Special Economic Zone

1. SPECIAL ECONOMIC ZONE
SUBODH KUMAR
2013CET2155

2.  A Special Economic Zone (SEZ) is
 a geographical region - economic laws more liberal & Broad
Minded
 projected as duty- free areas for trade and operations.
 self-contained and integrated with own infrastructure &
support services.
 to create a conducive atmosphere to promote investment and
exports.

3. Within SEZs, a unit may be setup for the manufacture of goods and
other activities including processing, assembling, trading, repairing,
reconditioning etc.
The category ‘SEZ’ covers a broad range of specific zone types,
including
 Free Trade Zones (FTZ)- where goods may be landed, handled,
manufactured or reconfigured, and reexported without the
intervention of the customs authorities
 Export Processing Zones (EPZ)
 Free Zones (FZ)- areas in which companies are taxed very lightly or
not at all in order to encourage economic activity
Industrial Estates (IE)- specific areas zoned for industrial activity in
which infrastructure such as roads, power, and other utility services is
provided to facilitate the growth of industries and to minimize impacts
on the environment.
 Free Ports
 Urban Enterprise zones and others

4. First known SEZ - Puerto Rico, 1947
Ireland & Taiwan followed - 1960s
China made SEZs gain global currency with its largest SEZ at
Shenzhen in 1980
 currently 3000 SEZs in 120 countries -> US $600 Bn in exports
and about 50 Mn jobs
History of SEZ

5. Evolution of SEZs in India
 The first ever Export Processing Zone (EPZ) in Asia was set up
by GoI in Kandla in 1965.
 Based on the success of Kandla EPZ, in the beginning of
eighties, seven more EPZs were setup in Bombay, Noida,
Surat, Madras, Falta, Visakhapatnam and Cochin.
 However the EPZ policy faced several problems like
 Limited power of zonal authorities,
 Absence of single window facility,
 Rigid custom procedures for bank guarantees,
 Restrictive FDI policy, procedural constraints and
severe

6. Thus the EXIM policy introduced a new scheme from April 1, 2000
for the establishment of the SEZs
EPZs converted into Special Economic Zones (SEZs) in 2000
under a new policy of GoI.
Before SEZ act 2005, SEZs operated by provisions of foreign trade
and fiscal incentives
After extensive consultation, the SEZ Act, 2005 supported by SEZ
rules, came into effect on 10th Feb 2006 providing for drastic
simplification of procedures and for single window clearance on
matters relating to both central & state governments.

7. Generation of additional economic activity
Promotion of exports of goods & services
Promotion of investment from domestic &foreign sources
Creation of employment opportunities
Development of infrastructure facilities
Objectives of SEZs in India

8. Terms and Conditions
 The SEZ units shall abide by local laws, rules, regulations or
laws in regard to area planning, sewerage disposal, pollution
control and the like. They shall also comply with industrial
and labor laws, as may be locally applicable.
 Such SEZs shall make security arrangements to fulfill all
the requirements of the laws, rules and procedures applicable
to such SEZs.
 The SEZ should have a minimum area of 1000hectares and
at least 35 % of the area is to be earmarked for developing
industrial area for setting up of processing units.

9.  Minimum area of 1000 hectares will not be applicable to
product specific and port/airport based SEZs.
 Wherever the SEZs are landlocked, an Inland Container
Depot (ICD) will be an integral part of SEZs.
Terms and Conditions

10.  The applicant also has the option of submitting the
proposal directly to the BOA.
Approval mechanism
Developer
submits proposal
to state Govt
State Govt if
approves, forward
it to Board of
Approval (BOA)
within 45 days
Approval

11. Administrative Set-up
 Board of Approval is headed by the Secretary, Department
of Commerce.
 All the decisions are taken in the BOA by consensus.
 The BOA has 19 members.
Board of
Approval
Unit Approval
commitee
Development
Commissioner

12. Benefits to Indian SEZ units
 15 year corporate tax holiday on export profit
 Allowed to carry forward losses.
 No license required for import made under SEZ units.
 Duty free import or domestic procurement of goods for setting up
of the SEZ units.
 Goods imported/procured locally are duty free and could be
utilized over the period of 5 years.
 Exemption from customs duty on import of capital goods, raw
materials, consumables, spares, etc.
100% -
first 5 yrs
50% -
next 5 yrs
Upto 50% -next 5
years equivalent to
profits ploughed
back for
investment

13. Benefits to Indian SEZ units
 Exemption from Central Excise duty on the procurement of capital
goods, raw materials, and consumable spares, etc. from the domestic
market.
 Exemption from payment of Central Sales Tax on the sale or
purchase of goods.
 Exemption from payment of Service Tax.
 The sale of goods or merchandise that is manufactured outside the
SEZ and which is purchased by the Unit (situated in the SEZ) is
eligible for deduction and such sale would be deemed to be exports.
 The SEZ unit is permitted to realize and repatriate to India the full
export value of goods or software within a period of twelve months
from the date of export.

14. Benefits to Indian SEZ units
 “Write-off” of unrealized export bills is permitted up to anannual
limit of 5% of their average annual realization.
 No routine examination by Customs officials of export andimport
cargo.
 Setting up Off-shore Banking Units (OBU) allowed in SEZs.
 OBU's allowed 100% income tax exemption on profit earnedfor
three years and 50 % for next two years.
 Exemption from requirement of domicile in India for 12months prior
to appointment as Director.
 Since SEZ units are considered as ‘public utility services’, nostrikes
would be allowed in such companies without givingthe employer 6
weeks prior notice in addition to the otherconditions mentioned in
the Industrial Disputes Act, 1947.

15. Issues concerning SEZs
 SEZs would result in the Finance Ministry losing revenue to the
tune of over Rs.1,00,000 cr annually due to various tax
concessions and exemptions.
 The SEZs are mainly coming up in Maharashtra, Gujarat,
Tamilnadu, Karnataka, Haryana, Orissa. There is a lack of focus
on other regions of the country. This could lead to regional
imbalances. For ex, no SEZ has yet come up in the North-east
region which already suffers from the problem of alienation.
 In India, farmers are emotional about the land that they have
farmed for years and just giving it up is not something that can be
easily digested. There have also been concerns about the
compensation package offered to farmers whose lands have been
acquired.

16. Issues concerning SEZs
 Huge tracts of agricultural and forested land will be converted
for industrial purposes for the setting up of SEZs. This can
have grave impact on the ecosystem. The developers fail to
follow the minimum environmental guidelines for SEZs
leading to severe environmental impact.
 Clusters of development - Rather than promoting the overall
economic development, SEZs would result into clusters of
heightened economic activity widening the already existing
gap between developed and impoverished areas.
 Employee Working Conditions – Since relaxed labor laws are
applicable in the SEZs, workers enjoy no rights including the
fundamental rights of association and protests.

17. Benefits
Direct
Foreign exchange
Employment generation
Employment of females
Skill up gradation
FDI
Tech transfers and creation
Indirect
Indirect employment
Investment
Skill spillovers
Technology spillovers
Industrial growth
Productive diversification
Human development
Revenue generation for Govt

18. India and China: A comparison
 India has more or less adopted the same China model of SEZ
development,
 Chinese SEZs are mostly public funded while the Indian model
encourages private sector led development.
 China continues to score as it provides an attractive tax
environment with world class infrastructure and a liberal labor
environment. On the contrary, Democratic India, under pressure
from strong labor unions failed to implement liberal labor laws.
 India has significantly larger English-speaking workforce than does
China. India also has an edge in a number of key knowledge based
industries like software, IT enabled services etc. Indian SEZs will
more likely attract investments in high end human skill based
industries and services sector.

19. India and China: A comparison
 Strong Domestic demand – In China, about 50% of SEZ sales
are to the domestic market. Though India has a large domestic
market, it has failed to project this to lure SEZ investors.
 Decentralization of Power – In China, provincial and local
authorities were made partners and stake holders be delegating
powers to approve foreign investments. In India, only state
Govt are allowed to set up SEZs and the powers for foreign
investment approval is with Union Govt.

20. Key features of Special Economic Zones (SEZs) - China and India
Sl.
No.
Features China India
1. Nature Manufacturing Hubs,
Integrated townships with
commercial, residential,
complete with all facilities
Same, except that apart from
manufacturing also processing.
Separate SEZ for service sector
2. Infrastructu
re
Government provided private developers
3. Location Strategic coastal areas Coastal and landlocked areas
4. Decision on
location
government private sector
5. Size Big over 20000 hectares Small minimum of 500 hectares
for multi products

21. Sl.
No.
Features China India
6. Number 5 ( all operational) 579 ( formally approved)
7. Tax Holiday Selective All, SEZ developers, units in SEZ
Drivers Government driven, well
thought out locations
Private sector driven
9. Government Active and Direct Passive only in giving approval
remaining by the private sector
10. Ownership Government Private Sector
11. land Lease from govt. need to be acquired by private
developer
12. Labor Laws No labor laws Flexible labor laws, unions can’t be
formed. ( ESMA- essential services
maintenance act - no strike, no
lockouts)

22. EPZs
1. Kandla Free trade Zone (KFTZ) during 1965, followed be seven
other EPZs in the country.
2. Santa Cruz Electronic export processing zone (SEEPZ), Mumbai
3. Visakhapatnam export processing zone (VEPZ), Andhra Pradesh
4. Surat Export processing zone (SEPZ), Gujrat
5. Noida Export Processing Zone (NEPZ), Uttar Pradesh
6. Falta Export Processing Zone (FEPZ), West Bengal
7. Chennai Export Processing Zone ( CEPZ), Tamil Nadu
8. Cochin Export Processing Zone ( CEPZ), Kerala

23. Feature EPZs SEZs
1. Role Supplementary in
increasing exports
Primary and dominant role in exports
Increasing exports and improving share in
world trade
2. Nature Only export oriented
activities
Integrated township with all facilities
3. Area Norms Not specified Minimum 500 hectares for multi products
and 100 hectares for single products
4 . Infrastructure Government provided Private developers
5 . Range Of
Activities
Primarily processing
and some
manufacturing
Manufacturing and IT, sector specific
6 . Value Addition
Norms
Yes No
7 . Foreign
Investment
Not permitted Permitted
8 . Sale To DTA Up to a specified
percentage
Against foreign exchange only
9 . Domestic Banks No Yes, would operate as off-shore banking
units (OBU) and the same status as if
operating outside the country

24. 22840 34615
66638
99689
220711
315868
364478
476159
494077
0
100000
200000
300000
400000
500000
600000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Exports Value in Rs. Crores
Exports Value in Rs. Crores

25. 66638 99689
220711 315868 364478
476159
589226
741066
624823
827054
1101481
1159102
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*
Export Performance
Total SEZs Export (Rs. in Crores) Total Export of the country except SEZ ( Rs. in Crores)

26. 0
20
40
60
80
100
120
STATE WSE SEZ DISTRIBUTION
Formal In-principle Notified Exporting SEZs (Central Govt. + State Govt./Pvt. SEZs + notified SEZs under

27. Arabian
Sea
Bay
of
Bengal
Maharashtra
Andhra
Pradesh
Tamil Nadu
Odisha
Lakshadweep
Goa
Puducherry
Andaman
and
Nicobar
Islands
Madhya Pradesh
West
Bengal
Bihar
Jharkhand
Uttar Pradesh
Uttarakhand
Assam
Arunachal
Pradesh
Nagaland
Manipur
Mizoram
Tripura
Sikkim
Meghalaya
Rajasthan
Gujarat
Haryana
Himachal
Pradesh
Punjab
Delhi
Chandigarh
Jammu
and
Kashmir
Daman
and Diu
Dadra and
Nagar Haveli
Lowest (Red) to Highest (Green)
www.indzara.blogspot.com
ColourGradient
Formally approved SEZs

28. 0
50
100
150
200
250
300
350
400
Agro
Airportbasedmultiproduct
Autoandrelated
Aviation/Aerospace/Animation&Gaming/…
Beach&mineral/metals
Bio-Tech
Buildingprod./mal./transport
equipment’s/ceramicandglass
Electronicproduct/Industries
Engineering
Footwear/Leather
FoodProcessing
FTWZ
GemsandJewelry
Handicrafts&Carpets
IT/ITES/ElectronicHardware/
Semiconductor
Metal/Stain.Steel/Alum/Foundry
LightEngineeringincluding
Automotive/Automotive
Components
Multi-Product
Multi-Services/Services
Non-ConventionalEnergy
Plasticprocessing
Petrochemicals&petro./oilandgas
Pharmaceuticals/chemicals
Port-basedmulti-product
Power/alternateenergy/solar
Textiles/Apparel/Wool
Writingandprintingpapermills
StrategicManufacturing
GraniteprocessingIndustries
andotheralliedmachinery/
manufacturing
SECTOR WISE SEZ DISTRIBUTION
Formal In-principle Notified Exporting SEZs (Central Govt. + State Govt. /Pvt. SEZs + notified SEZs under the SEZ Act, 2005)

29. 0
2000
4000
6000
8000
10000
12000
14000
16000
18000
TOTAL AREA OF FORMAL APPROVALS (IN HECTARES)
Andhra Pradesh Chandigarh Chhattisgarh Dadra & Nagar Haveli Delhi
Goa Gujarat Haryana Jharkhand Karnataka
Kerala Madhya Pradesh Maharashtra Manipur Nagaland
Orissa Pondicherry Punjab Rajasthan Tamil Nadu
Uttarakhand Uttar Pradesh West Bengal

30. 0
50000
100000
150000
200000
250000
300000
EMPLOYMENT (IN NUMBER OF PERSONS)
Andhra Pradesh Chandigarh Chhattisgarh Dadra & Nagar Haveli Delhi
Goa Gujarat Haryana Jharkhand Karnataka
Kerala Madhya Pradesh Maharashtra Manipur Nagaland
Orissa Pondicherry Punjab Rajasthan Tamil Nadu
Uttarakhand Uttar Pradesh West Bengal TOTAL

31. 0
5
10
15
20
25
30
LAND AREA VS EMPOYMET OUT OF SEZS
Percentage land area %age employment

32. Direct Employment in Special Economic Zones (As on 31.12.12)
Financial Year Employment*(number of
persons)
2010-2011 6,76,608
2011-2012 8,44,916
2012-2013 10,74,904
2013-2014
(April, 2013 to September, 2013)
11,56,677

33. Some Suggestive Policy Options
 location of SEZs must be such as to promote manufacturing exports.
 Encouragement for modern version of SEZs like free ports, free
coastal zones, setting up of growth poles and clusters should be
encouraged.
 Free ports may be far bigger than the SEZs and should offer a world
class environment in terms of legal framework, regulatory
procedures, infrastructure, production facilities and easy access
 Offering of greater flexibility to firms in terms of plant location in the
zone would encourage the investors’ participation.
 The size of each SEZ should be such as to promote the efficient
provision of infrastructure services, particularly the provision of
power, water and other services.
 Due recognition can be given to the ongoing tariff reform where the
non-agricultural peak tariff is already 10 per cent.
 Efficient investor friendly administration

34. Some Suggestive Policy Options
 While providing approval, prioritization of the zones is needed
according to the strategic importance of the product and
development needs of the region.
 On investment front, encouragement for more Greenfield FDI in the
zone to supplement domestic investment would attract more private
investors.
 While selecting the location, it would be necessary to exclude the
agricultural lands altogether from the promotion of SEZs.
 Establishment of well-balanced compensation and rehabilitation
policy to be designed for displaced people.
 Maintaining a stable and fair tax regime with no special privileges
 Enforcement of good governance in the SEZs with flexible labour
laws

35. References:
1. Aradhna Aggarwal (2005), Performance Of Export Processing Zones: A Comparative
Analysis of India,
2. Arvind Virmani (2005), China’s socialist market economy: lessons of success, Indian
Council for Research on International Economic Relations, April.
3. Edgardo Favaro (2006), Trade in Institutions and the Integration of Small States to the
World Economy, The World Bank, January 6.
4. FICCI (2002), International convention on SEZs, Theme Paper on Driving Growth through
SEZs, New Delhi.
5. Government of India, Annual Report 2005-06, Ministry of Commerce, New Delhi.
6. Foreign Trade Policy, 2004-05 to 2006-07, Ministry of Commerce, New Delhi.
7. Ministry of Commerce web site: http://sezindia.nic.in/.
8. SEZ Act 2005, Ministry of Law and Justice, New Delhi, June 23, 2005.
9. SEZ Rules 2006, Ministry of Commerce, New Delhi, February 10, 2006.
10. Various Press Releases, Press Information Bureau web site: http:// pib.nic.in/.
11. Reserve Bank of India website- www.rbi.gov.in

36. Thank you