Special Economic Zones

SPECIAL ECONOMIC ZONES 1.

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Special Economic Zone is defined as a specifically delineated duty free enclave and shall be deemed to be a foreign territory for the purposes of trade operations and duties and tariff. It is a spatial economic island where more liberal economic laws operate than outside that specified area. The main objective is to attract FDI by excluding a specified geographical area from the operation of certain tax laws and import and export laws,. This strategy is confined to developing countries. A number of developing countries have resorted to this strategy to attract FDI. They are: China, India, Iran, Jordan, Poland, Kazakhstan, Philippines, Russia and North Korea. In India, SEZ were started from April 2000.In 2005 the Government of India enacted a legislation to give a statutory status to SEZs by enacting SEZ Act 2005. As on today 150 SEZs are in operation and in principle approval has been given for setting up another 117 SEZs. The SEZ Act of 2005 allows SEZs to be set up in public sector, private sector, joint sector, by state governments and their agencies. The earlier existing eight Export processing zones were converted into SEZs. Export processing zones were created to encourage exports and to earn foreign exchange. After the introduction of structural economic reforms, even these were converted into SEZs.

BENEFITS OFFERED TO ENTREPRENEURS IN SEZs 1.

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The first benefit offered to any producer and /or exporter is 100 per cent FDI is allowed into SEZ without any cap on all the permitted areas of investment indicated in New the Industrial Policy. Exemption of income from income tax for 10 to 15 years. Even the income of the developers of infrastructure in SEZ is exempted from income tax. No import licence is required to import machinery, equipment and their accessories. Such imports are exempted from import duty. Even domestic procurement of such equipments is exempt from CENVAT and central sales tax and state VAT. Investments made by individuals in companies engaged in infrastructure development and production and exports in SEZs is exempted from income tax. Developers of infrastructures in SEZs are allowed to build, operate and transfer the assets to others. .(BOT). Generation, transmission and distribution of electricity is allowed in SEZs without attracting the provisions of Indian Electricity Act. Builders/Developers of SEZ are allowed full freedom in allocation of space and built up area to approved SEZ units on commercial basis. Builders/Developers of SEZ are authorized to provide basic facilities like water, electricity, transport, recreation centers, restaurants, security and maintenance services. But there is exemption from the strict implementation of labour laws. Only the state governments are advised to simplify labour laws.

IMPLICATIONS OF SEZ STRATEGY 1 2

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The strategy of SEZ for attracting FDI has been subjected to critical analysis and scholars have come to the conclusion that they are not free from blemishes. The developing countries faced foreign exchange shortage in the crucial stages of their development to import capital goods and technology. So they resorted to Export Processing Zone strategy to encourage exports to earn foreign exchange. Though it helped them, it did not solve the problem. So structural economic reforms were adopted by some developing countries which helped them to attract FDI. But they were facing inadequate infrastructure and archaic laws and regulations which could not be changed overnight. So SEZ strategy came in handy. But even this strategy has not really helped them to attract substantial FDI except China because many of them have not been able to reform labour laws. It has been realized that the governments of these countries are losing tax revenue without experiencing any buoyancy. It has been noticed that real estate developers have started using SEZ as an excuse to earn profit without really contributing substantially for the development of export oriented industries. Mindless acquisition and allotment of fertile farm land for building SEZs has also invited opposition from farmers and their representatives so much so that the Government has declared that no fertile irrigated farm land will be allowed for locating SEZs. Now there is a feeling that by developing SEZs, we are trying to relax our efforts to build good infrastructure in the entire country. This will have a backlash from the neglected areas and from the people who are living without basic facilities.