Guide to SEZ - India June 2009

Executive Summary SAMPLE Introduction SEZ policy introduced in 20--; SEZ bill passed in 20-- Three types of SEZs present in India – Sector - specific, Multi–product and SEZ in a port/airport SEZ area comprises of - Processing Area and Non Processing Area Minimum area requirement for setting up SEZs varies from a -b hectares There are four different types of SEZ development models - Industrial Parks, Fully Integrated , Outsourced Facility and Shared Infrastructure Fully integrated model is popular in India Incentives & Establishment Procedure Government provide various incentives to promote SEZs. Developers and unit can avail various tax benefits like exemption from Income tax, customs duty, distribution tax SEZs in India are governed by an administrative set up consisting of Board of Approval, Development Commissioner, SEZ Authority and Approval Committee The developer of SEZ and the unit are required to follow certain norms like: Conformance to all environmental rules ; Positive net foreign exchange requirement for units; Minimum requirement of a% stake for developers SEZ Scenario – India There are 3 stages in approval of SEZ - In-principle approval, Formal approval and Notified SEZs Notified SEZs comprise a small proportion of total SEZs IT / ITeS sector leads with highest number of formal approvals Southern and Western states lead in SEZ development Performance of SEZs SEZs accounted for over b% share in India’s exports in 20- - --; c% y-o-y growth in SEZ exports Gems and Jewelry sector was leading sector in SEZ exports Employment in SEZs grew at a rate of d % annually Investments in SEZ witnessed a growth of e% per annum

SEZ policy introduced in 20--; SEZ bill passed in 20--

Three types of SEZs present in India – Sector - specific, Multi–product and SEZ in a port/airport

SEZ area comprises of - Processing Area and Non Processing Area

Minimum area requirement for setting up SEZs varies from a -b hectares

There are four different types of SEZ development models - Industrial Parks, Fully Integrated , Outsourced Facility and Shared Infrastructure

Fully integrated model is popular in India

Government provide various incentives to promote SEZs. Developers and unit can avail various tax benefits like exemption from Income tax, customs duty, distribution tax

SEZs in India are governed by an administrative set up consisting of Board of Approval, Development Commissioner, SEZ Authority and Approval Committee

The developer of SEZ and the unit are required to follow certain norms like:

Conformance to all environmental rules ; Positive net foreign exchange requirement for units; Minimum requirement of a% stake for developers

There are 3 stages in approval of SEZ - In-principle approval, Formal approval and Notified SEZs

Notified SEZs comprise a small proportion of total SEZs

IT / ITeS sector leads with highest number of formal approvals

Southern and Western states lead in SEZ development

SEZs accounted for over b% share in India’s exports in 20- - --; c% y-o-y growth in SEZ exports

Gems and Jewelry sector was leading sector in SEZ exports

Employment in SEZs grew at a rate of d % annually

Investments in SEZ witnessed a growth of e% per annum

Introduction Establishment Procedure Incentives SEZ Scenario – India Performance of SEZs Upcoming SEZs Appendix

Introduction

Establishment Procedure

Incentives

SEZ Scenario – India

Performance of SEZs

Upcoming SEZs

Appendix

SEZs can be categorized on basis of sector, function or location and required to have processing as well as non-processing area SAMPLE Source: Manufacture one or more goods in a particular sector Render one or more services in a particular sector Manufacture multiple goods in one sector or across multiple sectors Trading and warehousing Render two or more services in a sector or multiple sectors SEZ in an existing port or airport for manufacture of goods falling in two or more sectors or for trading and warehousing or rendering of services Sector – Specific SEZ Multi – Product SEZ SEZ in a port or airport Types of SEZ SEZ Layout Processing Area Non - Processing Area Processing area is the demarcated area in SEZ where units can be located for manufacture of goods or rendering of services Minimum processing area has been uniformly fixed at x% for Multiproduct SEZs y% for product specific SEZs Non-processing area is intended to provide support facilities to SEZ processing area and may include: Educational institutions Hospitals Hotels Recreation and entertainment facilities Residential and business complexes 1,100%

Manufacture one or more goods in a particular sector

Render one or more services in a particular sector

Manufacture multiple goods in one sector or across multiple sectors

Trading and warehousing

Render two or more services in a sector or multiple sectors

SEZ in an existing port or airport for manufacture of goods falling in two or more sectors or for trading and warehousing or rendering of services

Processing area is the demarcated area in SEZ where units can be located for manufacture of goods or rendering of services

Minimum processing area has been uniformly fixed at

x% for Multiproduct SEZs

y% for product specific SEZs

Non-processing area is intended to provide support facilities to SEZ processing area and may include:

Educational institutions

Hospitals

Hotels

Recreation and entertainment facilities

Residential and business complexes

Legal framework for setting up SEZ is defined under SEZ Act and State SEZ policy Legal Framework State SEZ policy SEZ ACT 2005 SEZ Rules 2006

Majority of SEZs under development are less than 49 hectares in area SAMPLE SEZ Approval Status Approval status Area wise SEZ distribution Source: Up to 49 b% 101-200 c% 50-100 d% 201-500 e% 1000+ a% f% 501-1000 Approval status area wise * Area in hectares w% Notified SEZ Area in hectares A u% Formal Approval B v% In-principle approval C D x% Formal Approval E y% In-principle approval z% Notified SEZ F Number of SEZs Total = U Total = X hectares Notified SEZs comprise a small proportion of SEZs 31% Definition SEZ Status Final stage after which physical development work begins Notified Given when the land has not yet been secured but all other criteria are fulfilled In-Principle Approval Given when land is available to set up the SEZ Formally Approved

Final stage after which physical development work begins

Given when the land has not yet been secured but all other criteria are fulfilled

Given when land is available to set up the SEZ

IT / ITeS SEZs has the maximum number of approved SEZs due to smaller land requirements compared to other sector IT/ITeS sector has highest formal approvals, but covers only a% of the land area of SEZs Almost b-c% of IT/ITeS SEZs are operational IT/ITeS sector is popular in SEZs due to: Availability of trained manpower Smaller land requirement as compared to other SEZs, which results in speedier land acquisition Uncertainty regarding STPI tax exemptions which are due to expire in 20-- SAMPLE i% IT/ ITES/ Electronic Hardware j% Pharma / Chemicals k% Engineering l% Multi-Product m% Textile / Apparel n% Bio Tech o% Multi Services p% Others q% Multi-Product r% Textile / Apparel s% Multi Services t% IT/ ITES/ Electronic Hardware Others u% Engineering v% FTWZ w% Auto Related x% Electronic Product y% e% Pharma / Chemicals f% Textile / Apparel g% Multi Services h% Others a% IT/ ITES/ Electronic Hardware b% Bio Tech c% Multi-Product d% Engineering Formally approved SEZs In-principle approved SEZs Source: Total = X Overview Notified SEZs Total = Z Total = Y 2,500%

IT/ITeS sector has highest formal approvals, but covers only a% of the land area of SEZs

Almost b-c% of IT/ITeS SEZs are operational

IT/ITeS sector is popular in SEZs due to:

Availability of trained manpower

Smaller land requirement as compared to other SEZs, which results in speedier land acquisition

Uncertainty regarding STPI tax exemptions which are due to expire in 20--

Establishment of SEZs have boosted the international trade in India Exports from special economic zones (SEZs) rose u% during the year to end-March 2009 It out paced India’s overall exports growth of just v% Superior infrastructure in SEZ has helped exporters cut costs and remain competitive SAMPLE Exports Sector wise exports 2007- 08 Exports from SEZ Source: E Y 2007-08 INR bn A U 2003-04 B V 2004-05 C W 2005-06 D X 2006-07 % Share 4.88 N Miscellaneous O Total M Non conventional Energy L Biotech K Leather footwear and sports goods J Electronics I Food and Agro Industry H Plastics and Rubber G Textile and garments F Chemicals and Pharma E Engineering D Computer/ Electronic Software C Electronics Hardware B Trading and Service A Gems and Jewellery Exports in INR bn Sector

Exports from special economic zones (SEZs) rose u% during the year to end-March 2009

It out paced India’s overall exports growth of just v%

Superior infrastructure in SEZ has helped exporters cut costs and remain competitive

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