SEZs are part of the government's strategy to generate
economic activity and exports, employment, develop world-class
infrastructure and promote the investment from both domestic
and foreign sources.
A PROJECTS INFO report...
India was one of the first in Asia to recognize the effectiveness
of the Export Processing Zone (EPZ) model in promoting exports,
with Asia's first EPZ set up in Kandla in 1965. With a view
to overcome the shortcomings experienced on account of the
multiplicity of controls and clearances; absence of world-class
infrastructure, and an unstable fiscal regime and with a view
to attract larger foreign investments in India, the Special
Economic Zones (SEZs) Policy was 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. SEZs in India functioned
from 1.11.2000 to 09.02.2006 under the provisions of the Foreign
Trade Policy and fiscal incentives were made effective through
the provisions of relevant statutes.
"SEZs are going to create jobs. Private investment in
SEZs, before the enactment of Act, was merely Rs 3,600 crore
(Rs 36 billion) and 1 lakh (100,000) jobs were created in
the last 15 years. In the last 11 months alone, I have already
got Rs 11,600 crore (Rs 116 billion) in investment in SEZs,
creating 15,000 jobs. This will create 8.9 lakh (890,000)
jobs in the next three years," said Gopal Krishna Pillai,
Chair-man, Board of Approval for Special Economic Zones.
The main objectives of the SEZ Act are:
a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;
The SEZ Rules provide for Simplified procedures for development,
operation, and maintenance of the Special Economic Zones and
for setting up units and conducting business in SEZs;
Single window clearance for setting up of an SEZ;
Single window clearance for setting up a unit in a Special
Single Window clearance on matters relating to Central as
well as State Governments;
Simplified compliance procedures and documentation with an
emphasis on self certification
Incentives and facilities offered to the SEZs
The incentives and facilities offered to the units in SEZs
for attracting investments into the SEZs, including foreign
Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZ units
100 per cent Income Tax exemption on export income for SEZ
units under Section 10AA of the Income Tax Act for first 5
years, 50 per cent for next 5 years thereafter and 50 per
cent of the ploughed back export profit for next 5 years.
Exemption from minimum alternate tax under section 115JB of
the Income Tax Act.
External commercial borrowing by SEZ units upto US $ 500 million
in a year without any maturity restriction through recognized
Exemption from Central Sales Tax.
Exemption from Service Tax.
Single window clearance for Central and State level approvals.
Exemption from State sales tax and other levies as extended
by the respective State Governments.
The major incentives and facilities available to SEZ developers
Exemption from customs /excise duties for development of SEZs
for authorized operations approved by the BOA.
Income Tax exemption on income derived from the business of
development of the SEZ in a block of 10 years in 15 years
under Section 80-IAB of the Income Tax Act.
Exemption from minimum alternate tax under Section 115 JB
of the Income Tax Act.
Exemption from dividend distribution tax under Section 115O
of the Income Tax Act.
Exemption from Central Sales Tax (CST).
Exemption from Service Tax (Section 7, 26 and Second Schedule
of the SEZ Act).
SEZ Approval Status
Consequent upon the SEZ Rules coming into effect w.e.f. 10th
February, 2006, Twenty-seven meetings of the Board of Approvals
have since been held. During these meetings, formal approval
has been granted to 513 SEZ proposals. There are 138 valid
in-principle approvals. Out of the 513 formal approvals, 250
SEZs have been notified.
SEZs- leading to the growth of labour intensive manufacturing
Out of the 513 formal approvals given till date, 177 approvals
are for sector specific and multi product SEZs for manufacture
of Textiles & Apparels, Leather Footwear, Automobile components,
Engineering etc.. which would involve labour intensive manufacturing.
SEZs are going to lead to creation of employment for large
number of unemployed rural youth. Nokia and Flextronics electronics
hardware SEZs in Sriperumbudur are already providing employment
to 13722 and 629 persons. Hyderabad Gems SEZ for Jewellery
manufacturing in Hyderabad has already employed 1500 persons.
They have a projected direct employment for about 1500 persons.
Apache SEZ being set up in Andhra Pradesh will employ 30,000
persons to manufacture 10,00,000 pairs of shoes every month.
Current employment in Apache SEZ is 5325 persons. Brandix
Apparels, a Sri Lankan FDI project would provide employment
to 60,000 workers over a period of 3 years. Even in the services
sector, 12.5 million sq meters space is expected in the IT/ITES
SEZs which as per the NASSCOM standards translates into 12.5
lakh jobs. It is, therefore, expected that establishment of
SEZs would lead to fast growth of labour intensive manufacturing
and services in the country.
Benefits derived from SEZs
Benefit derived from SEZs is evident from the investment,
employment, exports and infrastructural-- developments additionally
generated. The benefits derived from multiplier effect of
the investments and additional economic activity in the SEZs
and the employment generated thus will far outweigh the tax
exemptions and the losses on account of land acquisition.
Stability in fiscal concession is absolutely essential to
ensure credibility of Government intensions.
Investment and employment in the SEZs set up prior to the
SEZ Act, 2005:
At present, 1897 units are in operation in the SEZs. In the
SEZs established prior to the Act coming into force, there
are 1141 units providing direct employment to over 1.99 lakh
persons; about 35 per cent of whom are women. Private investment
by entrepreneurs in these SEZs established prior to the SEZ
Act is of the order of over Rs. 4043.28 crore.
Investment and employment in the SEZs notified under the
SEZ Act 2005
Current investment and employment:
Investment: Rs 73348 crore
Employment: 100885 persons
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 list of Developers who have set up SEZs:
Nokia SEZ in Tamil Nadu
Quark City SEZ in Chand-igarh
Flextronics SEZ in Tamil Nadu
Mahindra World City in Tamil Nadu
Motorola, DELL and Foxconn
Apache SEZ (Adidas Group) in Andhra Pradesh
Divvy's Laboratories, Andhra Pradesh
Rajiv Gandhi Technology Park, Chandigarh
ETL Infrastructure IT SEZ, Chennai
Hyderabad Gems Limited, Hyderabad
Several issues need to be addressed to streamline SEZs in
India, said Chairman, CII National Council on Infrastructure,
Vinayak Chatterjee. Land acquisition needs to be transparent
and smooth given the quantum of land that will be needed for
SEZs. It is presumed that SEZs will promote exports, but should
not India be setting up world-class infrastructure to manufacture
for the domestic market as well. "The issue of revenue
loss is problematic. Promoting economic development leads
to a loss of revenue but the government has to calibrate this
and indicate an acceptable degree of loss of revenue versus
economic development," said Chatterjee. "Further,
we need clarity on the numbers and concentration of SEZs.
The government is focusing on SEZs at the expense of rejuvenating
existing urban industrial clusters, he said. Existing domestic
industry should not be allowed to feel that it has been orphaned.
The government has to address thelarger problem of urban development."
He said that SEZs should serve as a bridge between rural and
urban economies. The concept of PURA (Provision of Urban Facilities
in Rural Areas), which is how developed countries have holistically
conceptualized their rural habitations, needs to be remembered
at a time when India is entering an era of SEZs. The explosion
in the economy envisaged through SEZs will have to be linked
to integrated infrastructure in rural and urban areas. India
should focus on comprehensive and integrated spatial planning
within and beyond SEZs. This however is a dream come true