended %y the respective State BovernmentsK8T 9dministration are considered %y this :o9 periodically$ 9ll decisions of the :oard of approvals are with consensus$ The S23 Rules provide for different minimum land re;uirement for different class of S23s$ 2very S23 is divided into a processing area where alone the S23 units would come up and the non'processing area where the supporting infrastructure is to %e created$

REQUIREMENTS FOR VARIOUS CATEGORIES OF SEZ "ulti'product S23s to have an area of 1!!! hectares or more$
L Services'Sector S23s to have an area of 1!! hectares or more$ L To support sectors where India has a competitive advantage, such as gems and Aewellery,

information technology, %io'technology, sector'Specific S23s in these sectors can %e set up over an area of 1! hectares or more$

7or all other sectors, the area must %e atleast 1!! hectares$
L The area re;uirement for multi'product S23s has %een rela&ed to !! hectares and for Sector'Specific S23s to @! hectares, for certain States 49ssam, "eghalaya, Nagaland, 9runachal #radesh, "i(oram, "anipur, Tripura Cimachal #radesh, 8ttaranchal, Sikkim, <ammu M Dashmir, Boa5 and 8nion Territories, keeping in view the difficulty in finding large tracts of contiguous land in such StatesK8nion Territories. The salient featuresKprovisions of the S23 Rules are given %elow+

,ifferent minimum land re;uirement for different class of S23sE 2very S23 is divided into a processing area where alone the S23 units would come up and the non'processing area where the supporting infrastructure is to %e createdE Simplified procedures for development, operation and maintenance of the Special 2conomic 3ones and for setting up units and conducting %usiness in S23sE Single window clearance for setting up of an S23E Single window clearance for setting up a unit in a Special 2conomic 3onesE Single window clearance for matters relating to Central as well as State BovernmentsE Simplified compliance procedures and documentation with an emphasis on self certification$

S&/ )22roval Stat$#: Conse;uent upon the S23 Rules coming into force w$e$f$ 1!th 7e%ruary, !!?, nine

meetings of the :oard of 9pprovals have %een held$ 9s of present, there are =H valid formal approvals and 1? in'principle approvals$ 0ut of the =H formal approvals, notifications have already %een issued in respect of ?= S23s$ The fact that these =H formal approvals given for setting up S23s are spread over 1-

StatesK8Ts show that these are not concentrated in any particular region, %ut all over the country$ The total land area in the =H formally approved S23s is a%out ==1!! hectares, out

10

of which 1/1!! hectares appro&imately are for the ?! approvals given for State Industrial ,evelopment CorporationsKState Bovernment Nentures$ In all these cases, either the land was already availa%le with the State Bovernments or SI,Cs or was in possession of the private companies setting up the S23s$ Region-wise and Sector-wise SEZ Approvals The Region'wise and Sector'wise S23 approvals are shown in the following graphs+

11

:ased on consultations and suggestions received, certain amendments to the Rules were notified on 1!th 9ugust !!?$ Su%se;uently, a list of authori(ed operations for which e&emptions would %e availa%le, for use %y the :oard of 9pproval while approving authori(ed operations to %e undertaken %y S23s, were also notified on /th 0cto%er !!?$ Salient 1eat$re# o1 the ,ndian S&/ initiative in-l$de: L 8nlike most of the international instances where (ones are primarily developed %y Bovernments, the Indian S23 policy provides for development of these (ones in the government, private or Aoint sector$ This offers e;ual opportunity to %oth Indian and international private developers$ L 7or greenfield S23s, the Bovernment has specified a minimum prefera%le area of 1,!!! hectares$ Cowever, for sector specific S23s, there is no restriction of minimum area$ L 1!! per cent 7,I is permitted for all investments in S23s, e&cept for activities under the negative list$ L S23 units are re;uired to %e positive net foreign e&change earners and are not su%Aect to any minimum value addition norms or e&port o%ligations$ L Boods flow into the S23 area from ,omestic Tariff 9rea 4,T95 will %e treated as e&ports and goods coming from the S23 area into ,T9 are treated as imports$

12

Currently, a num%er of S23 proAects are coming up in the country$ The government has given a go'ahead for around 1/ S23s to %e set up in the private sector or the Aoint sector$ 0f these, the proAects at #ositra 4BuAarat5, Nishakhapatnam 49ndhra #radesh5, Indore 4"adhya #radesh5 and Navi "um%ai 4"aharashtra5 are in advanced stages of planning and development, while the others are preparing to get off the ground.

Chapter-4

B&N&6,=S G,>&N
BENEFITS TO SEZ DEVELOPERS
4a5 1!! per cent of the profits of the ,eveloper arising from the %usiness of developing an S23, notified after 9pril 1, !!@ under the S23 9ct, shall %e deducted from ta&a%le income$ This deduction can %e claimed at the option of the assessee for any 1! consecutive years out of 1@ years %eginning from the year in which the S23 has %een notified %y the Central Bovernment$ If a ,eveloper who sets up an S23 after 9pril 1, !!@, transfers the operation and maintenance of the S23 to another ,eveloper, the transferee is entitled to the a%ove deduction of profit for the remaining period$ 4%5 With regard to a ,eveloper who is entitled to claim an e&emption under Section 1!'I9 of the IT9, the ,eveloper can claim an e&emption for the remainder une&pired e&emption period under Section 1!'I9, and thereafter it can claim the 1! year ta& e&emption availa%le to such ,eveloper under Section 1!'I9:$ 4c5 The ,evelopers of S23 are not re;uired to pay "inimum 9lternate Ta&$

13

4d5 No dividend distri%ution ta& shall %e paid %y a ,eveloper engaged in developing, operating and maintaining an S23$

BENEFITS TO SEZ UNITS

495 The 8nits set up in an S23 which have %egun to manufacture K provide services during the financial year %eginning 9pril 1, !!@ will get the following e&emptions+ L 1!!O e&emption of profits and gains from %usiness for the first @ years$ L @!O e&emption on profits and gains from %usiness for the ne&t @ years$ L @!O e&emption to the e&tent that such amounts is re'invested in the S23 Special Reserve 9ccount$ If the S23 8nit has already availed of %enefits for 1! years under Section 1!9 of the IT9, the a%ove e&emptions are not availa%le$ 7urther, when a 7ree Trade 3one 4I7T3J5 or an 2&port #rocessing 3one 4I2#3J5 is converted into an S23, the 8nits, which have already availed of the 1!'year ta& e&emption in an 7T3 or 2#3, cannot avail of the Section 1!99 e&emptions$ 4:5 Posses falling under the heads I#rofits and Bains from :usiness or #rofessionJ and IIncome from Capital BainsJ can %e carried forward K set off as long as such loss is related to the %usiness of the S23 8nit$ 4C5 Capital Bains on transfer of assets in case of shifting of an industrial undertaking from an ur%an area to an S23 shall %e e&empt, provided that 1 year %efore, or = years after the transfer 4i5 machinery K plant was purchased for the %usiness of the industrial undertaking in the S23, 4ii5 %uilding or land was ac;uired or %uilding was constructed in the S23, 4iii5 the original asset was shifted and the esta%lishment was transferred to the S23 and 4iv5 the assessee incurred such other e&penses as are notified %y the Central Bovernment 4,5 Interest income received %y a non'resident or a person who is not ordinarily resident in India, on a deposit made in an 0:8 situated in an S23, shall %e e&empt from total income

14

425 No ta& deduction shall %e made %y the 0:8 from interest paid+ 4i5 0n deposits made on or after 9pril 1, !!@ %y a non'resident or a person not ordinarily resident in IndiaE or 4ii5 0n %orrowings on or after 9pril 1, !!@ from a non'resident or a person not ordinarily resident in India 475 The gross total income of an assessee having an 0:8 or an assessee %eing a 8nit of an I7SC shall %e deducti%le to the e&tent of 1!!O for @ consecutive years from the year of grant of permission under the :anking Regulation 9ct K S2:I K other relevant law and @!O for the ne&t @ years1 $ It further defines the e&empted IincomeJ, which is+ L Income from an 0:8 in an S23 E L Income from %usiness referred to in the :anking Regulation 9ct, 1-H-, or any other 8nit which develops, develops and operates, or develops, operates and maintains an S23 E L Income from an approved unit of an I7SC$ 4B5 2&emption from Securities Transaction Ta& availa%le to ta&a%le securities transaction entered into %y a non'resident through the I7SC$

OTHER BENEFITS Customs and Ex !s"

L 2&emption from Customs ,uty+ S23 8nits may import or procure from the domestic sources, duty free, all their re;uirements of capital goods, raw materials, consuma%les, spares, packing materials, office e;uipment, ,B sets etc$ for implementation of their proAects in the S23 without re;uiring any licence or specific approval L Boods importedKprocured locally which are duty'free could or should %e utili(ed within the approval period of @ years L ,omestic sales %y S23 8nits will %e e&empt from Special 9dditional ,uty

15

L ,omestic sale of finished products, %y'products is permitted on payment of applica%le Customs duty L ,omestic sale of reAects, waste and scrap is permitted on payment of applica%le customs duty on the transaction value L 2&emption from applica%le e&cise duty on goods %rought in from the ,T9 to an S23

FOREIGN DIRECT INVESTMENT

L 1!!O 7,I under the automatic route is allowed in the manufacturing sector in S23 8nits, e&cept for arms and ammunition, e&plosives, atomic su%stances, narcotics and ha(ardous chemicals, distillation and %rewing of alcoholic drinks and cigarettes, cigars and manufactured to%acco su%stitutes L 2&emption from the applica%ility of #ress Note India has to satisfy$ 4 !!@5 that prescri%es certain conditions

that a foreign investor proposing to make foreign direct investment in real estate sector in

BAN#ING $ INSURANCE $ E%TERNAL COMMERCIAL BORRO&INGS

Setting up 0:8s has %een allowed in S23s$ 2&ternal Commercial :orrowings %y S23 8nits up to 8S> @!! million a year is allowed without any maturity restrictions L 7reedom to %ring in e&port proceeds without any time limit L 7le&i%ility to keep 1!!O of e&port proceeds in an 227C account and freedom to make overseas investments with it L Commodity hedging permitted L S23 units allowed to 6write'off6 unreali(ed e&port %ills

CENTRAL SALES TA%

16

Exemption from Central sales tax on inter-state sale or purchase of goods

OTHER CENTRAL ENACTMENTS STATE TA%ES 1 The respective State Bovernments may for the purpose of giving effect to the provisions
of the S23 9ct, notify policies for ,evelopers and S23 8nits and take suita%le steps for the enactment of any law for granting e&emption from state ta&es, levies and duties to a ,eveloper or an entrepreneur

2 SERVICE TA% 1 Exemption from Service Tax to the Developer and the SEZ nits to carr! on authori"ed operations in the SEZ. Service tax exemption granted onl! to Developer or to a nit LABOUR LA&S #ll la$our la%s as applica$le %ithin the countr! appl! in an SEZ. STAMP DUT' 1 &o stamp dut! is chargea$le in respect of an! instrument executed' $!' or' on $ehalf of' or' in favour of' the Developer' or nit or in connection %ith the carr!ing out of the purposes of the SEZ SUB(CONTRACTING 1 2 + SEZ nits ma! su$-contract part of their production or production process through nits in the DT# or through other E( ) SEZ nits SEZ nits ma! also su$-contract %or* from the DT# exporters' and export from the SEZ nits can $e set up to provide manufacturing services to overseas entities su$,ect to certain conditions TRANSACTION INCENTIVES &ITH DTA #n! supplies from a DT# to an SEZ are to $e treated as ph!sical export. # DT# supplier %ould $e entitled to17 nits in the DT# providing services to a

1 2 + 1

Dra%$ac* ) DE./ Exemption from Central Sales Tax Exemption from State 0evies 2ncome-tax $enefit as applica$le to ph!sical export under Section 34 55C of the 2ncome Tax #ct.

Chapter-

)22roval +e-hani#+ and )d+ini#trative #et $2 o1 S&/#

)22roval 3e-hani#+ The developer su%mits the proposal for esta%lishment of S23 to the concerned State Bovernment$ The State Bovernment has to forward the proposal with its recommendation within H@ days from the date of receipt of such proposal to the :oard of 9pproval$ The applicant also has the option to su%mit the proposal directly to the :oard of 9pproval$ The :oard of 9pproval has %een constituted %y the Central Bovernment in e&ercise of the powers conferred under the S23 9ct$ 9ll the decisions are taken in the :oard of 9pproval %y

18

consensus$ The :oard of 9pproval has 1- "em%ers$ Its constitution is as follows+

415 4 5 4=5 4H5

Secretary, ,epartment of Commerce "em%er, C:2C "em%er, IT, C:,T <oint Secretary 4:anking ,ivision5, ,epartment of 2conomic 9ffairs, "inistry of 7inance

Chairman "em%er "em%er "em%er

4@5 4?5 4/5 415

<oint Secretary 4S235, ,epartment of Commerce <oint Secretary, ,I## <oint Secretary, "inistry of Science and Technology <oint Secretary, "inistry of Small Scale Industries and 9gro and Rural Industries

"em%er "em%er "em%er "em%er

4-5 41!5 4115 41 5 41=5 41H5 41@5 41?5 41/5 4115

<oint Secretary, "inistry of Come 9ffairs <oint Secretary, "inistry of ,efence <oint Secretary, "inistry of 2nvironment and 7orests <oint Secretary, "inistry of Paw and <ustice <oint Secretary, "inistry of 0verseas Indian 9ffairs <oint Secretary, "inistry of 8r%an ,evelopment 9 nominee of the State Bovernment concerned ,irector Beneral of 7oreign Trade or his nominee ,evelopment Commissioner concerned 9 professor in the Indian Institute of "anagement or the Indian Institute of 7oreign Trade ,irector or ,eputy Sectary, "inistry of Commerce and

"em%er "em%er "em%er "em%er "em%er "em%er "em%er "em%er "em%er "em%er

41-5

Industry, ,epartment of Commerce

"em%er Secretary

19

)d+ini#trative #et $2 The functioning of the S23s is governed %y a three tier administrative set up$ The :oard of 9pproval is the ape& %ody and is headed %y the Secretary, ,epartment of Commerce$ The 9pproval Committee at the 3one level deals with approval of units in the S23s and other related issues$ 2ach 3one is headed %y a ,evelopment Commissioner, who is e&'officio chairperson of the 9pproval Committee$ 0nce an S23 has %een approved %y the :oard of 9pproval and Central Bovernment has notified the area of the S23, units are allowed to %e set up in the S23$ 9ll the proposals for setting up of units in the S23 are approved at the 3one level %y the 9pproval Committee consisting of ,evelopment Commissioner, Customs 9uthorities and representatives of State Bovernment$ 9ll post approval clearances including grant of importer'e&porter code num%er, change in the name of the company or implementing agency, %road %anding diversification, etc$ are given at the 3one level %y the ,evelopment Commissioner$ The performance of the S23 units are periodically monitored %y the 9pproval Committee and units are lia%le for penal action under the provision of 7oreign Trade 4,evelopment and Regulation5 9ct, in case of violation of the conditions of the approval$ Chapter-!

Per1or+an-e 50 S&/# in ,N<,)

20

The %enefits derived from multiplier effect of the investments, additional economic activity in the S23s and the employment generated thereof are estimated to far outweigh the ta& e&emptions and the losses on account of land ac;uisition$ Sta%ility in fiscal concessions is a%solutely essential to ensure credi%ility of the Bovernment intentions$ :enefits derived from the S23s are evident from the investment, employment, e&ports and infrastructural developments additionally generatedKe&pected to %e generated$ 6)C= S%&&= 9N SP&C,): &C9N93,C /9N&S Num%er of 7ormal approvals Num%er of notified S23 4as on 11th 9ugust !!15 Num%er of valid In'#rinciple approvals Pand Re;uirement Bround Realities+ Total land in India+ -/=1-! s;$ km Total 9gricultural Pand in India+ 1? !=11 s;$ km 4@H$@O5 @1= @! 4out of @1=5 1=1

21

Total area for the proposed S23 479QI#5R 1/11 s;$ km$ which would not %e more than !$!?1O of the total land area and not more than !$11 O of Pand 9rea the total 9gricultural land in India Notified 7ormal Nalid in' S23s approvals incl notified S23s 4795 -=-1 ha INN2ST"2NT 49s on =!th <une !!15 Notified S23s StateK#vt$ S23s set up %efore !!? Bovernment S23s =otal 2"#P0S"2NT 49s on =!th <une !!15 Notified S23s StateK#vt$ S23s set up %efore !!? Bovernment S23s =otal 2&ports in !!?'!/ 2&ports effected during !!/'!1 ? @-! ha #rincipal approvals 4I#5 11@?H ha
,n-re+ental ,nve#t+ent

Total area for proposed S23s 479QI#5 1/11 S;$ km$

=otal ,nve#t+ent

Rs$ /=,=H1$=!@ Cr Rs$ 1-H@$? Cr Rs$ 1/?H$!1 Cr Rs$ //,!@/$-1@ Cr

,n-re+ental ,nve#t+ent

Rs$ /=,=H1$=!@ Cr Rs$ =/!1$-1 Cr Rs$ H!H=$ 1 Cr Rs$ 11!-=$H-@ Cr

=otal ,nve#t+ent

1,!!,11@ persons =?,@ ! persons //,!-H persons ,1H,H-- persons Rs$ =H?1@ Crore Browth of @ O over Rs$ Rs$ ??,?=1 crore

1,!!,11@ persons H1,-11 persons 1,--,==! persons =,H-, != persons 1H! crore in !!@'!?

Browth of - O over !!?'!/ 0verall growth of e&ports of =11O over past four years 4 !!='!H5 2&port proAection for !!1'!- Rs$ 1 @-@! crore$

"ost developing countries in the world have recogni(ed the importance of facilitating international trade for the sustained growth of the economy and increased contri%ution to the B,# of the nation$ 9s part of its continuing commitment to li%erali(ation, the Bovernment of India has also, since the last decade, adopted a multi'pronged approach to promote foreign

22

investment in India$ The Bovernment of India has pushed ahead with second'generation reforms and has made several policy changes to achieve this o%Aective$

2&ports from the S23s were to the e&tent of of Rs$ ==,?H/ crore in the year !! ' !!=$ They have grown upto Rs$ ,!1,1H- crore in the year !!/'!1, recording @$/ times growth in a span of Aust @ years$ 2&ports this year was Rs$ ??, ?=1 crore, - O up over the last year*s e&port of Rs$ =H,/1/$ 2&ports from the S23s during the last five years are given as under+

80000

70000

60000

50000

40000

Expor t s
30000 20000

10 0 0 0

0 2002-03 2003-04 2004-05 200 5-0 6 2006-07 200 7-0 8

S&/ #hare in ,ndia?# &@2ort# 4Rs$ In Crore5

23

2007-08 2006-07 2005-06 2004-05 2003-04 2002-03

100000

200000

300000

400000

500000

600000

700000

,ndiaA# e @2ort#
;ear S&/ $nit#

S&/ Share
=otal

!! '!= !!='!H !!H'!@ !!@'!? !!?'!/ !!/'!1

1!!@/ 1=11H 11?@@ 1H! =H/1/ ???=1

==?H/ H ?H1 @/11= / =! 1!H/@ !11H-

Chapter-"

24

SBCC&SS S=9R,&S
The S23 Scheme has generated tremendous response amongst the investors, %oth in India and a%road$ This is evident from the fact that several prominent private sector developers have come forward for esta%lishing S23s$ Some such prominent S23s which have recently come up are+

Nokia S23 in Tamil Nadu l Tuark City S23 in Chandigarh 7le&tronics S23 in Tamil Nadu "ahindra World City S23, Tamil Nadu "otorola, ,2PP and 7o&Conn 9pache S23 49didas Broup5 in 9ndhra #radesh ,ivvy6s Pa%oratories, 9ndhra #radesh RaAiv Bandhi Technology #ark, Chandigarh 2TP Infrastructure IT S23, Chennai Cydera%ad Bems Pimited, Cydera%ad

Chapter-#

25

SBS=),N)B,:,=; 96 S&/#
There is a need for devising effective reha%ilitation packages so that the displaced are not deprived of the fruits of development$ 0ne way to achieve sta%ility is to let the displaced reap the %enefits %y giving them a proportion of developed land for agriculture$ Cow long will we continue cele%rating our potential even while restraining ourselves from realising itU Cow true are these significant words penned %y none other than #rime "inister "anmohan Singh, as we, day after day, continue putting %locks in the path of our own progressU The S23 policy hiccups are clearly a repeated e&ample of such %locks$ What is the message we are sending to glo%al investors who are eyeing the S23s for setting up their glo%al manufacturing plantsU The frantic calls I have received from a couple of glo%al shoe manufacturers having time %ound plans to manufacture sports shoes in S23s in India, instead of China, wishing to employ over H!,!!! people, are fully Austified$ Cow do they plan their glo%al manufacturing if such uncertainty keeps coming upU "aking India a glo%al manufacturing hu%, I firmly %elieve, is the only solution for creating Ao%s for the /1 million young Indians entering the working age population in the ne&t five years$ We must remem%er that two'third of this population lives in the rural areas and survives on su%sistence farming$ They have all watched colour'TNs and are aware of the superior ;uality of living in ur%an centres$ "any of them do not want to till the land any more and aspire for a %etter future, which e;uates to working in an ur%an environment$ The IT sector, no dou%t, will provide Ao% opportunities, %ut only to a few of the teeming millions and those too will %e largely restricted to the ur%an educated youth$ This is where S23s can pitch in$ There is an emergent need to educate and train the rural youth for employa%ility in the manufacturing sector$ Thus the manufacturing sector needs to grow %y leaps and %ounds

26

very ;uickly$ This can only %e achieved if the government and all political parties set aside their political agenda and put their collective force %ehind implementing policies which will make India an attractive destination for %ecoming a glo%al manufacturing hu%$ Biving a push to S23s should %e an essential component of this thrust$ The S23 policy, %ased on private sector financing and aimed at creating %oth industrial infrastructure and social infrastructure, is clearly an important step in this direction and deserves the incentives that have %een given$ The present S23 hiccup is a fall'out of %ad land ac;uisition policy and politics$ Clearly the state governments need to adopt pragmatic land ac;uisition policies so that it does not lead to deprivation among the displaced, %ut %ecomes a win'win situation$ 0ne way to achieve this is to let the displaced reap some %enefits of the development and this can %e done %y giving them developed land for agriculture$ 7or instance, per cent of all land ac;uired should %e kept aside to %e developed %y the

S23 developer and allotted as residential K commercial land on a proportional %asis to the persons from whom the land has %een ac;uired and other displaced persons$ This can %e done alongside the physical displacement so that resettlement is immediate$ The values of such allotted commercial K residential developed land would rise with the value of the S23 development resulting in appropriate compensation ' truly a win'win situation$ The present National #olicy for resettlement and reha%ilitation of #roAect 9ffected 7amilies 4N#RR' !!=5 has %een in force since 7e%ruary !!H, much %efore the enactment of the S23 9ct in !!@$ "oreover, several states like 0rissa, "#, "aharashtra and so on have their own reha%ilitation policies offering %etter %enefit levels to the affected families$

Is it, therefore, Austified to put on hold all S23 applications pending a new reha%ilitation policyU Reha%ilitation of the affected families, no dou%t, should %e the top priority and responsi%ility of the S23 developer and the respective state governments$ :ut we need also to %e careful that we do not continuously send wrong messages to glo%al investors$ We must %reak the pattern of sending out messages of an inconducive policy environment, which in the past has often deprived the country of great opportunities$ Chapter-$

27

C9N=R9>&RS;

S23s+ :oon or ,isasterU The si((ling controversy of whether setting up Special 2conomic 3ones 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, %ut this one will %e on the front pages for a long time to come$ It is a controversy that is ironically pitting the 7inance "inistry against the Commerce "inistry, the ruling coalition with its partners, farmers with their state governments and activists against what they call, Ipeople unfriendlyJ proAects that can spin out of control %y marginali(ing a huge section of poor people$ In the last few weeks there has %een a lot of political posturing, differences of opinion and stance on the S23, as it %ecomes a hot potato$ 9s Indian growth rates manage to keep its head high a%ove stormy waters, the idea to many seem as one way of %oosting the economy, setting up of new infrastructure, helping ancillary units sprout and creating millions of Ao%s$ The idea of setting up Special 2conomic 3ones was mooted in "arch !!! as specially demarcated growth centers, to %oost e&ports$ It would have special laws protecting it, did not have to pay customs duties on machinery or goods it imported or %ought locally$ It would %e treated as a foreign territory doing %usiness with various partners a%road$ It would have li%eral laws as far as la%or and foreign investment was concerned$ 9part from attractive ta& and duty e&emptions, it would %e

28

allowed to distri%ute its own gas, power and water$ It was touted to have its uni;ue style of governance$ In short, %e economic drivers$ When it was spelt out, it seemed good as its advocates kept pointing to China that attracted >=! %illion in Shen(en, Aust one of its S23*s$ The investment here was more than what all the S23*s in India were proAected to get$ 9nother S23 doing e&tremely well was #udong, near Shanghai changing the entire skyline$ 0%servers say China attracts nearly >H@ %illion per year in foreign direct investment compared to India6s figures of > %illion annually as it has used its huge S236s to %oost its economy$ India hoped to replicate it$ The S23*s sounded like an uni;ue idea when it was descri%ed as %eing swank with its own malls, restaurants, flyovers, hospitals, golf courses, lu&ury apartments, recreation centers and even airports or Aetties that would Aostle to %ecome among the %est in the world$ The Commerce "inistry says it is a great real estate opportunity for commercial comple&es, offices, malls, golf courses and so on$ :ut S23*s need land to %uild such a massive infrastructure$ 9ll the contiguous land that is easily availa%le and connected to the mainland is productive, fertile, agricultural land$ :oth the centre and the states are eager to ac;uire this land as they see it as the only way to put up what they think will soon %e their economic drivers$ The 8nion "inistry of Commerce and Industries are in a great hurry to see it happen as visuali(e the (ones will revive growth and investment$ Commerce "inistry officials are trying to push it as fast as they can saying that it will stimulate investments of over Rs$ 1,!!,!!! crore, create over five lakh Ao%s and also %ring in net revenue of Rs$ HH,!!! crore$ 0ne government proAection says that -H S23*s dealing with IT will itself create as many as 1 $@ lakh Ao%s$ 9 rough plan is that H! per cent of the S23 will %e set aside for greenery, sewage and water treatment, @ per cent for real estate development and the rest =@ per cent for developing the S23$ :ut all this does not sound like good news for the 7inance "inistry$ It has real apprehensions+ S23*s are estimated to end up with the 7inance "inistry losing revenue to the tune of over Rs$ 1,!!,!!! crore annually once the (ones are up and running$ With its huge fiscal deficit, India can hardly afford the loss$

29

The Reserve :ank of India has in fact told %anks that they should not treat S23*s as infrastructure proAects %ut as real estate development activity$ The primary issue is the widespread apprehension that the S23*s will %e hiAacked %y developers who will with government help, corner huge swathes of rich, agricultural land with a measly compensation handed over to farmers which will not have any resettlement and reha%ilitation policy$ "any of them are IT related software parks and technology hu%s$ The argument put forward %y critics is that there is no need for a S23 for IT as they would have done well anyway as India has an edge and has solid human resource that is growing %y the day$ This has prompted the Commerce Secretary, Bopal #illai, to say that the government will now go slow on approval for IT S23*s$ 9s many as 1H1 IT S23*s has %een granted approval and another /! are likely to %e okayed as they have %een cleared in principle$ This may not %e music to IT ears$ The S23 was a perfect dream for them as the e&isting Income Ta& 9ct allows them ta& sops only for another four years$ If they in that time got into a S23, they could again ride on a ta& holiday for another decade or more$ What has %een India*s e&perience with 2&port #rocessing 3onesU Why did they not do as well as it was proAected inspite of heavy financial incentivesU Why has there %een such an aggressive government overdrive to %ring in S23*s into India in such a massive scaleU India is looking at developing more than =@! S23*s with more than Rs$ 1,!!,!!! crore investments$ 9s many as 1@! of them have got formal approval$ 9nother 1 - have %een cleared in principle and nearly !! others are awaiting clearance$ Reliance plans to %uy nearly @,!!! acres of land from the Caryana government to set up Rs$ @,!!! crore 4Rs @! %illion5 multi'product S23 that will have a cargo airport and a ,!!!'mw power plant$ 9part from this, "ukesh 9m%ani, the Reliance Industries Chairman, has %igger plans$ Ce wants to set up one of the %iggest S23*s in India$ In association with the "aharashtra government, he wants to set up two of these (ones in an area as large as 1H,!!! hectares in Navi "um%ai and "aha "um%ai$ :oth these would %e impossi%le if irrigated land is not allowed to %e ac;uired$ 9part from Reliance, companies like Wipro, Infosys, Satyam, :aAaA, ,P7 and many others are firming plans to set up S236s$ The S23 rush is on$ In the second week of Novem%er, Noida in 8ttar #radesh got the okay for eight S23*s$ 9s protests %y farmers in various parts of India created a whirr with activists Aoining in, the government toned its enthusiasm and determination down a wee %it saying that agricultural

30

land would not %e taken over to %uild S23*s$ 8nited #rogressive 9lliance chairperson, Sonia Bandhi, categorically said that good agricultural land should not %e converted into S23*s$ Nationalist Congress #arty leader Sharad #awar who soon will have to face elections for state civic %odies and district councils in "aharashtra echoed the same fact saying that irrigated land must not %e ac;uired$ 7armers in many parts near "um%ai and #une are angry that land sharks that are developers for the S23 are targeting their land$ 7or politicians, nothing could %e worse than anger showing up at election %ooths$ "aharashtra Chief "inister Nilasrao ,eshmukh has already said that he would go slowly on ac;uiring land for these proAects$ There is a distinct possi%ility that many e&isting manufacturing units would shift %ase to the S23 Aust to escape ta&$ The S23 would %e a great place for them to park as it would not only %e %etter in terms of doing %usiness %ut also help them reap huge ta& %enefits making their profits soar$ The S23*s will mainly come up in "aharashtra, BuAarat, 8ttar #radesh, Tamilnadu, 0rissa, Darnataka and Caryana$ "any %ackward states that are underdeveloped will continue to %e sentenced to remain so$ This could lead to regional im%alances that will throw up complicated pro%lems$ N0 S23 for e&ample, will come up in the north'east, which already suffers from the pro%lem of alienation and discrimination$ The Commerce "inistry is pushing the argument that farmers would %e well compensated$ :ut the fact remains as true as ever'from e&periences earlier'that farmers do not know what to do with li;uid cash$ It is the kind of money they never saw %efore$ 9s they do not know how to manage it, invest it or recycle it for some other activity, it is often spent wastefully$ 0r it goes into gam%ling or li;uor dens$ 7armers are never counseled on how to spend the money or on how it can %e made to grow$ Pand is sold and money is soon over$ Caving lost the only kind of livelihood they knew, they caught in the whirlpool of de%t$ 9nother argument %eing used to dent the critics is how farmers could %e reha%ilitated with Ao%s in the (ones$ "ost of them are going to %e Information Technology related and how are farmers going to do a nine to si& Ao% at a desk or with machines they do not understandU The issues that arise are far too sticky to have immediate and easy solutions$ It may not %e so easy to find wasteland that is well connected to airports or ports$ :ut it is an option that the government is now seriously looking at as anti'S23 voices get louder$ The

31

government may use the Pand 9c;uisition 9ct to force farmers say good%ye to their land after compensating them in cash, %ut the aam aadmi factor looms large especially as elections are concerned$ No wonder ministers and Congress chief Sonia Bandhi are treading carefully on the S23 %om%$ She categorically said that good agricultural land should not %e ac;uired for S23*s$ It is not going to %e easy$ Social engineering is more than throwing statistics at an agricultural community that is already under attack form market forces that is making it tough to farm$ In India, farmers are emotional a%out the land that they have farmed for years and Aust giving it up so that industry can %e set up, is not something that can %e easily digested$ 9lready, there have %een numerous protests and farmers are now reali(ing the need to stick together to defend their right to their farmland$ The government is touting S23*s as the future islands of e&cellence$ :ut at what cost will it %e achievedU That is the moot ;uestion$ 9s thousands of acres of agricultural land are converted into concrete Aungles, how will it affect food securityU Will the farmers who are ready to give off their land get a fair dealU "ost of them fear they will get peanuts compared to what the developers will make$ #unAa% Chief "inister, Capt$ 9mrinder Singh, has already gone on record saying that land ac;uisition is a deal %etween the farmers and the S23 developers and the government has nothing to do with it$ Will the same attitude continue when environmental degradation starts in the race to make a fast %uckU The enthusiasm that the government has in setting up the S23*s underline an ugly fact that even after five long decades of independence, we still do not have the kind of decent infrastructure in the country that should have normally %een the case$ Services should have %een availa%le to all, %ut it could not %e created and so now, there will %e special areas demarcated for special people$ The others will continue to live without power, water, roads and green areas$ Islands of prosperity where the rich are ecologically su%sidi(ed are okay, while the lesser mortals live on the fringes$

32

N9*,) SP&C,): &C9N93,C /9N&C C%&NN), =)3,:N)<B

#roAected Investment 4in Rs$ Crores5 Investment already made 4in Rs$ Crores5 #roAected 2&ports 4!1'!-5 4in Rs$ Crores5 2&ports %eing made at present 2mployment at present 4direct Q indirect5 Num%er of maleK female employees ?$ /$ 1$ Training facilities for employees ,etails of kind of units which are coming up like in the case of Nokia, some details a%out /' 1 manufacturers which have come there

1$ $ =$ H$ @$

=//@$!= -11$-= 1@!?!$=-1@=$ ! 1=@-? ?H1? . "ale /11! . 7emale Cands'on training is given 1$ "Ks Nokia India #vt$ Ptd$ $ "Ks Wintech Technology I India Ptd$ =$ "Ks <a%il Circuits India #vt$ Ptd$ H$ "Ks 7o&conn Technology India #vt$ Ptd$ @$ "Ks #erlos Communications #vt$ Ptd$ ?$ "Ks Salcmp #vt$ Ptd$ !/'1 ' !!@

-$

,ate of Notification

33

D,PR9 :,3,=&<C %;&<R)B)<C )N<%R) PR)<&S%

1$ $ =$ H$ @$ #roAected Investment Investment made #roAected e&ports 4 !!1'!-5 2&ports made 2mployment #roposed ,irect Indirect Current 2mployment ,irect Indirect No$ of male employees No$ of female employees ,ate of Notification /!@! !! Rs$ = Crores

Rs$ 1?$! Crores Rs$ =!! Crores Rs$ 11H$H

?$

/$ 1$ -$

=/!! =@! /!! 1!!! !1'!1' !!?

34

C9NC:BS,9N

The establishment of the SEZs has undoubtedly helped to in !ease the "olume of inte!national t!ade# $u!the!% a la!&e amount of fo!ei&n in"estment has found its 'ay not only into the e(po!t t!ade% but also into inf!ast!u tu!e onst!u tion and omme! e# $o!ei&n ompanies ha"e been en ou!a&ed to establish thei! p!esen e in the te!!ito!ies and the e(po!t indust!y has &!o'n# )d"an ed fo!ei&n te hnolo&y has been b!ou&ht in 'ith the inflo' of fo!ei&n in"estment# )ll these fa to!s ha"e ont!ibuted to the &!o'th of the *ndian e onomy# The ena tment of the SEZ ) t and its implementation should enable the +o"e!nment of *ndia to fulfill its a&enda of e onomi !efo!ms as the multiplie! effe ts on the e onomi a ti"ities t!i&&e!ed by SEZ mate!iali,e#

35

6R&8B&N=:; )S*&< 8B&S=,9NS E6)8F

8. %ow to #et $2 a $nit in S&/ G 7or setting up a manufacturing, trading or service units in S23, = copies of proAect proposal in the format prescri%ed at 9ppendi& 1H'I9 of the Cand%ook of #rocedures, Nol$1 to %e su%mitted to the ,evelopment Commissioner of the S23$ 8. Dhat i# the a22roval +e-hani#+ 1or the $nit# G 9ll approvals to %e given %y the 8nit 9pproval Committee headed %y the ,evelopment Commissioner$ Clearance from the ,epartment of #olicy and #romotionK:oard of 9pprovals, wherever re;uired will %e o%tained %y the ,evelopment Commissioner, %efore the Petter of Intent is issued$ 8. Dhat i# the o5ligation o1 the Bnit $nder the S-he+eG

S23 units have to achieve positive net foreign e&change earning as per the formula given in paragraph 9ppendi& 1H'II 4para 1 $15 of Cand%ook of #rocedures, Nol$1$ 7or this purpose, a Pegal 8ndertaking is re;uired to %e e&ecuted %y the unit with the ,evelopment Commissioner$

The units have to provide periodic reports to the ,evelopment Commissioner and 3one Customs as provided in 9ppendi& 1H'I 7 of the Cand%ook of #rocedures, Nol$1$ The units are also to e&ecute a %ond with the 3one Customs for their operation in the S23$ 9ny company set up with 7,I has to %e incorporated under the Indian Companies 9ct with the Registrar of Companies for undertaking Indian operations

36

8. Dhat are the in-entiveH1a-ilitie# availa5le 1or S&/ $nit#G 7ollowing incentiveK facilities to S23 enterprises+ Customs and 2&cise +

S23 units may import or procure from the domestic sources, duty free, all their re;uirements of capital goods, raw materials, consuma%les, spares, packing materials, office e;uipment, ,B sets etc$ for implementation of their proAect in the 3one without any licence or specific approval$

,uty free importKdomestic procurement of goods for setting up of S23 units$ Boods importedKprocured locally duty free could %e utilised over the approval period of @ years$ ,omestic sales %y S23 units will now %e e&empt from S9,$ ,omestic sale of finished products, %y'products on payment of applica%le Custom duty$ ,omestic sale reAects and waste and scrap on payment of applica%le Custom duty on the transaction value $

,n-o+e ta@

#hysical e&port %enefit 1!!O IT e&emption 41!95 for first @ years and @!O for Carry forward of losses years thereafter$ Reinvestment allowance to the e&tend of @!O of ploughed %ack profits

6oreign <ire-t ,nve#t+ent :

1!!O foreign direct investment is under the automatic route is allowed in manufacturing sector in S23 units e&cept arms and ammunition, e&plosive, atomic su%stance, narcotics and ha(ardous chemicals, distillation and %rewing of alcoholic drinks and cigarettes , cigars and manufactured to%acco su%stitutes$

37

No cap on foreign investments for SSI reserved items$

Ban"ing H ,n#$ran-eH&@ternal Co++er-ial Borrowing#

Setting up 0ff'shore :anking 8nits allowed in S23s$ 0:8*s allowed 1!!O Income Ta& e&emption on profit for = years and @! O for ne&t two years$

2&ternal commercial %orrowings %y units up to > @!! million a year allowed without any maturity restrictions$ 7reedom to %ring in e&port proceeds without any time limit$ 7le&i%ility to keep 1!!O of e&port proceeds in 227C account$ 7reedom to make overseas investment from it$ Commodity hedging permitted$ 2&emption from interest rate surcharge on import finance$ S23 units allowed to )write'off* unreali(ed e&port %ills$

Central Sale# =a@ )-t :

2&emption to sales made from ,omestic Tariff 9rea to S23 units$ Income Ta& 9ct+

Servi-e =a@:

2&emption from Service Ta& to S23 units

&nviron+ent :

S23s permitted to have non'polluting industries in IT and facilities like golf courses, desalination plants, hotels and non'polluting service industries in the Coastal Regulation 3one area

2&emption from pu%lic hearing under 2nvironment Impact 9ssessment Notification

Co+2anie# )-t :

2nhanced limit of Rs$ $H crores per annum allowed for managerial remuneration

38

9greement to opening of Regional office of Registrar of Companies in S23s$ 2&emption from re;uirement of domicile in India for 1 months prior to appointment as ,irector$

<r$g# and Co#+eti-# :

2&emption from port restriction under ,rugs M Cosmetics Rules$

S$5.Contra-tingHContra-t 6ar+ing

S23 units may su%'contract part of production or production process through units in the ,omestic Traiff 9rea or through other 208KS23 units S23 units may also su%'contract part of their production process a%road$ 9gricultureKCorticulture processing S23 units allowed to provide inputs and e;uipments to contract farmers in ,T9 to promote production of goods as per the re;uirement of importing countries$

8. Dhether S&/# have 5een e@e+2ted 1ro+ :a5o$r law#G Normal Pa%our Paws are applica%le to S23s, which are enforced %y the respective state Bovernments$ The state Bovernment have %een re;uested to simplify the proceduresKreturns and for introduction of a single window clearance mechanism %y delegating appropriate powers to ,evelopment Commissioners of S23s$ 8. Dhat are the 1a-ilitie# 1or <o+e#ti- #$22lier# to S2e-ial &-ono+i- /one Supplies from ,omestic Tariff 9rea 4,T95 to S23 to %e treated as physical e&port$ ,T9 supplier would %e entitled to +

,raw%ackK,2#: CST 2&emption 2&emption from State Pevies ,ischarge of 2# if any on the suppliers Income Ta& %enefit as applica%le to physical e&port under section 1! CCC of the Income Ta& 9ct$

39

8 Dho +onitor the 1$n-tioning o1 the $nit# in S&/ G #erformance of the S23 units monitored %y a 8nit 9pproval Committee consisting of ,evelopment Commissioner, Custom and representative of State Bovt$ on annual %asis$ 8. )re S&/?# -ontrolled 50 Govern+ent G In all S23*s , the statutory functions are controlled %y the Bovernment$ Bovernment also controls the operation and maintenance function in the / Central Bovernment controlled S23s$ In rest of the operation and maintenance are privatised$ 8. Dhat are the #2e-ial 1eat$re# i1 we -o+e to the IoneG The units would %e entitled for a package of Incentives and a simplified operating environment 8. Dhat a5o$t the :i-en#e# 1or ,+2ort#G No Picense is re;uired for imports, including second hand machineries$ 8. ,1 one 5$0 good# 1ro+ <=) #ho$ld the0 re7$ire to 2a0 State Sale# =a@ and &@-i#eG N0$ State has e&empted the sales from ,T9 to S23 from local levies and ta&es$ 8. Dhat i# the 2ra-ti-al role o1 <evelo2+ent Co++i##ionerG ,evelopment Commissioner is the nodal officer for S23s and help in resolution of pro%lem, if any, faced %y the units K developer$ 8. Ro$tine e@a+ination o1 good# 50 -$#to+# in the &9B i# -o++on. Dill the #a+e 2ra-ti-e -ontin$e at the S&/G Customs e&amination is to the %ear minimum$ S23 units function on self certification %asis$ 8. Dhat are the 2rovi#ion# relating to &@ternal Co++er-ial Borrowing E&CBF in S&/ G 2&ternal commercial %orrowings %y units up to > @!! million a year allowed without any

40