India’s recognition of the significance of exports led to the establishment of Asia’s first Export Processing Zone (EPZ) in Kandla (Gujarat) in 1965. To further this concept, these zones were converted into Special Economic Zones (SEZs) in 2000. The Special Economic Zones Act of 2005 was enacted to promote economic activity, boost exports, attract domestic and foreign investment, generate employment, and develop infrastructure facilities.
Types of SEZs:
The SEZ Act, 2005 classifies SEZs based on the amount of land required:
- Multi-sector SEZ (minimum 1000 hectares of land)
- Sector-specific SEZ (minimum 100 hectares)
- Free Trade and Warehousing Zone (FTWZ) (minimum 40 hectares)
- IT/ITeS/handicrafts/biotechnology/non-conventional energy/gems and jewelry SEZ (minimum 10 hectares)
Features of SEZs:
- Designated duty-free enclaves treated as a territory outside the customs territory of India
- No license required for import
- Allowed for manufacturing or service activities
- Positive net foreign exchange to be achieved cumulatively for five years from the commencement of production
- Freedom for sub-contracting
- No routine examination by customs authorities of export or import cargo
- Units enjoy direct tax and indirect tax benefits
Setting Up SEZs:
- SEZs are primarily private investment-driven, and no funds are sanctioned by the Central Government for their setup.
- The SEZ Act, 2005 involves state governments in export promotion and infrastructure creation.
- The Board of Approval (BoA), constituted by the Central Government, provides a single-window approval mechanism for SEZs.
- The SEZ Rules specify different minimum land requirements for various classes of SEZs.
- Developers submit proposals for SEZ establishment to the state government or directly to the Board of Approval.
- SEZs are headed by a Development Commissioner.
- Approximately 225 SEZs were operational by 2019.
Performance and Impact:
- Exports from SEZs reached Rs 3,34,000 crore by 2019.
- Employment generation in SEZs was approximately 19.96 lakh persons.
- Investments of Rs 4,90,000 crore were made in SEZs.
Group of Eminent Persons:
- In 2018, the government formed a Group of Eminent Persons chaired by Baba Kalyani to study the SEZ Policy of India.
- One of the group’s terms of reference was to make the SEZ Policy compatible with the World Trade Organization (WTO).
- The group submitted its report to the government.
The SEZ policy in India aims to create favorable environments for economic activity, exports, and investment, contributing significantly to the country’s economic growth.
WTO and SEZs: The World Trade Organization (WTO) ruled that India’s Special Economic Zone (SEZ) Scheme should be closed due to the tax subsidies provided to SEZ units, which were deemed incompatible with WTO rules. WTO rules prohibit middle-income nations from offering market-distorting export subsidies. India, having crossed the income threshold in 2015, was no longer eligible for these subsidies. Export subsidies are permitted for countries with less than $1,000 per capita income to promote fair global trade.
National Investment and Manufacturing Zones (NIMZs): In response to the challenges posed by the WTO ruling on SEZs, the government introduced the concept of National Investment and Manufacturing Zones (NIMZs). The National Manufacturing Policy (NMP) of 2011 aimed to increase the share of manufacturing in GDP to 25% and generate 100 million jobs over a decade. In-principle approval was granted for fourteen NIMZs, including locations in Maharashtra, Andhra Pradesh, Telangana, Karnataka, Odisha, Tamil Nadu, Uttar Pradesh, and Haryana.
Details of NIMZs:
- NIMZs aim to address infrastructural bottlenecks inhibiting manufacturing growth.
- Developed as greenfield industrial townships with an area of at least 5000 hectares.
- Include production units, public utilities, logistics, environmental protection mechanisms, residential areas, and administrative services.
- May include SEZs, industrial parks, warehousing zones, Export Oriented Units (EOUs), and Domestic Tariff Area (DTA) units.
- Different from SEZs in terms of size, purpose, governance, and federal coordination.
- NIMZs may export but are not primarily focused on exports.
- Internal infrastructure is provided by a developer, while external linkages are provided by the central and state governments, requiring coordination.
Role of Central and State Governments:
- Central government responsibilities include notifying NIMZs, issuing necessary clearances, and ensuring federal coordination.
- State governments play a crucial role in tasks such as selecting and acquiring land, ensuring water and power connectivity, providing infrastructure linkages, and addressing health, safety, and environmental issues.
- State governments fund the initial cost of land, state roads connectivity, sewerage and effluent treatment, and other essential functions.
- NIMZs function as self-governing and autonomous bodies, declared as Industrial Townships by State Governments under Article 243 Q (c) of the Constitution.
National Investment and Manufacturing Zones (NIMZs) and Special Economic Zones (SEZs) are distinct concepts in the context of industrial and manufacturing development in India.
FAQs on Special Economic Zones (SEZs)
1. What is a Special Economic Zone (SEZ)?
- A Special Economic Zone (SEZ) is a designated area within a country that is subject to unique economic regulations and policies. These zones are established to promote economic growth, attract foreign direct investment (FDI), boost exports, create employment opportunities, and enhance technology transfer.
2. What are the key features of SEZs?
- SEZs typically offer a range of incentives to businesses, including tax breaks, duty-free importation of raw materials and equipment, streamlined customs procedures, simplified regulatory frameworks, and infrastructure support. They operate under distinct rules separate from the rest of the country to foster a business-friendly environment.
3. How do SEZs benefit economies?
- SEZs contribute to economic development by attracting investment, spurring industrialization, and fostering innovation. They create employment opportunities, enhance skills development, and facilitate technology transfer. Additionally, SEZs help diversify exports, improve competitiveness, and stimulate overall economic growth.
4. Are there different types of SEZs?
- Yes, SEZs can vary in their focus and objectives. Some SEZs prioritize manufacturing and industrial activities, while others specialize in services such as information technology (IT), biotechnology, or tourism. Additionally, there are free trade zones (FTZs) which have similarities to SEZs but may operate under slightly different regulations and objectives.
5. How do SEZs impact the surrounding regions?
- SEZs can have both positive and negative effects on surrounding areas. While they can attract investment and create job opportunities, they may also lead to environmental degradation, increased urbanization, and socio-economic disparities if not managed properly. However, with proper planning and governance, SEZs can serve as catalysts for broader regional development, fostering linkages with local industries and supporting infrastructure development.
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