Special economic zone_sez_-_problems_pro

ECONOMIC ENVIRONMENT & POLICY
PROJECT
ON
SPECIAL ECONOMIC ZONES
Problems, Promises and Prospects
Submitted to-
Dr. Prabhat Kr. Pankaj
Submitted by-
Sourav Mukherjee [FT -09-862]

ACKNOWLEDGEMENT
We take this opportunity to convey our sincere thanks and gratitude to all
those who have directly or indirectly helped and contributed towards the
completion of this project.
First and foremost, we would like to thank Dr. Prabhat Kr. Pankaj for his
constant guidance and support throughout this project. During the project, we
realized that the degree of relevance of the learning being imparted in the class
is very high. The learning enabled us to get a better understanding of the nitty-
gritty of the subject which we studied.
We would also like to thank our batch mates for the discussions that we had
with them. All these have resulted in the enrichment of our knowledge and their
inputs have helped us to incorporate relevant issues into our project.
Last but not the least we would like to thank God and our parents for their
cooperation and help.
Sourav Mukherjee

Executive Summary
Choosing a project was not an easy
task considering the fact that there
are presently many socioeconomic
factors whose impact is immense in
the Indian Economic and Financial
Growth. After visualizing the various
aspects, we decided to move forward
with Special Economic Zone (SEZ),
also, currently, the growth rate at
which it is growing provides lots of
hope towards boosting Indian Economy.
India over the past decade has
progressively opened up its economy
to effectively face new challenges
and opportunities of the 21st
Century. To compete in the global
market, the Government of India
(GoI) has liberalized export policies &
licensing of technology and
implemented tax reforms providing
various incentives. As a result, in
2004-2005 exports rose to
Rs.356,069 crores, a 123.8%
increase since 1999-2000. FDI
inflows increased to nearly Rs.
17,267 crores in the calendar year
2004, a 48.6% increase over the
previous calendar year.
Traditionally, SEZs are created as
open markets within an economy
that is dominated by distortionary
trade, macro and exchange
regulation and other regulatory
governmental controls. SEZs are
believed to create a conducive
environment to promote investment
and exports. And hence, many
developing countries are developing
the SEZs with the expectation that
they will provide the engines of
growth for their economies to
achieve industrialization.

To achieve its three-fold objectives
of attracting FDI, increasing exports
and accelerating the country's
economic growth, the Government of
India announced the introduction of
SEZs in its Export-Import Policy of
March 2000. Special Economic
Zones (SEZs) were established in
many countries as testing grounds
for implementation of liberal market
economy principles. SEZs are viewed
as instruments enhancing the
acceptability and credibility of
transformation policies, attracting
domestic and foreign investment and
also for the opening up of the
economy. SEZs in India seek to
promote the value addition
component in exports, generate
employment as well as mobilize
foreign exchange. Globally, many
countries initiated Free Trade
Agreements (FTAs) which eventually
led to a spurt in investments in
infrastructure developments for Free
Trade Zones (FTZs) and SEZs. A
close examination of the evolution of
SEZs in countries with similar
economies as India are China, Iran,
UAE and Jordan, will help us to
understand their success stories
and thereby implement those
factors, in order to curb the SEZ
bottlenecks faced by India today. The
Shenzhen SEZ in China is a perfect
example of a SEZ success story. In
India, the government has been
proactive in the development of
SEZs. They have formulated policies,
reviewed them occasionally and also
ensured that ample facilities are
provided to the SEZ developers as
well as the companies setting up
units in SEZs. These favorable
conditions resulted in the biggest
ever corporate rush for the
development of SEZs in India. Over
234 companies received formal
approval, 162 companies received in-
principle approval and 100 companies
received notification to set up SEZs.
The Indian government is expecting
an investment to the tune of
Rs.53,561 crores (USD 13274
million) and an additional job creation
for 15,75,452 individuals in SEZs by
December2009.

TABLE OF CONTENTS
TOPICS PAGE
Introduction 01
Objectives Of Study and
Methodology
06
Observation and Analysis 08
Conclusion
22
Bibliography and References 25

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Introduction
A Special Economic Zone (SEZ) is a
geographical region that has
economic laws that are more liberal
than a country's typical economic
laws. The category 'SEZ' covers a
broad range of more specific zone
types, including Free Trade Zones
(FTZ), Export Processing Zones
(EPZ), Free Zones (FZ), Industrial
Estates (IE), Free Ports, Urban
Enterprise Zones and others. Special
Economic Zone (SEZ) is a duty free
area which is meant for the
purposes of trade operations, duties
and tariffs for investors. SEZs are
specifically demarcated areas within
the country where raw materials and
capital goods can be imported duty
free from abroad or the domestic
market and a special package of tax
holiday and incentives are given with
a view to boost exports from the
country. Manufacturing and Services
operations are allowed in a SEZ.
SEZs are viewed as instruments
enhancing the acceptability and
credibility of transformation policies,
attracting domestic and foreign
investment and also for the opening
upon the economy.
Special Economic Zones have been
established in several countries,
including India, China,
Brazil, Iran, Jordan, Kazakhstan, Paki
stan, the Philippines, Poland,
Republic of Korea,
Russia, Ukraine, and United Arab
Emirates. Currently, Puno, Peru has
been slated to become a "Zona
Economica". The most successful
Special Economic Zone is in China,
Shenzhen that has been developed
from a small village into a city with a
population over 10 million within 20
years. According to World Bank
estimates, as of 2007 there are
more than 3,000 projects taking
place in SEZs in 120 countries
worldwide.
India was one of the first in Asia to
recognize the effectiveness of the
Export Processing Zone (EPZ) model

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in promoting exports, with Asia’s
first EPZ set up in Kandla in 1965.
With a view to overcome the
shortcomings experienced on
account of the multiplicity of
controls and clearances; absence of
world-class infrastructure, and an
unstable fiscal regime and with a
view to attract larger foreign
investments in India, the Special
Economic Zones (SEZs) Policy was
announced in April 2000. This policy
intended to make SEZs an engine for
economic growth supported by
quality infrastructure complemented
by an attractive fiscal package, both
at the Centre and the State level,
with the minimum possible
regulations. SEZs in India functioned
from 1.11.2000 to 09.02.2006
under the provisions of the Foreign
Trade Policy and fiscal incentives
were made effective through the
provisions of relevant statutes. The
Special Economic Zones Act, 2005,
was passed by Parliament in May,
2005 which received Presidential
assent on the 23rd of June, 2005.
The draft SEZ Rules were widely
discussed and put on the website of
the Department of Commerce
offering suggestions/comments.
Around 800 suggestions were
received on the draft rules. After
extensive consultations, the SEZ
Act, 2005, supported by SEZ Rules,
came into effect on 10th February,
2006.
In India, the government has been
units in SEZs. SEZs in India seek to
promote the value addition
component in exports, generate
employment as well as mobilize
foreign exchange. The Foreign Trade
Policy of Government of India
provides for setting up of Special
Economic Zones (SEZ) in the country
with a view to provide an hassle free
environment for exports. Units may
be set up in SEZ for manufacture of
goods and rendering of services. The

3 | P a g e
units in SEZs have to be a net
foreign exchange earner but they are
not subjected to any pre-determined
value addition or minimum export
performance requirements. SEZs
could be set up in public, private,
joint sector or by State
governments. 100% FDI is allowed in
setting up of SEZs. The government
of India has also converted existing
Export Processing Zones into SEZs.
The minimum size of the SEZs shall
be 1000 hectares except in product
specific and port/airport based SEZs.
Approval for setting up of new SEZs
is given by Department of
Commerce, Government of India. For
setting up units in SEZs, all
approvals are given by a Committee
headed by Development
Commissioner of the concerned SEZ.
For setting up a unit in SEZ,
application in prescribed format
should be submitted to the
development Commissioner.
The SEZ Act deals primarily with the
following matters:
 Establishment of the SEZ and
the various authorities
constituted in this connection.
 Appointment of the Developer,
Co-developers and approval for
units to be located in the
notified area.
 Exemptions, drawbacks and
concessions including
exemptions from customs duty
(on goods brought into or
exported from the SEZ),
excise, service tax, securities
transaction tax, sales tax and
income tax.
 Offshore Banking Unit &
International Financial Services
Centre. Setting up of offshore
banking units / International
Financial Services Centre in
SEZs.
 Notified Offences & Civil Suits.
A single enforcement
agency/officer for certain
notified offences as well as the
designation of courts by the
state governments for such
offences committed in and for
civil suits arising in SEZs.

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The Special Economic Zones (SEZs)
Act 2005 is the culmination of a
Government Policy, which was
introduced as a vision to impart a
globally conducive platform for a
competitive structure of Indian
exports. According to the policy, the
units to be set up in the zones were
required to be net foreign exchange
earners, although devoid of any
restriction as pre-determined value
addition or minimum export
performance requirements. Payment
of full custom duty and import policy
was mandatory for sales in the
Domestic Tariff Area by these units,
with the provision for setting up of
offshore banking units in those
special economic zones. After
considerable success and much
speculation, the Parliament passed
the Special Economic Zones Bill
2005 in May 2005 and with the
assent of the Honorable President of
India, it became an Act on June
23rd, 2005. The Act has led to
expectations of spectacular inflows
of foreign direct investment (FDI)
into the Country over the next few
years, with generation of a 50%
growth in employment opportunities
in the Zones. The projection of the
present employment status in the
SEZs coupled with the future
projection, promises to raise the
employment status immensely by the
coming year. The potential prospects
to create more jobs through the
export activities in the country raise
favorable grounds for the assurance
of employment generation and
promise to attract investment, both
foreign and domestic. The Special
Economic Zones Act 2005
comprises income tax concessions
for both SEZ units and SEZ
developers.
The SEZ Act, 2005 inserted sub-
section (6) in section 115JB of the
Income-Tax Act, 1961 (the Act),
provides that the SEZ units will be
eligible for 100% tax exemption for 5
years, 50% for the next 5 years, and
50% of the ploughed back export
profits for the next 5 years. SEZ
developers continue to get 100%
income tax exemption for 10 years in

5 | P a g e
a block period of 15 years. Other
than such provisions, the Act seeks
to establish free trade and
warehousing zones to create world
class trade-related infrastructure to
facilitate import and export of goods
aimed at making India a global trading
hub, set up offshore banking units
and units in International Financial
Service Centre in SEZs, including
fiscal regime governing the operation
of such units, establish authority for
each SEZ set up by the Central
Government to impart greater
administrative autonomy; and
designate special courts and single
enforcement agency to ensure
speedy trial and investigation of
notified offences committed in
Special Economic Zones
.
A paper cutting of Dec 04, 2007, showing the SEZ at Mumbai (Reliance) and another at Haryana (DLF)
coming to reality

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Objectives of Study and
Methodology
Objectives:-
The objectives of the study in a
nutshell are as follows-
 To analyze the basic concept of
SEZ in Indian Economy.
 To analyze the impact of SEZ
on Indian Economy, as a whole.
 To find the impact of SEZ on
Rural India.
 To find the drawbacks, if there,
of implementing SEZ in India.
Methodology:-
We have used the primary as well as
secondary data for conducting the
study and analysis of our project
work. Primary data mainly composed
of the Impact of SEZ on Rural India
part, where we have talked with
persons from different field and
collected their views and information,
which helped us a lot to broaden our
outlook on the topic. The opinion of
poor people who have lost their land
for SEZ has also greatly enhanced
our views.
Secondary data analysis is commonly
known as second-hand analysis. It is
simply the analysis of preexisting
data in a different way or to answer
a different question than originally
intended. In our project we have
taken the help of the following
secondary data:
 Text-Books (TAXMAN’S Law
Relating to SEZ)
For the purpose of study we
consulted various:

7 | P a g e
 Websites
• Search - Engines
• Encyclopedia
• E - Libraries
 Articles (published and non-
published) written by some of
the great research scholars.
 Journals
 News-Papers/E-news-papers
 Magazine

8 | P a g e
Observation and
Analysis
SEZs have a tremendous socio-economic
impact on Indian economy. SEZs have
contributed to the growth and development
of the Indian economy in terms of exports,
employment and investments. It is the key
growth driver of nation’s economy and has
made the Country globally competitive.
Further, Indian companies are facing tough
competition from global players due to
increased globalization and liberalization
initiatives. The competition is tough from
low cost manufacturing destinations such
as China, Korea etc. To stay competitive in
the changing global scenario, Indian
companies have to redefine their
capabilities with greater cost control and
improved efficiency. The cluster
configuration would enable the tenants unit
to leverage various advantages of
operational synergies and scale economics.
It would assist small and medium companies
to attain a critical mass necessary for
various operational efficiencies. Further,
access to high-end infrastructure and
common facilities would impart global
competitiveness to these industries.
Analysis of SEZ: As a capitalist
tool of Economic Growth and
Development Strategies by
comparing Chinese and Indian
SEZ’s
Analysis of both countries will help to
understand how SEZ worked in China
and how it is difference with respect
to Indian context. Finally, It will help to
understand how far is it contributing
and will contribute to economic growth
of mixed economy like India.
The Chinese started their liberalization
and industrialization with the formation
of SEZs in late 70s and early 80s,
unlike, India, where SEZ is being
incorporated 15 years after the start
of liberalization process. China had a
Master Plan and an economic
framework on how to build and precede
with SEZs, most probably inspired by
the success of Asian Trading Hub,
Hong Kong. The Dragons started

9 | P a g e
building massive cities manufacturing and industrialization
under their SEZ framework. Dragons
also rolled out red carpet for foreign
companies to build and operate from
these SEZs. As the ongoing debate
about them (Indian SEZ and Chinese
SEZ) in India, shows, they’re the
latest example of how ideas that
work just great in Communist China
don’t quite translate so well in
Democratic India.
China SEZs Origin and Success
China’s government first set up
some SEZs in the late 1970s in
southeastern China, with an eye on
luring dollars back to the motherland
from compatriots in Hong Kong,
Macao and Taiwan.
The SEZs were vital to the
development of China’s export
machine. The most successful was
Shenzhen, which back then was a
village on the border of Hong Kong’s
New Territories and now is a
booming city that’s home to high
tech leaders like Huawei and ZTE.
Xiamen, along the coast of Fujian
province, is directly across from
Taiwan and people there speak the
same dialect as many native
Taiwanese. Dell is a big investor in
Xiamen, having just doubled the size
of its PC assembly plant in the city.
Not all of the original SEZs turned
out so well: Shantou, about five
hours by car from Hong Kong, is
home to a university funded by Li Ka-
shing (his hometown is nearby) but
not much else.
Zhuhai, across the border from
Macao, won notoriety in the late
1990s for building a gigantic white
elephant of an airport. While China’s
SEZs are less important today, when
cities nationwide are all vying for
investment dollars, it’s hard to

10 | P a g e
imagine China’s economic boom
developing so quickly without them.
Reasons for Success:
• Unique locations – of the five
SEZs, Shenshen, Shantou and
Zhuhai are in Guangdong
Province adjoining Hong Kong.
Fourth, Xiamen, is in Fujian
Province and nearer Taiwan.
• Large size with government
and local authorities providing
improved infrastructure with
foreign collaboration.
• Investment-friendly attitudes
towards Non-Resident Chinese
and Taiwanese!
• Attractive incentive packages
for foreign investment
• Liberal customs procedures
• Flexible Labor Laws providing
for contract appointments for
specified periods
• Powers to Provinces and local
authorities to frame additional
guidelines and in administering
the Zones.
SEZs in India
Twenty five years later, India’s
politicians have woken up and
suddenly discovered the concept of
SEZs. Parliament passed the bill in
July, 2005. The India was late to the
game. But fact here says that there
is nothing to be worried more. China
has five SEZs, according to India’s
Ministry of Commerce; there are
now more than five SEZs in India. But
that’s just the beginning. According
to Bloomberg’s Andy Mukherjee, “As
many as 267 zones have already
been cleared ‘in principle’ by the
government; out of these, 150
proposals have won final approval.”
But there’s a down side to having so
many SEZs: Critics are angry, saying
that Indian peasants are getting
robbed, losing their farmland to the
industrial zones. Farmer activists
have gone to the Supreme Court to

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stop things. Congress Party’s Sonia
Gandhi has weighed in too. India,
unlike China, isn’t a dictatorship.
India’s leaders can’t just railroad
through policies the way China’s
communists do. But it does seem to
be a shame that India, with a
desperate need to generate more
jobs for people from poor rural areas
left out of the IT services boom,
can’t figure out a way to get SEZs
right.
Experience with Export Processing
Zones (EPZs)
• Starting with Kandla in 1965;
SEEPZ in 1972, Based on
reviews of working, Cochin,
Falta, Madras (Chennai) and
NOIDA in 1984 and Vizag in
1989
• Very limited impact
• Less than 40% of approvals
fructified
- Rest cancelled or lapsed
• Employed only 0.01% of labor
force
• FDI was less than 20% of total
investment
• Accounted for less than 4% of
exports. Net export much
lower as imports were over
60% of exports
The reasons of failure were:
(i) Very Small Size of EPZs
(ii) Inadequate infrastructure
(iii) Restrictive policies
(iv) Lengthy procedures – No
Single Window
(v) Location disadvantages
(vi) Stringent labor laws

12 | P a g e
SEZ Policy of 2000
 New Policy in April 2000.
SEZs permitted to be set up in
the public, private, joint sector
or by the State Governments
 Minimum size of 1000
hectares (4 sq. miles)
 Simplified procedures and more
incentives
 Main measures were:
• Conditions for automatic
approval relaxed
considerably
• Customs procedures
simplified
• Units could produce
items reserved for SSI
units in domestic market
• 100% FDI investment
for manufacturing
• Profits could be
repatriated fully
• Freedom for sub-
contracting
• 100% I.T. exemption for
five years
• Exemption from Central
Excise Duty on capital
goods, raw materials,
consumable spares from
domestic market
• Reimbursement of CST
paid on domestic
purchases
The modern day Special Economic
Zone came in to existence because
the economic reforms incorporated
in the early 1990s did not resulted in
the overall growth of the Indian
economy. The SEZ policy of India was
devised to act as a catalyst to
promote the economic growth
attained in the early 1990. The

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economic reforms incorporated
during the 1990s did not produce
the desired results. The Indian
manufacturing sector witnessed a
sudden dip in the overall growth of
the industry, during the second-half
of 1990s. The History of SEZs in
India suggests that red tape, lengthy
administrative procedures, rigid labor
laws and poor physical
infrastructural facilities were the
main cause of deterioration of
Foreign Direct Investments (FDI)
inflow in to India. Further, the Indian
markets were not mature enough to
facilitate easy entry of Foreign
Institutional Investors (FIIs) in to the
Indian economic system.
Furthermore, the legal framework of
Indian economy was not strong
enough to prevent misuse of Indian
markets by the foreign investors.
Thus, the lack of investor friendly
environment in India prevented
growth of Indian industry, in spite of
implementation of liberal economic
policy by the central government.
This resulted in the formation of a
much larger and more efficient form
of their predecessors with world-
class infrastructural facility.
The History of SEZs in India
suggests that the present day
Special Economic Zone policies of
India are well complimented by the
provisions of the Acts and Rules of
Special Economic Zone. A number of
meetings were held across India for
the formulation of - 'The Special
Economic Zones Act, 2005', which
was subsequently passed by
Parliament in May 2005. The SEZ
Act, 2005 and SEZ Rules became
effective on and from 10th February
2006. The SEZ Act 2005 defines the
key role for the State Governments
in Export Promotion and creation of
infrastructural facilities. A Single
Window SEZ approval mechanism has
been facilitated through a 19
member inter-ministerial SEZ Board
of Approval or BOA. And the decision
of the SEZ Board of Approval is
binding and final.
Some of the important SEZ in India
are as follows -

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• Karnataka Biotechnology and
Information Technology
Services - SEZ on
biotechnology sector in
Bangalore's Electronics City,
over an area of 43 acres
• Shree Renuka Sugars Limited -
SEZ on sugarcane processing
complex covering 100
hectares, comprising a sugar
plant, power station and
distillery, at Burlatti in
Belgaum district
• Ittina Properties Private
Limited and three other -
SEZs in IT sector, covering
electronics, hardware and
software sectors in Bangalore,
over an area of 15.732
hectares
• Wipro Infotech - SEZ on IT /
ITES at Electronics City,
Sarajpur Bangalore
• Hewlett Packard India
Software Operation Pvt. Ltd. -
SEZ on IT
• Food processing and related
SEZ services in Hassan, over
an area of 157.91 hectares
• SEZs on pharmaceuticals,
biotechnology and chemical
sectors in Hassan, covering of
281.21 hectares
• SEEPZ - Andheri (East),
Mumbai
• Khopata - Multi-product,
Mumbai
• Navi Mumbai - Multi-product,
Mumbai
• Salt Lake Electronic City,
West Bengal.
• Calcutta Leather Complex,
WestBengal

15 | P a g e
SEZ’s success saga
India, the government has been
units in SEZs. These favorable
conditions resulted in the biggest
ever corporate rush for the
development of SEZs in India. Over
234 companies received formal
approval, 162 companies received in-
principle approval and 100 companies
received notification to set up SEZs.
The Indian government is expecting
an investment to the tune of
Rs.53,561 crores (USD 13274
million) and an additional job creation
for 15,75,452 individuals in SEZs by
December 2009. Despite all the
efforts, SEZ development has
become the most controversial issue
for India today. It is very important
to understand all aspects of SEZs
such as basic concepts, its various
models and the life cycle of its
business before initiating any policy
or investments for these projects.
Despite the fact that the existing
SEZ Act and FDI Policies for SEZs
are very lucrative; the rationale
behind the rapid economic and
industrial growth the Indian SEZ
policy is being questioned.
India’s Foreign Direct investment is
mostly restricted to the field of
services. This is evident from the
fact that most of India’s FDI of USD
5.3 billion was in services. In
contrast, China attracted FDI of
around USD 27 billion in
manufacturing alone. However, Indian
exports of manufactured products
were only 10% of that of China. This
is, in spite of India having lower
laboring costs. What is holding the
industry back then?
The Global Competitiveness Report
2005 identified poor infrastructural
facility as the main reason for the
bad performance. Where China stood
at a healthy rank of 62 with respect

16 | P a g e
to infrastructural facility, India was
at the 76th position. Global
competitiveness also received a
setback as a result of the high cost
of doing business according to World
Bank reports.
Thus, to solve this problem the
government has come up with the
policy of Special Economic Zones and
around 150 proposals of such zones
have already been put into force.
With respect to the same, The
Special Economic Zone Act, 2005
has been passed; which promises to
reduce red tapes and lower the cost
of business.
SEZs provide for tax exemptions
which cut down the manufacturing
cost to a large extent. Self
certification of exim cargo also
reduces transportation delays thus
resulting in a boost of investments in
the fields of automobiles,
engineering, etc. Since 2005, India
has attracted Rs. 2000 crores as
investment and generated around
1.25 lac jobs. The IT and ITES units
have also provided an impetus to the
real estate industry by giving them
access to the non- processing
areas. According to the laws, there
have to be residential complexes,
malls, recreation centres, etc. to
cater to the needs of the workforce.
The Special Economic Zones are
expected to attract investment
worth USD 30 billion and provide
employment to around 2 million
people.
Drawbacks of SEZ’s
 SEZs will displace and uproot
lakhs of farmers and send land
prices skyrocketing.
 The SEZs make the government
forgo revenue it can ill-afford to
lose, they also offer firms an
incentive to shift existing
production to the new zones at
substantial cost to society.

17 | P a g e
 In the name of free trade and
inviting global investors, we are
going to experience the meagre
benefits rather than mega profits
to our nation, as SEZs are meant
to create incentives for exports
through huge tax-breaks.
 SEZs are duty-free enclaves and
considered "foreign territories" for
the purpose of trade operations
and tariffs.
 Units located in SEZs can import
goods without licence or duties.
 They have unrestricted access to
domestic markets and permit
100 percent foreign direct
investment in manufacturing.
 Profits can be repatriated freely.
 SEZ tax concessions are
handsome, a 100 percent tax
holiday for exporters for five
years, a 50 percent tax-break for
five more years, and a further
five-year tax-break on production
based on reinvested profits.
Besides, SEZ developers will enjoy
a tax holiday for 10 years.
 Large amounts of speculative
capital drawn in by the lure of
quick profits can suddenly leave
the country, causing serious
disruptions in the economy,
including the collapse of financial
markets.

18 | P a g e
This has happened in many countries
history. Still our UPA Government
wants to implement....Who knows
the cut backs in those deals.....!!!As
for the quality of employment, no
labor laws will apply to
SEZs. Workers will enjoy no
freedoms and no rights, including the
fundamental right of association and
peaceful protest. SEZs will be
exempt even from environmental
impact assessment. They will be
under no obligation to employ local
people. Rather, they will have a
largely predatory relationship with
them.
They will deplete groundwater and
other resources. They will be islands
of prosperity amidst deprivation and
acute agrarian distress. Worst of all,
the SEZs are being established
through land acquisition under
special Acts. Unlike earlier laws,
which require that there be a public
purpose behind government takeover
of land, the new Acts mandate
acquisition for private profit and
without land-for-land compensation
or rehabilitation.
The experience of land acquisition
has been extremely negative for
farmers.
SEZs, so eagerly promoted by the
UPA, are turning into a Great Land
Grab, with giant corporations
gobbling up mind-boggling quantities
of agricultural and urban land.
The process has provoked popular
resistance from many states.
SEZs have precipitated tensions
inside the UPA, and rifts in the Union
Cabinet. The United Progressive
Alliance government refuses to learn
from past mistakes -- either India’s
or.other..countries’.
So it would seem, going by its
obsession with pushing through
shop-worn "second-generation" free-
market."reforms".
Based on trickle-down growth, these
include huge corporate tax-breaks,
removal of protection against unfair
labour practices, and cutbacks in

19 | P a g e
public.services. The approach will
further increase class and regional
disparities while leaving unaddressed
India’s biggest problems -- namely,
agrarian distress and unemployment.
The land will be acquired in coercive
ways from farmers at low, if not
throwaway, prices, creating great
social discontent and terrible
inequalities
However, the implementation of such
a policy requires scrutiny. What
happened in Nandigram bears
testimony to the fact that this policy
requires careful implementation.
Consequent to this, they have
become a battlefield all over the
country, with farmers opposing the
forcible acquisition of land.
Even the finance ministry is not
pleased with the idea of tax
exemptions which acts as a huge
loss of revenue. It is believed that in
ten years’ time an investment of Rs.

20 | P a g e
1,00,000 crores will result in a
revenue loss of Rs. 1,50,000 crores.
Industrialists such as Rahul Bajaj
have criticised this policy calling it a
“sophisticated land grab”. There is a
high likelihood that developers would
take advantage of the subsided land
rates and make it a real estate play.
This dream project of the
government has indeed borne fruits.
The export trend shows that since
2005 the exports have risen from
Rs. 34787.5 crores to Rs. 67299.6
crores. Other figures have also
shown that there has been a boost
in investment and employment
opportunities.
A planned cyber SEZ at Gurgaon
Thus, in light of the success of this
policy, it is safe to conclude that
SEZs provide industries with an
effective means of development and
growth. In order to ensure the
smooth functioning of this policy, the
government should formulate
rehabilitation and resettlement
schemes so that this process of
industrialization is not hampered by
social and political obstructions.

21 | P a g e
Sectoral performance of SEZs in India (1990 & 2002)
Zone-wise composition of exports from SEZs in 2004-05

22 | P a g e
Conclusion
SEZ is a very firing topic in the midst
of economic progress. Basically,
govt. sets up SEZ’s to promote FDI
(Foreign Direct Investment) and to
promote exports from the country.
We came to know that SEZ’s are set
up both by public players as well as
by private players. After some
arrangements, they develop some
kind of PPP (Public Private
Partnership), after which, the public
sector starts providing some level of
support in order to enable the
private sectors to carry out their
operations successfully. The concept
of SEZ started by the govt. in April
2000 is bringing a whole lot of boom
in the Indian Economy, as it fetches
foreign currency for the Indian
pockets, thereby promoting trade
between the nations. Also the SEZ’s
are characterized by duty free
imports. They have laws which are
more lenient than the laws prevalent
in the country.
Because of these characteristics,
the businesses of SEZ’s are
touching great heights. As there is
no restriction regarding the imports
and the exports, so particularly the
MNC’s (Multi-National Corporations)
and the International Businesses find
little or no difficulty in setting up
their manufacturing units in SEZ’s
and carrying out their activities
there. They generally have to incur
low costs in setting up the units in
India, and shell- out huge amounts of
profits from the public. The form of
governance present in these zones is
enabling the investments to be made
easier. Also it is seen that because
these zones have received 100%
income tax exemption for a block of
five years, and an additional 50% tax
exemption for two years, so this has
also made their work easier. Also,
they are exempted from the central
sales tax and the service tax. It
means that basically an Indian who
has got the freedom to set up its
production unit in these zones, does
not have to pay any taxes for any
kinds of imports that he will make
regarding the set up. It will indirectly
help in the free flow of goods and

23 | P a g e
services as there are no rules and
restrictions regarding the same.
Also, with the help of these kinds of
exemptions from the govt.’s side,
the economy flourishes and grows by
leaps and bounds. The UPA Govt. is
also in the favour of SEZ’s. It says
that in order to reduce poverty from
the nation, we have to increase the
income, and in order to increase the
income, we have to set up certain
areas where free flow of trade can
take place, where there is minimum
intervention from the side of the
govt., where we do not have to pay
huge taxes every time we carry-out
an activity. Because the general
perception and the general
phenomena from the side of the
public is that though it is true
that the govt. collects taxes from
the public basically to spend it on the
public only through various forms
which otherwise vest in public’s
welfare, but as the taxes are
collected in huge forms, so all that is
collected is not utilized for the
welfare of the public. A lot goes into
the govt.’s pockets, which is
obviously spent in large borrowings
which the govt. takes from the
outsiders. So, they feel that if they
are exempted from the tax and the
strict rules and regulations of the
law, the business can be carried-out
more successfully and in the interest
of the general public. So, the
presence of SEZ’s in the country will
no doubt add to the GDP (Gross
Domestic Product) of the country.
As more and more FDI will come into
the Indian pockets, it will indirectly
lead to a positive turn in the GDP
figures of the nation.
Also, another aspect of the concept
is that it will generate more and
more employment in the economy.
More and more people will get jobs,
as the company which sets up its
production unit there will demand
people to help it carry-out its
operations. It will thereby help in
reducing unemployment from the
economy and will also reduce poverty
from the nation. Though it is not
completely possible to eradicate
poverty from our nation, but we

24 | P a g e
could otherwise make efforts in
reducing it by these kinds of
activities. Also, the presence of
different kinds of zones in the
economy will boost-up the
infrastructure level of the economy.
It will also add to increasing the face
value of the country. And also
because of this, more and more
people outside India will make-up
their minds to invest in India. So, if
we see these SEZ’s from the
profitability side, then it is no doubt
one of the seemingly feasible options
to increase the goodwill of the
country, to eradicate poverty from
the country, to generate
employment, and also will help in
turning on lots of options discussed
above.

25 | P a g e
Bibliography and References
Text Books:
• Managerial Economics, Fourth
Edition
-Craig H. Petersen
-W. Cris Lewis
-Sudhir K. Jain
• Managerial Economics
-Samuelson
• Laws Relating to Special
Economic Zones
-Taxman
Search Engines:
• www.google.com
• www.yahoo.com
• www.yagoohoogle.com
• www.altavista.com
• www.ask.com
Web Links:
• Accessed on 25 May 2007
Guidelines Financial Support to
PPP infrastructure 2007
Secretariat of the Committee
on Infrastructure at
www.infrastructure.gov.in.
Accessed on 15 June 2007.
• SEZ- opportunities and
challenges at-
 http://www.coolavenues.com/for
ums/showthread.php?t=10173
 http://www.managementparadis
e.com/forums/export-import-
procedures/9714-ppt-project-
sez.html
 http://www.thaindian.com/news
portal/business/mukesh-ambanis-
sez-project-in-
trouble_100201399.html
 http://www.indiahousing.com/se
z-special-economic-zones-
india.html
 http://cplash.com/post/Scrap-all-
SEZs-and-let-the-tribals-become-
rich-and-prosperous-so-that-they-
shun-Maoists248.html
 http://punekar.in/site/2009/08/28
/chief-minister-scraps-videocon-
sez-project-at-wagholi/
 http://newsx.com/story/65527
 http://www.destinationmadhyap
radesh.com/mp07/state-
profile/project-reports/new-
projects/Multi-product_SEZ.pdf
 http://www.rediff.com/mone
y/2006/mar/24prime.htm
sourav_mukherjee
souras@gmail.com
+919933100103,+919555225706

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