Special Economic Zones (SEZs) are designated areas within a country aimed at boosting exports and creating jobs through liberal business regulations and tax exemptions. India established its SEZ policy in 2000 and enacted the SEZ Act in 2005, leading to about 240 operational zones that have generated approximately 20 lakh jobs. However, challenges such as inadequate infrastructure, policy inconsistencies, and environmental concerns have hindered their effectiveness compared to counterparts in other countries.

1. SPECIAL ECONOMIC
ZONE

2. Introduction
A Special Economic Zone (SEZ) is a geographical region that is designed to
export goods and provide employment. SEZs are exempt from laws regarding
taxes, quotas, FDI-band, labour laws and other restrictive laws in order to make
the goods manufactured in the SEZ at a globally competitive price.
It is specifically delineated duty-free enclave and shall deemed to be a foreign
territory for the purposes of trade operations and duties and tariffs.
To provide and internationally competitive and hassle-free environment for
exports.

3. Continues…
SEZs
An engine for economic growth
Supported by quality infrastructure
Complemented by an attractive fiscal progress
With the minimum possible regulations

4. SEZ Definitions
An SEZ is an enclave within a country that is typically duty-free and
has different business and commercial laws chiefly to encourage
investment and create employment.
Apart from generating employment opportunities and promoting
investment, SEZs are created also to better administer these
areas, thereby increasing the ease of doing business.

5. History of SEZ
Initial Phase: 1965-85
Expansionary Phase: 1985-1991
Consolidating Phase: 1991-2005
Emergence Phase: 2005 onwards

6. Chronology of SEZ framework

7. SEZ Categories
Free Trade Zones (FTZ)
Export Processing Zones (EPZ)
Free Zones (FZ)
Industrial Estates (IE)
Free Ports
Urban Enterprise Zones

8. SEZ Background
An SEZ Policy was announced for the very first time in 2000 in order to overcome the obstacles businesses
faced.
There were multiplecontrols and many clearances to be obtained before starting a venture.
Infrastructurefacilities were shoddy and well below world standards in India.
The fiscal regime was unstable as well.
In order to attract huge foreign investments into the country, the government announced the Policy.
The Parliament passed the Special Economic Zones Act in 2005 after many consultations and deliberations.
The Act came into force along with the SEZ Rules in 2006.
However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).

9. EPZ to SEZ: Net Foreign Exchange

10. Special Economic Zones Act,
2005
“It is defined as an Act to provide for the establishment, development
and management of the Special Economic Zones for the promotion
of exports and for matters connected therewith or incidental thereto.”

11. The chief objectives of the SEZ Act
are:
Generation of additional economic activity.
Promotion of exports of goods and services
Promotion of investment from domestic and foreign sources
Creation of employment opportunities
Development of infrastructure facilities.

12. SEZ Rules
The Rules provide for:
Simplified procedures to develop, operate and maintain SEZs and also to set up units
and conduct businesses in the SEZs.
Single-window clearance to set up a Special Economic Zone, and also to set up a unit in
an SEZ.
Single-window clearance for matters connected to the Central and State governments.
Simplified compliance procedures and documentation with a focus on self-certification.
Different minimum land requirements for different classes of Special Economic Zones.

13. SEZ Approval Mechanism
The SEZ approval mechanism is a single-window process provided by a 19-member
inter-ministerial SEZ Board of Approval (BoA).
The developer has to submit the proposal to the state government.
The state government forwards this proposal to the BoA along with its
recommendation within forty-five days.
The developer or applicant can also directly submit the proposal to the BoA.
The Board, which has been constituted by the Central Government, and is a 19-
member Board takes the decision considering the merits of the proposal. All decisions
taken by the Board are by consensus.

14. Continues…
The Board is chaired by the Secretary of the Dept. of Commerce, Ministry of
Commerce and Industry.
The other members are from various bodies and ministries such as the Central
Board of Excise and Customs (CBEC), the Central Board of Direct Taxes
(CBDT), Department of Economic Affairs, Dept. of Commerce, Ministry of
Science and Technology, Ministry of Home Affairs, Ministry of Law and
Justice, Ministry of Urban Development, etc.
Once the BoA gives its approval, and the central government notifies the area
of the SEZ, units are allowed to be established inside the SEZ.

15. Status of
State SEZ

16. State
wise
distribution
of
SEZ
State/Union Territory FormalApprovals In-principleapprovals Notified SEZs
Exporting SEZs
(CentralGovt.+ State Govt./Pvt.SEZs + notified SEZs
under the SEZ Act, 2005)
Andhra Pradesh 32 4 27 20
Chandigarh 2 0 2 2
Chhattisgarh 2 1 1 1
Delhi 2 0 0 0
Goa 7 0 3 0
Gujarat 28 4 24 20
Haryana 23 3 20 7
Jharkhand 2 0 2 0
Karnataka 62 0 51 32
Kerala 29 0 25 19
Madhya Pradesh 12 0 6 5
Maharashtra 48 12 42 31
Manipur 1 0 1 0
Nagaland 2 0 2 0
Odisha 7 0 5 5
Puducherry 1 1 0 0
Punjab 5 0 3 3
Rajasthan 5 1 4 3
Tamil Nadu 54 4 50 40
Telangana 68 0 56 30
Uttar Pradesh 23 0 20 13
WestBengal 7 2 5 7
Total 417 33 349 238[1]

17. SEZ to CEZ
State/Union Territory
Formal Approv als
In-principle approv als
Notified SEZs
Exporting SEZs
(Central Gov t. + State Gov t./Pv t. SEZs + notified SEZs
under the SEZ Act, 2005)
Andhra Pradesh
32
4
27
20
Chandigarh
2
0
2
2
Chhattisgarh
2
1
1
1
Delhi
2
0
0
0
Goa
7
0
3
0
Gujarat
28
4
24
20
Haryana
23
3
20
7
Jharkhand
2
0
2
0
Karnataka
62
0
51
32
Kerala
29
0
25
19
Madhya Pradesh
12
0
6
5
Maharashtra
48
12
42
31
Manipur
1
0
1
0
Nagaland
2
0
2
0
Odisha
7
0
5
5
Puducherry
1
1
0
0
Punjab
5
0
3
3
Rajasthan
5
1
4
3
Tamil Nadu
54
4
50
40
Telangana
68
0
56
30
Uttar Pradesh
23
0
20
13
West Bengal
7
2
5
7
Total
417
33
349
238[1]

18. SEZ in INDIA
Currently, about 240 are operational in the country. About 64% of the SEZs
are located in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh
and Maharashtra.
The following table gives data about the SEZs as of February 2nd, 2020.
SEZs approved 421
SEZs notified 354
SEZs approved in-principle 33
SEZs operational 240

19. Continues…
In 2018 – 19, about 20 lakh jobs were created through SEZs. Most
of the SEZs being set up are primarily private investment-driven.
In the financial year 2017 – 18, the exports from SEZs have grown by
about 13% when compared to the previous financial year.
Examples: SEEPZ Special Economic Zone (Mumbai), Kandla
SEZ, Cochin SEZ, Madras SEZ, Visakhapatnam SEZ,
NOIDA Export Processing Zone, Falta SEZ, etc.

20. Economic benefits of SEZ
Employment generations
Skill formation
Attract Investors
Technology Upgrading
Exports
Manufacturing Sector

21. SEZs Typology
Multi-product SEZ (25)
Sector specific SEZ

22. Sector specific SEZs
Pharma
IT/ITES
Gems and Jewellery
Bio Technology
Chemicals
Medical Equipments
Engineering Based
Apparel and Readymade
Technology Equipments
Entertainment and Recreation, etc.

23. Total exports and SEZs exports

24. SEZs Facilities and Incentives
The government offers many incentives for companies and businesses established in SEZs. Some of the
important ones are:
Duty-free import or domestic procurement of goods for developing, operating and maintainingSEZ
units.
100% Income tax exemption on export income for SEZ units under the Income Tax Act for first 5 years,
50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. (Sunset
Clause for Units will become effective from 2020).
Units are exempted from Minimum Alternate Tax (MAT).
They were exempted from Central Sales Tax, Service Tax and State sales tax. These have now
subsumed into GST and supplies to SEZs are zero-rated under the IGST Act, 2017.

25. Continues…
Single window clearance for Central and State level approvals.
There is no need for a license for import.
In the manufacturing sector, barring a few segments, 100% FDI is allowed.
Profits earned are permitted to be repatriated freely with no need for any dividend balancing.
There is no need for separate documentation for customs and export-import policy.
Many SEZs offer developed plots and ready-to-use space.
Apart from the firms operating in SEZs, developers of SEZs also receive many benefits and
incentives from the government.

26. SEZs and Regional Development

27. Structural change and SEZ Catalytic
effects
New Activity/ Employment
Knowledge spillover
Technology spillover
Backward linkages
Forward linkages

28. Challenges
Since SEZs offer a wide range of incentivesand tax benefits, it is believed that many existing
domestic firms may just shift base to SEZs.
There is a fear that the promotion of SEZs may be at the cost of fertile agricultural land affecting
food security, loss of revenue to the exchequer and cause uneven growth with adverse effects.
Apart from food security, water security is also affected because of the diversion of water use for
SEZs.
SEZ also cause pollution, especially with the release of untreated effluents. There has been huge
destruction of mangroves in Gujarat affecting fisheries and dairy sectors.
SEZ have to be promoted but not at the cost of the agricultural sector of the country. It should also
not affect the environment adversely.

29. Concerns with present SEZ
SEZs in India have not been as successfulas their counterpartsin many other countries. Several Asian
economies,particularly China, Korea, Malaysia, and Singapore, have greatly benefitted from thesezones.
Most of India’s new generation SEZs cameup not for exporting, but for avoiding taxes. Large fiscal sops, in
the form of a bunch of reliefs from central and state taxes, lured developers into building SEZs.
Most manufacturingSEZs in India have performedbelow par due to their poor linkages with the rest of the
economy. Weak connectionsof coastal SEZs with their hinterlands inhibited thesezones from utilisingtheir
full potential.
Statesdid not match thecentral SEZ Act with State-level legislation,which renderedthe single window
system ineffective.
Lack of a robust policy design, efficient implementation and effectivemonitoringhave seriouslyjeopardised
India’s effortto industrialise throughSEZs.

30. SEZ’S India VS CHINA
By the end of 1990s, it was found that India’s EPZ were not performing as well as China’s SEZ.
Major reasons behind poor Indian SEZ’s performance w.r.t. China.
1. Limited scale and overcrowding
2. Inadequate logistics support
3. Poor infrastructure
4. Governments indifference and red tapism in matters of Foreign Direct Investment
5. Lack of clarity in incentive packages
6. Poor co-ordination between state and municipal governments with central governments in the
design, setup and functioning of the zones.

31. Continues…
Issues China India
Size Typically in hundreds of hectares Even 10 hectares will do
Location Located only on coasts Anywhere, no restriction
Labour laws Relaxed Flexibility is totally absent
Policy regime
Experimentation of liberal policies in the specified
areas
Based on fiscal sops
Investors
Basically foreigners who are woed wit
sops and promise of stability in policy
Basically locals, not foreign
investor driven
Commencement In 1979 In 1969 with EPZ, but failed
Number Only 6 358
Tax holidays Present Steeper than China

32. Suggestions: Baba Kalyani
Report
The Baba Kalyani led committee constituted by the Ministry of Commerce and
Industry to study the existing SEZ policy of India has recently submitted its report.
In June 2018, the committee was tasked to make special economic zone (SEZ) policy
compatible with World Trade Organisation (WTO) rules after the US challenged
India’s export subsidy programmeat the multilateral trade body.
If India is to become a US $5 trillion economy by 2025, then the current environment of
manufacturing competitivenessand services has to undergo a basic paradigm shift.
The report notes that the success seen by services sectors like IT and ITES (IT
enabled services) has to be promoted in other services sector like health care, financial
services, legal,repair and design services.

33. Reports: key objectives
To evaluate the SEZ policy and make it WTO compatible.
To suggest measures for maximising utilisation of vacant land in SEZs.
To suggest changes in the SEZ policy based on international
experience.
To merge the SEZ policy with other Government schemes such as
coastal economic zones, Delhi-Mumbai industrial corridor, national
industrial manufacturing zones and food and textiles parks.

34. Recommendations
Framework shift from export growth to broad-based Employment and Economic Growth (Employment
and Economic Enclaves-3Es).
Formulation of separate rules and procedures for manufacturing and service SEZs.
Enhance competitiveness by enabling ecosystem development by funding high speed multi modal
connectivity, business services and utility infrastructure.
Shift from supply driven to demand driven approach for 3Es development to improve the efficiency
of investment-based on certain industries, current level of existing inventory in the region.
Enabling framework for Ease of Doing Business (EoDB) in 3Es in sync with State EoDB initiatives.
One integrated online portal for new investments, operational requirements and exits related matters.
Promote integrated industrial and urban development- walk to work zones, States and center to coordinate
on the framework development to bring linkages between all initiatives.

35. Continues…
Procedural relaxations for developers and tenants to improve operational and exit issues.
Extension of Sunset Clause and retaining tax or duty benefits.
Broad-banding definition of services/allowing multiple services to come together.
UtilizingMulti Services SEZ IFSC for all inbound and outbound investment of the country.
Incentives for availing services from IFSC SEZ by domestic institutions.
Extension of benefit under services Export incentives scheme
Allowing alternate sectors to invest in sector specific SEZs/ 3Es.
Flexibility of long term lease for developers and tenants.
Infrastructure status to improve access to finance and enable long term borrowing.
Dispute resolution through arbitration and commercial courts.

36. SEZ (Amendment) Act, 2019
A trust, or
Any other entity which notified by central government

37. SEZ Performance
Had generated 20 lakh jobs
Brought investments worth Rs 5 lakh crore
Exports worth Rs 7 lakh crore

38. Conclusion
SEZ policy has no doubt given a boost to the Indian Economy but comparison of
implementation with other countries brings out lacunas in India’s SEZ Policy.
The reasons for disparities can be attributed to many reasons as listed below.
• Improper SEZ policy
• Irresponsible planning while locating SEZ
• Ineffective Land Acquisition Policies
• Improper Rehabilitation Policy

39. Thank you