SEZ AND ITS IMPACT ON INDIAN ECONOMY

Introduction
Special Economic Zone (SEZ) is a geographical region Economic laws different from a countrys generally applicable economic laws Usually the goal of a structure is to increase foreign direct investment by foreign

investors, typically an international business or a multinational corporation (MNC).

"Nationwide" laws may be suspended inside a special economic zone. SEZs have been established in several countries across the globe including the

Peoples Republic of China, India, Poland, Philippines and Russia.

The government of India had announced the introduction of SEZ in April 2000.

Special Economic Zones comprise of:

Industrial parks Free trade zones Export processing zones

Objectives
Promotion of exports of goods and services
Generation of additional economic activity and creation of

employment opportunities
Promotion of investment from domestic and foreign sources

Other objectives are development of infrastructural facilities,

development of easy and simplified procedures.

Types

Salient features of SEZ

Exemption from customs duty on import of capital goods, raw

materials, consumables, spares etc.

Government has allocated a least favourable area of 1,000 hectares

for green field SEZs.

100% of Foreign Direct Investment is allowed for all endowments

in Special Economic Zones.

No license required for import. 100% Income-tax exemption for 5 years & concessions for next

10 years.

SEZ Act, 2005

An Act to provide for the establishment, development and

management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.
Special Economic Zone Act, 2005 (The Act), which was

partially notified on February 10, 2006, is a self contained legislation encompassing the framework of Special Economic Zones (SEZs).

Significance of the ACT 2005

The Act has over-riding effect over all other laws.

State Governments have been empowered to enact laws / notify policies for grant of fiscal and other concessions. SEZ shall be deemed to be a territory outside the customs territory

SEZ shall be deemed to be a port, airport, inland container depot,

land station and land customs stations.

Incentives to SEZ Developer and Industries

1) 100 % FDI permitted for the development of various facilities and basic services.
2) Income tax benefit to developers . 3) Duty free import for the development of SEZs and for setting up of SEZ units. 4) Exemption from Service Tax and CST.

5) Developers are authorized to provide services . 6) No cap for Foreign investment . 7) Environmental and labour laws will not be applicable . 8) Investment made by individual etc in a SEZ Co. also eligible for exemption u/s 88 of IT Act.

Advantages of SEZ
10-year tax holiday in a block of the first 20 years. Exemption from duties on all imports. Exemption from excise / VAT on domestic sourcing of capital

goods.
10% FDI allowed through the automatic route for all

manufacturing activities.

 Houses both domestic and international air terminals to facilitate transit. Has host of Public and Private Bank chains to offer financial assistance for business houses. Abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise. Well connected with network of public transport, local railways and cabs.

Disadvantages of SEZ
Land Grabbing at very low prices. If SEZ built on agricultural land the farmers will lose their

livelihood

Since the companies that operate under SEZ enjoy a lot of

tax holidays it would create a burden on the finance ministry as tax collected would be less.

Huge downward impact on Tax and GDP ratio The common man have to pay the price of it.

SEZ in India (state wise)

No. of SEZ
42

22

89

Maharashtra Uttar Pradesh Andhra Pradesh

39 26

Tamil Nadu Gujarat

West Bengal 59 75
Karnataka

Impacts of SEZ on Indian Economy

Tangible Impacts Intangible Impacts

Tangible impacts
Exports Schemes :
Export Processing Zone (EPZ) Scheme
Export Oriented Units (EOU) Scheme Software Technology Park (STP) Scheme

Electronic Hardware Technology Park (EHTP) Scheme

Export Promotion Capital Goods (EPCG) Scheme

Advance Licensing and Deemed Exports Scheme

Free Trade Zone(FTZ) Scheme

Objectives of the above schemes

Enhance foreign exchange earnings.
Develop export-oriented industries. Generated employment opportunities.

Basically to boost exports by creating additional

production capacity.

Increase in export:

Contribution to respective States GDP

GDP
Maharashtra Uttar Pradesh Andhra Pradesh Tamil Nadu

14.09% 8.05% 7.77% 7.49%

41.33%

Gujarat
West Bengal Karnataka Rajasthan Others

4.15%

6.59% 5.46% 6.07%

Employment generation :

SEZs as vehicle for Job Creation

HOW..???
Every job created in an SEZ ,two jobs are created

outside for activities outsourced

Total Employment 2.1 m

Direct 0.7m

Indirect 1.4m

Impact of Employment
Employment Creation
Generates Income Improves Quality of life Enhances Productivity Poverty Reduction Effect

Agriculture
Favourable Effects Employments which will benefit to the villages.

Demand for agricultural products as raw material.

Prompt export of agricultural products. Farmers will receive fixed rates for their products

Adverse Effects Acquisition of prime and fertile agricultural land

causes reduction in food grain production. Divert prime agricultural land to non- agricultural uses. In practice, SEZ units will not provide sufficient employment The SEZs policy will create dual economy Clashes between the government and the farmers.

Revenue loss to the government

Adverse effects
concession given to SEZs units and developers will add to

fiscal deficit revenue loss is due to the tax holidays Only if the SEZs are a success, does the government stand to lose revenue.

Favourable effects
Success of SEZs would mean generation of so much

additional economic activity that the revenue gains from additional economic activity would be many times the revenue loss.

Intangible impacts
Creation of high quality social infrastructure Migration of population leads to ensure adequate social infrastructure Developing non-processing areas
Better standard of living Productive jobs for rising work Resulting in higher savings Reading to investments and economic growth. Improves the standard of living

Improved competitiveness of the local industry

competition between developers ensures better operation

and maintenance of infrastructure for investors. leads to betterment of society.

Facilitates urbanization Infrastructure Development

Modern infrastructures are arteries of commerce Well functioning communications system By the private sector, through private funding

National and International recognition as Preferred Investment Destination :

attracting International investors international investment capital more intensively in

recent years Prime objective getting private investment in infrastructure attracting huge amounts

Human Resource Development

Employment Generation Skill (human capital) Formation Technology Up-gradation foreign collaborations are a direct source of new

technology
but narrow technology gap between foreign and domestic

firms

Current Scenario
SEZ are considered to be as incentivised economic hubs..
Land on a platter.

Speedy approvals
No income tax for five years and concessions for another

10 years. No tax on inputs.

..but interest in them are on wane..

202 Companies of 583 have raised their hands and walked away. only 143 are operational.

Why..??

Government changing rules :

2008 : Land Acquisition Tranfered from Government to developer
2009 :Incentives Changes the basis of incentives from profits to investments

2011 : Taxation Breaking the promise of 15 years tenure on SEZ policy Remove income tax exemption

Experts and Entrepreneurs say :

The department of commerce shaped the SEZ policy, but

the finance ministry governs taxation policies. There is a clear disconnect between the department of commerce and the finance ministry, which are at loggerheads. One issues a policy and the other fails to honour, says BK Subbaiah, chief operating officer of Mahindra World City

 Having already made a significant investment of Rs

200 crore, we couldnt have pulled out. We dont know what the government might do next, says Sonthalia,vice-chairman & managing director Sonthalia Group of Companies.
SEZs have not received the support of either the Centre

or the states. Governments at both levels may have followed the policy in letter, but not in spirit. The government is seen as changing its policies far too often, says Hitender Mehta, a legal expert on SEZs and a senior member of the SEZ Council.

 Most states have failed to facilitate SEZ development

and,even today it is a long-drawn process that can take up to two years. It is a tedious process where you have to go through a series of regular approval application processes, Kamath of Infosys

ONE LAST PUSH by the Government

Commerce secretary Rahul Khullar says ,I have no

say in taxation policy. We are now focused on making SEZ policy investor-friendly in areas within our control. We hope to change the rules of the game. It could well be the last chance to encourage the idea of SEZ.
The department of commerce has commissioned a

discussion paper, which might help to reform SEZ policy.

Possible changes in the policy :

Reduce the minimum land requirement for multi-product

SEZs from 1,000 hectares to 250 hectares For multiservice and sector-specific SEZs from 100 hectares to 40 hectares. Pushing for an exit window for SEZ developers.

Khullar says,

that there has been no investment in SEZs for a good part of 2011.Its up to the government.

Thank You..!!
Roshni Parekh :141 Sajid Shaikh :143 Sana Mukadam :145 Sanjivani Lokhande : 147 Shammi Karira :149

Bibliography
SEZ : Issues, Laws and Procedures Vol. 1 by Gupta K. R. SEZ in India : Lessons from china by Dasgupta Article on special economic zones in THE ECONOMIC TIMES dated 27th

December 2011. www.icrier.org/pdf/Working_Paper_194.pdf visited as on 21st December 2011 ideas.repec.org/p/ind/icrier/194.html visited as on 19th December 2011 businesstoday.intoday.in/story/...msez...sezs/1/13353.html visited as on 16th December 2011 http://www.mainstreamweekly.net/article1603.html visited as on 16th December 2011 http://wikibin.org/articles/special-economic-zones-and-there-impact-onindia.html visited as on 16th December 2011