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Transcript of special economic zone
SPECIAL ECONOMIC ZONESUBODH KUMAR
2013CET2155
A Special Economic Zone (SEZ) is a geographical region - economic laws more liberal & Broad
Minded
projected as duty- free areas for trade and operations.
self-contained and integrated with own infrastructure & support services.
to create a conducive atmosphere to promote investment and exports.
Within SEZs, a unit may be setup for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning etc.
The category ‘SEZ’ covers a broad range of specific zone types, including Free Trade Zones (FTZ)- where goods may be landed, handled,
manufactured or reconfigured, and reexported without the intervention of the customs authorities
Export Processing Zones (EPZ) Free Zones (FZ)- areas in which companies are taxed very lightly or
not at all in order to encourage economic activityIndustrial Estates (IE)- specific areas zoned for industrial activity in which infrastructure such as roads, power, and other utility services is provided to facilitate the growth of industries and to minimize impacts on the environment. Free Ports Urban Enterprise zones and others
First known SEZ - Puerto Rico, 1947
Ireland & Taiwan followed - 1960s
China made SEZs gain global currency with its largest SEZ at Shenzhen in 1980
currently 3000 SEZs in 120 countries -> US $600 Bn in exports and about 50 Mn jobs
History of SEZ
Evolution of SEZs in India
The first ever Export Processing Zone (EPZ) in Asia was set up by GoI in Kandla in 1965.
Based on the success of Kandla EPZ, in the beginning of eighties, seven more EPZs were setup in Bombay, Noida, Surat, Madras, Falta, Visakhapatnam and Cochin.
However the EPZ policy faced several problems like Limited power of zonal authorities, Absence of single window facility, Rigid custom procedures for bank guarantees, Restrictive FDI policy, procedural constraints and
severe
Thus the EXIM policy introduced a new scheme from April 1, 2000 for the establishment of the SEZs EPZs converted into Special Economic Zones (SEZs) in 2000
under a new policy of GoI.
Before SEZ act 2005, SEZs operated by provisions of foreign trade and fiscal incentives
After extensive consultation, the SEZ Act, 2005 supported by SEZ rules, came into effect on 10th Feb 2006 providing for drastic simplification of procedures and for single window clearance on matters relating to both central & state governments.
Generation of additional economic activity
Promotion of exports of goods & services
Promotion of investment from domestic &foreign sources
Creation of employment opportunities
Development of infrastructure facilities
Objectives of SEZs in India
Terms and Conditions The SEZ units shall abide by local laws, rules, regulations or
laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labor laws, as may be locally applicable.
Such SEZs shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZs.
The SEZ should have a minimum area of 1000hectares and at least 35 % of the area is to be earmarked for developing industrial area for setting up of processing units.
Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.
Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
Terms and Conditions
The applicant also has the option of submitting the proposal directly to the BOA.
Approval mechanism
Developer submits proposal
to state Govt
State Govt if approves, forward
it to Board of Approval (BOA) within 45 days
Approval
Administrative Set-up
Board of Approval is headed by the Secretary, Department of Commerce.
All the decisions are taken in the BOA by consensus. The BOA has 19 members.
Board of Approval
Unit Approval commitee
Development Commissioner
Benefits to Indian SEZ units 15 year corporate tax holiday on export profit
Allowed to carry forward losses.
No license required for import made under SEZ units.
Duty free import or domestic procurement of goods for setting up of the SEZ units.
Goods imported/procured locally are duty free and could be utilized over the period of 5 years.
Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc.
100% - first 5 yrs
50% - next 5 yrs
Upto 50% -next 5 years equivalent to profits ploughed
back for investment
Benefits to Indian SEZ units Exemption from Central Excise duty on the procurement of capital
goods, raw materials, and consumable spares, etc. from the domestic market.
Exemption from payment of Central Sales Tax on the sale or purchase of goods.
Exemption from payment of Service Tax.
The sale of goods or merchandise that is manufactured outside the SEZ and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports.
The SEZ unit is permitted to realize and repatriate to India the full export value of goods or software within a period of twelve months from the date of export.
Benefits to Indian SEZ units “Write-off” of unrealized export bills is permitted up to anannual
limit of 5% of their average annual realization.
No routine examination by Customs officials of export andimport cargo.
Setting up Off-shore Banking Units (OBU) allowed in SEZs. OBU's allowed 100% income tax exemption on profit earnedfor
three years and 50 % for next two years. Exemption from requirement of domicile in India for 12months
prior to appointment as Director.
Since SEZ units are considered as ‘public utility services’, nostrikes would be allowed in such companies without givingthe employer 6 weeks prior notice in addition to the otherconditions mentioned in the Industrial Disputes Act, 1947.
Issues concerning SEZs SEZs would result in the Finance Ministry losing revenue to the
tune of over Rs.1,00,000 cr annually due to various tax concessions and exemptions.
The SEZs are mainly coming up in Maharashtra, Gujarat, Tamilnadu, Karnataka, Haryana, Orissa. There is a lack of focus on other regions of the country. This could lead to regional imbalances. For ex, no SEZ has yet come up in the North-east region which already suffers from the problem of alienation.
In India, farmers are emotional about the land that they have farmed for years and just giving it up is not something that can be easily digested. There have also been concerns about the compensation package offered to farmers whose lands have been acquired.
Issues concerning SEZs Huge tracts of agricultural and forested land will be converted
for industrial purposes for the setting up of SEZs. This can have grave impact on the ecosystem. The developers fail to follow the minimum environmental guidelines for SEZs leading to severe environmental impact.
Clusters of development - Rather than promoting the overall economic development, SEZs would result into clusters of heightened economic activity widening the already existing gap between developed and impoverished areas.
Employee Working Conditions – Since relaxed labor laws are applicable in the SEZs, workers enjoy no rights including the fundamental rights of association and protests.
Benefits
DirectForeign exchange
Employment generation
Employment of females
Skill up gradation
FDI
Tech transfers and creation
IndirectIndirect employment
Investment
Skill spillovers
Technology spillovers
Industrial growthProductive diversificationHuman developmentRevenue generation for Govt
India and China: A comparison India has more or less adopted the same China model of SEZ
development,
Chinese SEZs are mostly public funded while the Indian model encourages private sector led development.
China continues to score as it provides an attractive tax environment with world class infrastructure and a liberal labor environment. On the contrary, Democratic India, under pressure from strong labor unions failed to implement liberal labor laws.
India has significantly larger English-speaking workforce than does China. India also has an edge in a number of key knowledge based industries like software, IT enabled services etc. Indian SEZs will more likely attract investments in high end human skill based industries and services sector.
India and China: A comparison
Strong Domestic demand – In China, about 50% of SEZ sales are to the domestic market. Though India has a large domestic market, it has failed to project this to lure SEZ investors.
Decentralization of Power – In China, provincial and local authorities were made partners and stake holders be delegating powers to approve foreign investments. In India, only state Govt are allowed to set up SEZs and the powers for foreign investment approval is with Union Govt.
Key features of Special Economic Zones (SEZs) - China and India
Sl. No.
Features China India
1. Nature Manufacturing Hubs, Integrated townships with commercial, residential,
complete with all facilities
Same, except that apart from manufacturing also processing. Separate SEZ for service sector
2. Infrastructure
Government provided private developers
3. Location Strategic coastal areas Coastal and landlocked areas
4. Decision on location
government private sector
5. Size Big over 20000 hectares Small minimum of 500 hectares for multi products
Sl.
No.
Features China India
6. Number 5 ( all operational) 579 ( formally approved)
7. Tax Holiday Selective All, SEZ developers, units in SEZ
Drivers Government driven, well
thought out locations
Private sector driven
9. Government Active and Direct Passive only in giving approval
remaining by the private sector
10. Ownership Government Private Sector
11. land Lease from govt. need to be acquired by private
developer
12. Labor Laws No labor laws Flexible labor laws, unions can’t be
formed. ( ESMA- essential services
maintenance act - no strike, no
lockouts)
EPZs
1. Kandla Free trade Zone (KFTZ) during 1965, followed be seven
other EPZs in the country.
2. Santa Cruz Electronic export processing zone (SEEPZ), Mumbai
3. Visakhapatnam export processing zone (VEPZ), Andhra Pradesh
4. Surat Export processing zone (SEPZ), Gujrat
5. Noida Export Processing Zone (NEPZ), Uttar Pradesh
6. Falta Export Processing Zone (FEPZ), West Bengal
7. Chennai Export Processing Zone ( CEPZ), Tamil Nadu8. Cochin Export Processing Zone ( CEPZ), Kerala
Feature EPZs SEZs1. Role Supplementary in
increasing exportsPrimary and dominant role in exportsIncreasing exports and improving share in world trade
2. Nature Only export oriented activities
Integrated township with all facilities
3. Area Norms Not specified Minimum 500 hectares for multi products and 100 hectares for single products
4 . Infrastructure Government provided Private developers5 . Range Of
ActivitiesPrimarily processing and some manufacturing
Manufacturing and IT, sector specific
6 . Value Addition Norms
Yes No
7 . Foreign Investment
Not permitted Permitted
8 . Sale To DTA Up to a specified percentage
Against foreign exchange only
9 . Domestic Banks No Yes, would operate as off-shore banking units (OBU) and the same status as if operating outside the country
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-140
100000
200000
300000
400000
500000
600000
22840 3461566638
99689
220711
315868
364478
476159494077
Exports Value in Rs. Crores
Exports Value in Rs. Crores
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*66638 99689 220711 315868 364478 476159
589226741066 624823
827054
11014811159102
Export Performance
Total SEZs Export (Rs. in Crores)Total Export of the country except SEZ ( Rs. in Crores)
Andhra Pra
desh
Chandigarh
Chhattisg
arhDelhi
Dadra &
Nagar H
aveli
Goa
Gujarat
Haryana
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Mahara
shtra
Manipur
NagalandOris
sa
Pondicherry
Punjab
Rajasthan
Tamil Nadu
Uttar Pra
desh
Uttarakh
and
West
Bengal0
20
40
60
80
100
120
State Wse SEZ Distributi onFormal In-principle Notified Exporting SEZs (Central Govt. + State Govt./Pvt. SEZs + notified SEZs under
ArabianSea
Bayof
Bengal
Indian Ocean
Maharashtra
AndhraPradesh
Tamil Nadu
Odisha
Lakshadweep
Goa
Puducherry
Andamanand
NicobarIslands
Madhya PradeshWestBengal
Bihar
J harkhand
Uttar Pradesh
Uttarakhand
Assam
ArunachalPradesh
Nagaland
Manipur
MizoramTripura
Sikkim
Meghalaya
Rajasthan
Gujarat
Haryana
HimachalPradesh
Punjab
Delhi
Chandigarh
J ammuand
Kashmir
Daman and Diu
Dadra and Nagar Haveli
Map not to scale
Lowest (Red) to Highest (Green)
www.indzara.blogspot.com
Colour Gradient
Formally approved SEZs
Airport
based m
ultiproduct
Aviation/A
erosp
ace/A
nimation &
Gaming/ C
opper
Bio-Tech
equipment’s /
cera
mic and glass
Engineering
Food Pro
cessi
ng
Gems and Je
welry
IT/ITES/E
lectronic
Hardware
/
Metal/S
tain. Steel/A
lum/Foundry
Automotive/A
utomotive
Multi-Pro
duct
Non-Conve
ntional Energ
y
Petroch
emicals
& petro./o
il and gas
Port-base
d multi-pro
duct
Textiles/A
pparel/W
ool
Strategic
Manufactu
ring
and other allie
d mach
inery/0
50
100
150
200
250
300
350
400
Sector wise SEZ Distributi onFormalIn-principleNotifiedExporting SEZs (Central Govt. + State Govt. /Pvt. SEZs + notified SEZs under the SEZ Act, 2005)
Andhra Pra
desh
Chandigarh
Chhattisg
arh
Dadra &
Nagar H
aveli
DelhiGoa
Gujarat
Haryana
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Mahara
shtra
Manipur
NagalandOris
sa
Pondicherry
Punjab
Rajasthan
Tamil Nadu
Uttarakh
and
Uttar Pra
desh
West
Bengal0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Total area of formal approvals (in hectares)Andhra Pradesh Chandigarh Chhattisgarh Dadra & Nagar Haveli DelhiGoa Gujarat Haryana Jharkhand KarnatakaKerala Madhya Pradesh Maharashtra Manipur NagalandOrissa Pondicherry Punjab Rajasthan Tamil NaduUttarakhand Uttar Pradesh West Bengal
Andhra Pra
desh
Chandigarh
Chhattisg
arh
Dadra &
Nagar H
aveli
DelhiGoa
Gujarat
Haryana
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Mahara
shtra
Manipur
NagalandOris
sa
Pondicherry
Punjab
Rajasthan
Tamil Nadu
Uttarakh
and
Uttar Pra
desh
West
Bengal
TOTAL0
50000
100000
150000
200000
250000
300000
Employment (in number of persons)Andhra Pradesh Chandigarh Chhattisgarh Dadra & Nagar Haveli DelhiGoa Gujarat Haryana Jharkhand KarnatakaKerala Madhya Pradesh Maharashtra Manipur NagalandOrissa Pondicherry Punjab Rajasthan Tamil NaduUttarakhand Uttar Pradesh West Bengal TOTAL
Andhra Pra
desh
Chandigarh
Chhattisg
arh
Dadra &
Nagar H
aveli
DelhiGoa
Gujarat
Haryana
Jharkhand
Karnataka
Kerala
Madhya
Pradesh
Mahara
shtra
Manipur
NagalandOris
sa
Pondicherry
Punjab
Rajasthan
Tamil Nadu
Uttarakh
and
Uttar Pra
desh
West
Bengal0
5
10
15
20
25
30
Land Area vs Empoymet out of SEZsPercentage land area %age employment
Direct Employment in Special Economic Zones (As on 31.12.12)
Financial Year Employment*(number of
persons)
2010-2011 6,76,608
2011-2012 8,44,916
2012-2013 10,74,904
2013-2014
(April, 2013 to September, 2013)
11,56,677
Some Suggestive Policy Options location of SEZs must be such as to promote manufacturing exports. Encouragement for modern version of SEZs like free ports, free
coastal zones, setting up of growth poles and clusters should be encouraged.
Free ports may be far bigger than the SEZs and should offer a world class environment in terms of legal framework, regulatory procedures, infrastructure, production facilities and easy access
Offering of greater flexibility to firms in terms of plant location in the zone would encourage the investors’ participation.
The size of each SEZ should be such as to promote the efficient provision of infrastructure services, particularly the provision of power, water and other services.
Due recognition can be given to the ongoing tariff reform where the non-agricultural peak tariff is already 10 per cent.
Efficient investor friendly administration
Some Suggestive Policy Options
While providing approval, prioritization of the zones is needed according to the strategic importance of the product and development needs of the region.
On investment front, encouragement for more Greenfield FDI in the zone to supplement domestic investment would attract more private investors.
While selecting the location, it would be necessary to exclude the
agricultural lands altogether from the promotion of SEZs.
Establishment of well-balanced compensation and rehabilitation
policy to be designed for displaced people.
Maintaining a stable and fair tax regime with no special privileges
Enforcement of good governance in the SEZs with flexible labour
laws
References:
1. Aradhna Aggarwal (2005), Performance Of Export Processing Zones: A Comparative
Analysis of India,
2. Arvind Virmani (2005), China’s socialist market economy: lessons of success, Indian
Council for Research on International Economic Relations, April.
3. Edgardo Favaro (2006), Trade in Institutions and the Integration of Small States to the
World Economy, The World Bank, January 6.
4. FICCI (2002), International convention on SEZs, Theme Paper on Driving Growth through
SEZs, New Delhi.
5. Government of India, Annual Report 2005-06, Ministry of Commerce, New Delhi.
6. Foreign Trade Policy, 2004-05 to 2006-07, Ministry of Commerce, New Delhi.
7. Ministry of Commerce web site: http://sezindia.nic.in/.
8. SEZ Act 2005, Ministry of Law and Justice, New Delhi, June 23, 2005.
9. SEZ Rules 2006, Ministry of Commerce, New Delhi, February 10, 2006.
10. Various Press Releases, Press Information Bureau web site: http:// pib.nic.in/.
11. Reserve Bank of India website- www.rbi.gov.in
Thank you