1. Special EconomicSpecial Economic
Zones (SEZ) in IndiaZones (SEZ) in India
Presented by- Neeraj singhPresented by- Neeraj singh
ChapterChapter
1 SEZ in India
2. Concept and Meaning of SEZConcept and Meaning of SEZ
► India was one of the first in Asia to recognize theIndia was one of the first in Asia to recognize the
effectiveness of the Export Processing Zone (EPZ)effectiveness of the Export Processing Zone (EPZ)
model in promoting exports, with Asia’s first EPZ setmodel in promoting exports, with Asia’s first EPZ set
up in Kandla in 1965.up in Kandla in 1965.
► With a view to overcome the shortcomingsWith a view to overcome the shortcomings
experienced on account of the multiplicity of controlsexperienced on account of the multiplicity of controls
and clearances; absence of world-classand clearances; absence of world-class
infrastructure, and an unstable fiscal regime and withinfrastructure, and an unstable fiscal regime and with
a view to attract larger foreign investments in India,a view to attract larger foreign investments in India,
the Special Economic Zones (SEZs) Policy wasthe Special Economic Zones (SEZs) Policy was
announced in April 2000announced in April 2000
2 SEZ in India
3. Definition of SEZDefinition of SEZ
SEZ in India3
► Special Economic Zone means an area that has been specifiedSpecial Economic Zone means an area that has been specified
as an enclave that is duty free and is treated as a foreignas an enclave that is duty free and is treated as a foreign
territory for various purposes such as tariffs, trade operations,territory for various purposes such as tariffs, trade operations,
and duties.and duties.
► A Special Economic Zone (SEZ) has economic laws that areA Special Economic Zone (SEZ) has economic laws that are
more liberal than a country's typical economic laws.more liberal than a country's typical economic laws.
► The category 'SEZ' covers a broad range of specific zoneThe category 'SEZ' covers a broad range of specific zone
► SEZ includes Free Trade Zones (FTZ), Export ProcessingSEZ includes Free Trade Zones (FTZ), Export Processing
Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), FreeZones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free
Ports, Urban Enterprise Zones and others.Ports, Urban Enterprise Zones and others.
4. History of Special Economic ZonesHistory of Special Economic Zones
► The world first known instance of SEZ have beenThe world first known instance of SEZ have been
found in an industrial park set up in Puerto Rico infound in an industrial park set up in Puerto Rico in
1947. In the 1960s, Ireland and Taiwan followed suit,1947. In the 1960s, Ireland and Taiwan followed suit,
but in the 1980s China made the SEZs gain globalbut in the 1980s China made the SEZs gain global
currency with its largest SEZ being the metropolis ofcurrency with its largest SEZ being the metropolis of
Shenzhen.Shenzhen.
► From 1965 onwards, India experimented with theFrom 1965 onwards, India experimented with the
concept of such units in the form of Export Processingconcept of such units in the form of Export Processing
Zones (EPZ).Zones (EPZ).
► But a revolution came in 2000, when MurlisoneBut a revolution came in 2000, when Murlisone
Maran, then Commerce Minister, made a tour to theMaran, then Commerce Minister, made a tour to the
southern provinces of China. After returning from thesouthern provinces of China. After returning from the
visit, he incorporated the SEZs into the Exim Policy ofvisit, he incorporated the SEZs into the Exim Policy of
India. Five year later, SEZ Act (2005) was alsoIndia. Five year later, SEZ Act (2005) was also
introduced and in 2006 SEZ Rules were formulated.introduced and in 2006 SEZ Rules were formulated.
►
4 SEZ in India
5. objectives of setting upobjectives of setting up SEZ in IndiaSEZ in India
► Generation of additional economic activityGeneration of additional economic activity
► Promotion of exports of goods and servicesPromotion of exports of goods and services
► Promotion of investment from domestic and foreign sourcesPromotion of investment from domestic and foreign sources
► Creation of employmentCreation of employment
► Development of infrastructure facilitiesDevelopment of infrastructure facilities
► Simplified procedures for development, operation, and maintenance ofSimplified procedures for development, operation, and maintenance of
the Special Economic Zones and for setting up units and conductingthe Special Economic Zones and for setting up units and conducting
businessbusiness
► Single window clearance for setting up of a SEZ and an unit in SEZSingle window clearance for setting up of a SEZ and an unit in SEZ
► Single window clearance on matters relating to Central as well as StateSingle window clearance on matters relating to Central as well as State
GovernmentsGovernments
► Easy and simplified compliance procedures and documentations withEasy and simplified compliance procedures and documentations with
stress on self certificationstress on self certification
5 SEZ in India
6. SEZ in IndiaSEZ in India
► Consequent upon the SEZ Rules coming into forceConsequent upon the SEZ Rules coming into force
w.e.f. 10th February, 2006, there are 234 valid formalw.e.f. 10th February, 2006, there are 234 valid formal
approvals and 162 in-principle approvals. Out of theapprovals and 162 in-principle approvals. Out of the
234 formal approvals, notifications have already been234 formal approvals, notifications have already been
issued in respect of 63 SEZs.issued in respect of 63 SEZs.
► Sector wise SEZ approvals in IndiaSector wise SEZ approvals in India
6 SEZ in India
Source: Official website of Ministry of Commerce and Industry , www.sezindia.nic.in
7. SEZ at glance in IndiaSEZ at glance in India
SEZ Act 2005SEZ Act 2005 • Passed by parliament in May 2005Passed by parliament in May 2005
• Recd. Presidential assent on 23rd June 05Recd. Presidential assent on 23rd June 05
• Came into effect on 10th Feb 06 supported by the SEZ RulesCame into effect on 10th Feb 06 supported by the SEZ Rules
No. of valid formal approvalsNo. of valid formal approvals 234234
No. of Notified SEZsNo. of Notified SEZs 100100
No. of formal approvals pendingNo. of formal approvals pending
NotificationNotification
134134
Land requirementLand requirement Ground Realities:Ground Realities:
Total Land in India : 2973190 sq kmTotal Land in India : 2973190 sq km
Total Agri Land in India: 1620388 sq km (54.5%)Total Agri Land in India: 1620388 sq km (54.5%)
SEZs formally approved (234) -350 sq kmSEZs formally approved (234) -350 sq km
In principle approvals(162)- 1400 sq kmIn principle approvals(162)- 1400 sq km
Total Area for proposed SEZs (FA+IP) - 1750 sq kmTotal Area for proposed SEZs (FA+IP) - 1750 sq km
Total SEZ area would not be more than 0.86% of Agri LandTotal SEZ area would not be more than 0.86% of Agri Land
234 Formal Approvals:234 Formal Approvals:
•Approx. 33808 hectaresApprox. 33808 hectares
•Proposals from SIDCs/St. Govt. Agencies: 60Proposals from SIDCs/St. Govt. Agencies: 60
•Land requirement for the 60 proposals: 17800 haLand requirement for the 60 proposals: 17800 ha7 SEZ in India
8. Benefits from SEZsBenefits from SEZs
► Investment of the order of Rs.100,000 crore includingInvestment of the order of Rs.100,000 crore including
FDI of US $ 5-6 billion by the end of December 2007,FDI of US $ 5-6 billion by the end of December 2007,
andand
► 500,000 direct jobs by December 2007.500,000 direct jobs by December 2007.
► At present, 1016 units are in operation in the SEZs,At present, 1016 units are in operation in the SEZs,
providing direct employment to over 1.79 lakhproviding direct employment to over 1.79 lakh
persons; about 40 per cent of whom are women.persons; about 40 per cent of whom are women.
► Exports from the SEZs during the 10-year periodExports from the SEZs during the 10-year period
could touch 352 billion dollars, nearly half of India’scould touch 352 billion dollars, nearly half of India’s
total annual exports, with IT and ITeS SEZstotal annual exports, with IT and ITeS SEZs
contributing 30 per cent at 105 billion dollarscontributing 30 per cent at 105 billion dollars
8 SEZ in India
9. Exports from the functioning SEZsExports from the functioning SEZs
during the last three yearsduring the last three years
SEZ in India9
Source: Official website of Ministry of Commerce and Industry ,
www.sezindia.nic.in
10. Facilities of SEZ in IndiaFacilities of SEZ in India
SEZ in India10
► Exemption on duties on Indian capital goods and inputs are offered as per theExemption on duties on Indian capital goods and inputs are offered as per the
requirements of the approved business activityrequirements of the approved business activity
► Taxes are either exempted or waived and even reimbursed in case they are paidTaxes are either exempted or waived and even reimbursed in case they are paid
in advanced to the concerned authorityin advanced to the concerned authority
► Duty-free imports of spares, raw materials, capital goods, and consumables areDuty-free imports of spares, raw materials, capital goods, and consumables are
offered as per the requirements of the approved business activityoffered as per the requirements of the approved business activity
► Preferential treatment of these units to the Indian market for easy disseminationPreferential treatment of these units to the Indian market for easy dissemination
of their products and / or serviceof their products and / or service
► Rejected commodities (specifically barred commodities cannot be sold) withinRejected commodities (specifically barred commodities cannot be sold) within
an overall limit of 50% may be sold in the domestic tariff area (DTA) on paymentan overall limit of 50% may be sold in the domestic tariff area (DTA) on payment
of respective duties as applicable after proper notification to the Indian customsof respective duties as applicable after proper notification to the Indian customs
authorities. And such sales of commodities in the domestic tariff area shall beauthorities. And such sales of commodities in the domestic tariff area shall be
counted against DTA sale entitlement and sale of such rejected commodities (upcounted against DTA sale entitlement and sale of such rejected commodities (up
to 5% of FOB value of exports) shall not be subject to achievement of NFEto 5% of FOB value of exports) shall not be subject to achievement of NFE
► All EOU / EHTP / STP / BTP units may sell their finished products or servicesAll EOU / EHTP / STP / BTP units may sell their finished products or services
(excluding pepper and pepper products and marble) Units manufacturing(excluding pepper and pepper products and marble) Units manufacturing
electronics hardware and software, the NFE and direct tariff area (DTA) saleelectronics hardware and software, the NFE and direct tariff area (DTA) sale
entitlement shall be judged separately for its hardware and software productsentitlement shall be judged separately for its hardware and software products
► Tax waiver of dividends and profits for repatriates, without any application ofTax waiver of dividends and profits for repatriates, without any application of
repatriation taxrepatriation tax
► Total tax exemption on corporate incomes as per the provisions of Section 10 ATotal tax exemption on corporate incomes as per the provisions of Section 10 A
and 10 B of the Indian Income Tax Actand 10 B of the Indian Income Tax Act
► Easy and automatic acceptance system for use of existing trademarks, brandEasy and automatic acceptance system for use of existing trademarks, brand
names and technological know-hownames and technological know-how
11. Facilities of SEZ in IndiaFacilities of SEZ in India
SEZ in India11
► Facilitated with out-sourcing of subcontract capacities for export production against ordersFacilitated with out-sourcing of subcontract capacities for export production against orders
secured by other SME unitssecured by other SME units
► All SEZ units, (excluding gems and jewelry units) may sell goods up to 50% of FOB valueAll SEZ units, (excluding gems and jewelry units) may sell goods up to 50% of FOB value
of exports subject to fulfillment of positive NFE on payment of concessional duties. Withinof exports subject to fulfillment of positive NFE on payment of concessional duties. Within
the entitlement of domestic tariff area (DTA) sale, the unit may sell in DTA its productsthe entitlement of domestic tariff area (DTA) sale, the unit may sell in DTA its products
similar to the goods, which are exported or expected to be exported from the unitssimilar to the goods, which are exported or expected to be exported from the units
► Facilitated with out-sourcing of subcontract of production or part of production process toFacilitated with out-sourcing of subcontract of production or part of production process to
Indian or any foreign unitsIndian or any foreign units
► Sale to direct tariff agreement is subject to mandatory requirement of registration forSale to direct tariff agreement is subject to mandatory requirement of registration for
pharmaceutical products and inclusive of bulk drugspharmaceutical products and inclusive of bulk drugs
► For Software services units, the sale in the DTA in any mode, including on line dataFor Software services units, the sale in the DTA in any mode, including on line data
communication shall be permitted up to 50% of FOB value of exports and / or 50% ofcommunication shall be permitted up to 50% of FOB value of exports and / or 50% of
foreign exchange earned through exports of such services, where the payment of suchforeign exchange earned through exports of such services, where the payment of such
services offered to its overseas clients, is received in foreign exchangeservices offered to its overseas clients, is received in foreign exchange
► SEZ units associated with manufacturing gems and jewelry may sell up to 10% of FOBSEZ units associated with manufacturing gems and jewelry may sell up to 10% of FOB
value of exports of the preceding year in direct trade agreement and subject to fulfillment ofvalue of exports of the preceding year in direct trade agreement and subject to fulfillment of
positive NFE. Further, in case of sale of plain jewelry, the recipient of such trade shall paypositive NFE. Further, in case of sale of plain jewelry, the recipient of such trade shall pay
concessional rate of duty as applicable. Furthermore, in case of studded jewelry, duty shallconcessional rate of duty as applicable. Furthermore, in case of studded jewelry, duty shall
be payable as recommended and amended from time to timebe payable as recommended and amended from time to time
► Total exemption of duties / taxes on scrap or waste or remnants in case the said crap orTotal exemption of duties / taxes on scrap or waste or remnants in case the said crap or
waste or remnants are destroyed as per the approval of the customs authorities of Indiawaste or remnants are destroyed as per the approval of the customs authorities of India
► If the end products is a by-product and it is included in the LOP, then it may also be sold inIf the end products is a by-product and it is included in the LOP, then it may also be sold in
the direct tariff area, subject to achievement of positive NFE on payment of applicablethe direct tariff area, subject to achievement of positive NFE on payment of applicable
duties within the provisions of such laws. The sale of such by-products by units those areduties within the provisions of such laws. The sale of such by-products by units those are
not entitled to direct tariff area salesnot entitled to direct tariff area sales
► Facilitated with out-sourcing of subcontract capacities for export production against ordersFacilitated with out-sourcing of subcontract capacities for export production against orders
secured by other unitssecured by other units
12. SEZ in India12
The main objectives ofThe main objectives of
the SEZ Act arethe SEZ Act are ::
► Generation of additional economic activity;Generation of additional economic activity;
► Promotion of exports of goods and services;Promotion of exports of goods and services;
► Promotion of investment from domestic andPromotion of investment from domestic and
foreign sources;foreign sources;
► Creation of employment opportunities; andCreation of employment opportunities; and
► Development of infrastructure facilitiesDevelopment of infrastructure facilities
13. SEZ in India13
The salientThe salient
features/provisions of SEZfeatures/provisions of SEZ
RulesRules
► Different minimum land requirement for different class of SEZs;Different minimum land requirement for different class of SEZs;
► Every SEZ is divided into a processing area where alone the SEZEvery SEZ is divided into a processing area where alone the SEZ
units would come up and the non-processing area where theunits would come up and the non-processing area where the
supporting infrastructure is to be created;supporting infrastructure is to be created;
► Simplified procedures for development, operation andSimplified procedures for development, operation and
maintenance of the Special Economic Zones and for setting upmaintenance of the Special Economic Zones and for setting up
units and conducting business in SEZs;units and conducting business in SEZs;
► Single window clearance for setting up of an SEZ;Single window clearance for setting up of an SEZ;
► Single window clearance for setting up a unit in a SpecialSingle window clearance for setting up a unit in a Special
Economic Zones;Economic Zones;
► Single window clearance for matters relating to Central as well asSingle window clearance for matters relating to Central as well as
State Governments;State Governments;
► Simplified compliance procedures and documentation with anSimplified compliance procedures and documentation with an
emphasis on self certification.emphasis on self certification.
14. SEZ ControversySEZ Controversy
SEZ in India14
► In spite of the strong objectives of the IndianIn spite of the strong objectives of the Indian
Government The SEZ policy is in followingGovernment The SEZ policy is in following
controversycontroversy
► Generation of little new activity as there may beGeneration of little new activity as there may be
relocation of industries to take advantage of taxrelocation of industries to take advantage of tax
concessions,concessions,
► Revenue lossRevenue loss ddue to Tax exemption .The Comptrollerue to Tax exemption .The Comptroller
and Auditor General (CAG) of India report estimatesand Auditor General (CAG) of India report estimates
the duty foregone at Rs.8,842 crore in the five yearthe duty foregone at Rs.8,842 crore in the five year
period 2000-01 to 2005-06, while in 2006-07 alone,period 2000-01 to 2005-06, while in 2006-07 alone,
the revenue loss amounted to Rs.2,146 crore as perthe revenue loss amounted to Rs.2,146 crore as per
budget estimatesbudget estimates
► Large-scale land acquisition by the developers, mayLarge-scale land acquisition by the developers, may
lead to displacement of farmers with meagerlead to displacement of farmers with meager
compensation,compensation,
► Acquisition of prime agricultural land, having seriousAcquisition of prime agricultural land, having serious
implications for food security,implications for food security,
Misuse of land by the developers for real estateMisuse of land by the developers for real estate
► Uneven growth aggravating regional inequalities.Uneven growth aggravating regional inequalities.
15. Losses due to SEZ at glanceLosses due to SEZ at glance
SEZ in India15
Revenue lossRevenue loss 1 Lakh Crore( year 2006-2010)1 Lakh Crore( year 2006-2010)
Proposed Direct employmentProposed Direct employment 22,15,667 person( year 2006-2007)22,15,667 person( year 2006-2007)
Actual Direct InvestmentActual Direct Investment 61,015 persons ( year 2006-207)61,015 persons ( year 2006-207)
Proposed indirect employment,Proposed indirect employment, 31,05,300 persons( year 2006-20007)31,05,300 persons( year 2006-20007)
Actual Direct EmploymentActual Direct Employment 1,00,415 persons( year 2006-20007)1,00,415 persons( year 2006-20007)
No Displacement (If all notified SEZ gets approval andNo Displacement (If all notified SEZ gets approval and
acquire land)acquire land)
114,000 farming households (each household on an114,000 farming households (each household on an
average comprise five members) and an additionalaverage comprise five members) and an additional
82,000 farm worker families82,000 farm worker families
total loss of income to the farming and the farm workertotal loss of income to the farming and the farm worker
familiesfamilies
Rs.212 crore per yearRs.212 crore per year
Percentage share of SEZ export in total export of thePercentage share of SEZ export in total export of the
countrycountry
5% in year 2005-065% in year 2005-06
16. SEZs - A global OverviewSEZs - A global Overview
SEZ in India16
► World Bank estimates, as of 2007 there are more than 3,000World Bank estimates, as of 2007 there are more than 3,000
projects taking place in SEZs in 120 countries worldwide.projects taking place in SEZs in 120 countries worldwide.
► The SEZ concept proved a success in China and Poland. InThe SEZ concept proved a success in China and Poland. In
China over 20 per cent of Foreign Direct Investment (FDI) flowsChina over 20 per cent of Foreign Direct Investment (FDI) flows
into SEZ and generated 10 per cent of exports. Poland's SEZsinto SEZ and generated 10 per cent of exports. Poland's SEZs
received 35 per cent of FDI flows.received 35 per cent of FDI flows.
► Indian must re-design the SEZ policy to suit its needs and notIndian must re-design the SEZ policy to suit its needs and not
borrow the Chinese model.borrow the Chinese model.
► SEZs have been implemented using a variety of institutionalSEZs have been implemented using a variety of institutional
structures across the world ranging from fully publicstructures across the world ranging from fully public
(government operator, government developer, government(government operator, government developer, government
regulator) to 'fully' private (private operator, private developer,regulator) to 'fully' private (private operator, private developer,
public regulator).public regulator).
