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Special Economic Zones (SEZs)

India was one of the first in Asia to recognise the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. Seven more zones were set up thereafter. However, the zones were not able to emerge as effective instruments for export promotion on account of the multiplicity of controls and clearances, the absence of world-class infrastructure, and an unstable fiscal regime. While correcting the shortcomings of the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs) Policy announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. The salient features of the SEZ Scheme are:-

  • A designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs.
  • No licence required for import.
  • Manufacturing or service activities allowed.
  • SEZ units to be positive net foreign exchange earner within three years.
  • Domestic sales subject to full customs duty and import policy in force.
  • Full freedom for subcontracting.
  • No routine examination by customs authorities of export/import cargo.

In order to impart stability to SEZ regime and to achieve generation of greater economic activity and employment through the establishment of SEZs, a Special Economic Zone Act has been enacted. The SEZ Act, 2005, supported by SEZ Rules, has come into effect on 10th February 2006. Incentives and facilities offered to units in SEZs under the Act, for promotion of investment, including foreign investment include: duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units, 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years, exemption from Central Sales Tax, exemption from Service Tax and single window clearance mechanism for establishment of units.

All the 8 Export Processing Zones (EPZs) located at Kandla and Surat (Gujarat), Santa Cruz (Maharashtra), Cochin (Kerala), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (U.P.) have been converted into Special Economic Zones. In short span of about three years, SEZs Act and rules were notified in February, 2006. So far formal approvals have been granted for setting up of 576 SEZs out of which 319 have been notified. Out of the total employment provided to 3.87 lakh persons in SEZs as a whole, 2.53 lakh persons is incremental employment generated after February, 2006 when the SEZ Act came into force. This is apart from the million of man-days of employment created by the developer of infrastructure activities. Physical exports from SEZs have increased from Rs.66,638 crore in 2007-08 to Rs.99,689 crore in 2008-09, registering a growth of 50%. There has been overall growth of export of 620% over past five years (2004-09). These figures establish beyond doubt that the response to the SEZ policy of the Central Government has been overwhelming and the scheme has been able to achieve the envisaged objectives. An investment of Rs.1,08,903 crore has been made in SEZs. This includes Foreign Direct Investment of US $ 2.29 billions.

Exports from the functioning SEZs during the last five years are as under:
Year Value (Rs. crore) Growth Rate (over previous Year)
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22,840 24.7%
2006-2007 34,615 52%
2007-2008 66,638 92%
2008-2009 99,689 50%

A total of 91 SEZs are making exports. Out of this 43 are IT/ITES, 13 Multi product and 35 other sector specific SEZs. The total number of units in these SEZs is 2263.

Impact of the Scheme

The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the following details of certain SEZs which have recently come up:

  • Nokia Special Economic Zone in Tamil Nadu (Telecom equipments SEZ).
  • Mahindra City SEZ, Tamil Nadu (Apparels and fashion accessories; IT/hardware; auto ancillary).
  • Apache SEZ (Adidas Group) in Andhra Pradesh (Footwear SEZ).
  • Mundra Port and Special Economic Zone, Gujarat (Multi product SEZ).
  • Moser Baer SEZ, Noida, Uttar Pradesh (SEZ for Non-conventional energy including solar energy equipment).
  • Wipro Limited, Andhra Pradesh (IT SEZ).
  • Divvy's Laboratories Limited, Andhra Pradesh (Pharma SEZ).
  • Flextronics SEZ in Tamil Nadu (Electronic Hardware SEZ).
  • ETL Infrastructure IT SEZ, Tamil Nadu (IT SEZ).
  • Wipro Limited, Karnataka - 2 SEZs in Sarjapur and Electronic City (IT SEZ).
  • Biocon Limited, Karnataka (Biotech SEZ).
  • Serum Bio-Pharma Park, Maharashtra (Pharma SEZ).
  • Manyata Promoters Private Limited, Karnataka (IT/ITES SEZ).
  • Chandigarh Administration, Chandigarh (IT SEZ).
  • Hyderabad Gems Limited, Hyderabad (Gems and Jewellery SEZ).
  • Maharashtra Airport Development Corporation Limited, Maharashtra (Multi product SEZ).
  • Reliance JamnagarInfrastructure Ltd. (Multi Product).
  • Suzlon Infrastructure Ltd. (Hi-tech Engineering Products & related services).

Source: National Portal Content Management Team, Reviewed on: 11-01-2011