SPECIAL ECONOMIC ZONES (SEZ)

SPECIAL ECONOMIC ZONES (SEZ)

ABOUT SEZ:

• SPECIAL ECONOMIC ZONE is a specifically delineated duty-free enclave. It is deemed to be foreign territory despite being located inside national territory.
• They are created under SEZ ACT, 2005 and supported by SEZ RULES 2006.
• Asia’s first EPZ (Export Processing Zones) was established in 1965 at Kandla, Gujarat.
• The Board of Approval is the apex body, headed by the Secretary, Department of Commerce (Ministry of Commerce and Industry).
• There were 7 Central Government Special Economic Zones (SEZs) and 12 State/Private Sector SEZs prior to the enactment of the SEZs Act, 2005.
• In addition, 425 proposals for setting up of SEZs in the country have been accorded formal approval under the SEZ Act, 2005. Presently, 379 SEZs are notified, out of which 265 are operational.

Government appointed Baba Kalyani led committee to study the existing SEZ policy of India and the committee submitted its recommendations in November 2018.

STATISTICS of SEZs in India:

As of 31st December 2020; 22.84 lakh persons have been employed in the SEZs, the division of which is given below:

1. Number of persons employed in the Central Government SEZs – 186768
2. Number of persons employed in the state/private SEZs set up before 2006 – 98309
3. Number of persons employed in the SEZs notified under the act – 1999871

In the financial year 2020-21 (As of 31st December 2020) the exports from SEZs have decreased by about 7.25% when compared to the previous financial year (2019-2020).

Examples of SEZs in India:

1. Visakhapatnam SEZ
2. SEEPZ Special Economic Zone (Mumbai),
3. Kandla SEZ

MAIN OBJECTIVES OF SEZs:

As they are located within national borders, thus they help in:

• Increasing trade balance.
• Employment generation.
• Increasing investment in the country.
• Effective administration.
• Create additional economic activity.

NEED TO CREATE SEZs:

• SEZ is an area where business and trade laws are different from rest of the country.
• To encourage businesses to set up, financial policies are introduced.
• These policies typically encompass provisions related to :
  1. INVESTING
  2. TAXATION
  3. TRADING
  4. QUOTAS
  5. CUSTOMS
  6. LABOUR REGULATION
• Companies are also offered TAX HOLIDAYS i.e. granted a period of lower taxation.

MAJOR BENEFITS UNDER SEZs:

• Single window clearance for both matters related to Central and State level approvals.

• Simplified compliance procedure and documentation with an emphasis on self-certification.
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
• Exemption from various taxes like Income Tax, minimum alternate tax, etc.
• External commercial borrowing by SEZ units up to US $500 million in a year without any maturity restriction through recognized banking channels.

SEZ APPROVAL PROCEDURE:

• The SEZ approval mechanism is a single-window process provided by a 19-member interministerial SEZ Board of Approval (BoA), chaired by the Secretary of the Dept. of Commerce, Ministry of Commerce and Industry.
• The applicant submits the proposal to the state government. All decisions taken by the Board are by consensus.
• The state government forwards this proposal to the BoA along with its recommendation within 45 days.
• The applicant can also directly submit the proposal to the BoA.
• As the BoA gives its approval and central government notifies the area of the SEZ, the units are allowed to be established inside the SEZ.

CHALLENGES IN SEZs:

• According to BABA KALYANI COMMITTEE:
  1. Removing of tax incentives and rebates like Minimum Alternative Tax and imposing Income TAX.
  2. Not allowing SEZ units to job work for DTAs.
  3. Unutilized lands : As lands are assigned for specific sectors. This should be removed and rules to be liberalized.
• Overlapping of multiple models of Economic Zones like SEZs, CEZ, Delhi-Mumbai Industrial corridor, NIMZ, FOOD PARK, TEXTILE PARKS etc.
• Domestic sales of SEZs have to pay full import customs duty.
• Pollution problems due to the release of untreated effluents. There has been a huge destruction of mangroves in Gujarat affecting the fisheries and dairy sectors.
• Many ASEAN countries have tweaked their policies to attract global players to invest into their SEZs and have also worked on a developmental set of their skilling initiatives.

HOW CHINA SEZs ARE MORE SUCCESSFUL THAN INDIA’S SEZs:

• Chinese SEZs are located near ports, thus have free access to domestic market with very low import duties.

• Decentralisation of powers to provincial and state authorities.
• Labour Policies.

WAY FORWARD:

• The changes to SEZs need to be accompanied by better labour laws and lower levels of protectionism.

• SEZs should be promoted but not at the cost of the environment.
• Additional enablers and procedural relaxations as well as granting SEZs infrastructure status to improve their access to finance and enable long-term borrowings.
• Baba Kalyani Committee on SEZs to link SEZs with MSME schemes and allowing alternate sectors to invest in sector-specific SEZs.

Syllabus: GS3; Indian Economy