“Concept that changed the way Economy
Prof. J Shettigar
STUDY OF SEZ
Sumit Rekhi (13DM195)
Surinder Singh (13DM197)
Tushar Mittal (13DM205)
Udit Jain (13DM206)
Utkarsh Singh (13DM209)
Vishesh Raja (13DM216)
TABLE OF CONTENTS
TYPES OF ZONES.............................................................................................................................. 4
HISTORY AND EVOLUTION OF SEZ.................................................................................................. 5
KEY OBJECTIVES OF SEZ .................................................................................................................. 5
INCENTIVE/ FACILITIES TO SEZ ENTERPRISES ................................................................................. 6
SEZ INSTITUTIONAL FRAMEWORK.................................................................................................. 8
NECESSITY OF SEZ ........................................................................................................................... 9
SEZ IN INDIA.................................................................................................................................. 10
SEZ IN CHINA................................................................................................................................. 13
SEZ IN TAIWAN.............................................................................................................................. 15
INDIA AND CHINA SEZ COMPARED............................................................................................... 20
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone
(EPZ) model 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. A Special Economic Zone (SEZ) is a ge o grap h ica l re gio n
t h at h as 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. The most successful Special Economic Zone is in China, Shenzhen
that has been developed from a small v ill age in t o a cit y w it h a p o p u lat io n
o ve r 1 0 mi llio n w i t h in 2 0 ye ars . Following the Chinese examples, SEZ have been
established in several countries, including India. According to World Bank estimates, as of 2007
there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. SEZs
have been implemented using a variety of institutional structures across the world r a n g i n g
f r o m f u l l y p u b l i c ( g o v e r n m e n t o p e r a t o r , g o v e r n m e n t
D e v e l o p e r , government regulator) to 'fully' private (private operator, private developer,
public regulator). In many cases, public sector operators and developers act as quasi
government agencies. SEZs are often developed under a Public-Private-P art n e rsh ip
arran ge me n t , in w h ich t h e p u b l ic se ct o r p ro vid e s so m e le v e l o f support
to enable a private sector developer to obtain a reasonable rate of return ontheproject.
MAIN OBJECTIVES OF SEZ
(a) Generation of additional economic activity
(b) Promotion of exports of goods and services
(d) Creation of employment opportunities
(e) Development of infrastructure facilities
GOALS OF SEZ CREATION
E n h an ce me n t an d e xp an sio n o f f o re i gn e c o n o mi c an d f o re ign
t rad e activity
Attraction of foreign and national investments
Promotion of export of industrial products
Increasing of competitiveness of national production and its economic
Creation of new work places and increasing employment
Training and increasing of qualification of employees
Active using of modern foreign and domestic technologies
Concentration of scientific and technical personnel, including foreign one,
for development of priority sectors
TYPES OF ZONES
Special Economic Zone
Export Processing Unit (EPU)
Industrial Parks or Industrial Estates (IE)
Free Economic Zones.
Financial Service Zone
Free Port Zone
HISTORY AND EVOLUTION OF SEZ
KEY OBJECTIVES OF SEZ
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
With above mentioned objectives of SEZ in place basic norms or grants that are placed by the
govt. to facilitate the smooth functioning of SEZ are:
Duty-free import/domestic procurement of goods for the development, operation and
maintenance of SEZ units.
Exemption from the Income Tax of the individual countries.
Exemption from the Minimum Alteration tax of the country.
Softening ECB (External Commercial Borrowing) norms of the country.
Minimum level clearance at center or state level.
INCENTIVE/ FACILITIES TO SEZ ENTERPRISES
•Sectoral restrictions on manufacturing sector inapplicable within SEZ
• All SEZ activities on self certification basis
•Single window clearance
•Inter unit transfer of goods permitted
•No routine customs examination of export and import cargo
•Forward looking labour laws under consideration
100% FDI for manufacturing units operating inside SEZs Through automatic approval
route in almost every sector.
100% profit repatriation facility from export earnings
Permission to sell within Domestic Tariff Area (DTA) and an exemption from
a Special Addition Duty (SAD) subject to the company having a positive
Supplies from DTAs to be treated as exports while those from SEZs
to DTAs to be treated as imports
Investments in SEZ treated as infrastructure development and eligible for exemption
local inputs at reduced cost without the excise, VAT and other levies of India
Duty free import of materials for construction, capital goods and goods
SEZ units may import or procure from the domestic sources, duty free, all their
requirements of capital goods, raw materials, consumables, spares, packing
materials, office equipment, DG sets etc. for implementation of their project
in the Zone without any license or specific approval.
Duty free import/domestic procurement of goods for setting up of SEZ units.
Goods imported/procured locally duty fr ee could be utilized over
the approval period of 5 years.
Domestic sale of finished products, by-products on payment of applicable Custom duty.
DomesticsalerejectsandwasteandscraponpaymentofapplicableCustom duty on the
Physical export benefit
100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.
Reinvestment allowance to the extent of 50% of ploughed back profits
100% foreign direct investment is under the automatic route is allowed in
manufacturing sector in SEZ units except arms and ammunition, explosive, atomic
substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic
drinks and cigarettes , cigars and manufacturedtobaccosubstitutes.
No cap on foreign investments for SSI reserved items.
Setting up Off-shore Banking Units allowed in SEZs.
OBU’s allowed 100% Income Tax exemption on profit for 3 years and 50 %fornexttwo
Externalcommercialborrowingsbyunitsupto$500millionayearallowed without any maturity
Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas
investment from it.
Commodity hedging permitted.
SEZ units allowed to ‘write-off’ unrealized export bills.
Benefits offered by the SEZ
The Government of India through the SEZ Policy has made available a basket
of I n c e n t i v e s , E x e m p t i o n s , C o n c e s s i o n s a n d P r i v i l e g e s ( I E C P )
t o t h e S E Z Developers and the SEZ Units. The benefits available to the Developer
and Unit under the SEZ Policy, essentially translate into :
Reduced Cost of Infrastructure
Reduced Cost of Utilities
Reduced Cost of Raw Material
Reduced Cost of Capital
Reduced Cost of Manpower
NECESSITY OF SEZ
The SEZ’s are important in today’s context for the third world countries which have been in the
race for rapid economic growth. There are many positives which emerge out of establishing an
SEZ. Let us have a look on these factors.
For undertaking any kind of massive development program the government requires huge
amount of funds. So it looks out for potential partners to help the government carry out the
program. Now say for setting up an SEZ, the government may tie up with a private partner
whose willing to invest in that area, thus a win-win situation for both. As in the government
gets the capital needed to establish the required infrastructure and also the expertise. The
private player on the other hand gets the right to market and use the SEZ’s with relaxed tax
laws, thereby increasing its revenue generating capacity and also carrying out the economic
growth of the company in a more efficient way with the better tax policies. Actually SEZ’s with
relaxed import tariffs help the Import dependent and export driven industries to flourish by
helping them develop manufactured goods at competitive prices.
SEZ’s create immense employment opportunities. The setting up of SEZ’s creates lot of indirect
employment in terms of labour required. Then after the completion it enables employment in
the relevant industries operating in the SEZ. Then there are lots of indirect employments
generated wherein people start investing around SEZ. For example SEZ’s are townships of their
own; thereby there are shopping malls, restaurants, amusement parks setup around to attract
people, thus resulting in more economic development in that area.
Moreover SEZ’s improve the country’s foreign export. Because of the increased FDI and Private
Equity presence, the local manufacturers get to tie up with these big names and export their
products which now carry a better brand value, therefore helping in creating a greater demand
for the goods of local manufacturers. Moreover the massive capital required for expansion is
brought in form of FDI resulting in increased economic activity.
The increased exports from the country bring in more revenue for the country which improves
the economic growth.
SEZ’s help in creating a balanced economic growth in a country if they are properly located and
implemented leading to tapping of local talent and contributing to increased economic activity
in the area.
SEZ IN INDIA
Asia’s first EPZ (Export Processing Zone) was set up in Kandla in 1965. Seven more zones were
set up thereafter. However, the zones were not able to emerge as effective instruments for
export promotion on account of the multiplicity of controls and clearances, the absence of
world-class infrastructure and an unstable fiscal regime. While correcting the shortcomings of
the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs)
Policy announced in April 2000.
To in still confidence in investors and signal the Government’s commitment to a stable SEZ
policy regime and with a view to impart stability to the SEZ regime and thereby generating
greater economic activity and employment through the establishment of SEZs, a
comprehensive Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and
received Presidential assent on the 23rd of June, 2005. The SEZ Act, 2005, supported by SEZ
Rules, came into effect on 10th February, 2006, providing simplification of procedures and
single window clearance on matters relating to Central and State governments. As a result of
this Act and Rules coming into force, it was envisaged that the SEZs would attract a large flow of
foreign and domestic investment in infrastructure and production capacity leading to
generation of additional economic activity and creation of employment opportunities.
of the SEZ
Tax benefits offered by SEZ are:
Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units.
100 per cent income tax exemption on export income for SEZ units for first five years, 50
per cent for next five years thereafter and 50 per cent of the ploughed back export
profit for next five years.
Exemption from Minimum Alternate Tax (MAT).
External Commercial Borrowing (ECB) by SEZ units up to USD500 million per year
without any maturity restriction through recognised banking channels.
Exemption from Central Sales Tax.
Exemption from Service Tax.
Single window clearance for Central and State level approvals.
Exemption from State sales tax and other levies as extended by the respective state
Employment, Investment and Exports in SEZ
The details of employment and investment generated in the Special Economic Zones are given
Direct Employment in Special Economic Zones (as on 30.09.11) :
1. SEZs in India provide direct employment to over 8,15,308 persons
2. The incremental employment generated by the SEZs in the short span of time since the SEZ Act
came into force in February 2006, is of the order of 6,80,604 persons
Investment in Special Economic Zones (as on 30.09.11):
1. The Special Economic Zones notified under the SEZ Act, 2005 have already made an investment of
` 2,31,159 crore since the coming into force of the SEZ Act in February, 2006.
1. The exports from the SEZs have been to the tune of 2,20,711.39 crore (as in 2010). Exports from
the functioning Special Economic Zones during the 2003-2010 are in Table below:
SUCCESS STORIES OF INDIAN SEZs
1 Nokia Special Economic Zone (Telecom Equipment SEZ)
Physical Exports of USD2.2 billion6 in four years i.e from FY07 to FY10.
Investment of USD0.6 billion has already been made in this SEZ, out of which FDI is USD
Projected investment of USD0.6 billion and projected direct employment of 20,000
2 Mahindra City SEZ (Apparel and fashion accessories; IT/Hardware; Auto-ancillary)
Physical Exports worth USD0.5 billion in four years i.e from FY07 to FY10.
Direct employment provided to 16,257 persons.
Investment of USD0.4 billion has already been made in this SEZ, out of which FDI is
Projected investment of USD0.5 billion and projected direct employment of 57,236
3 Apache SEZ Development India Private Limited (Footwear SEZ)
Physical Exports worth USD31.3 million in four years i.e from FY07 to FY10.
Investment of USD115.4 million has already been made in this SEZ, out of which FDI is
Projected direct employment of 20,000 persons.
4 Reliance Jamnagar Infrastructure Limited (Multi-product SEZ)
Physical Exports worth USD15.7 billion in two years i.e from FY09 to FY10.
Investment of USD8.1 billion has already been invested in this SEZ, out of which FDI is
Projected investment of USD7.6 billion
SEZ IN CHINA
From the 1980s, special economic zones (SEZ) played an instrumental role in the integration of
China to the global economy and in its economic development. Their setting aimed at attracting
foreign investments and technology (many through the setting of joint ventures), provide
employment, utilize Chinese and imported resources, and support capital formation. The bulk
of the output was to be exported to foreign markets, underlining that SEZ were part of an
export oriented strategy that has characterized many Asian economies since World War II
(Japan being the first to develop such a strategy in the region).
The following incentives were offered to foreign investors: Labor. The ability to use the Chinese
vast pool of low cost labor was a powerful incentive to locate in SEZs. Foreign firms have also
the right to hire and fire labor, which was different from the then prevailing Chinese lifetime
system of public or collective firms. Land use. SEZs were physically developed as planned
entities with infrastructures and access to a container port complex (airports played a more
significant role later) so that parts and raw material could easily be brought in for processing
and shipped to foreign markets. A degree of protection of private property was also significant,
since until 2004 there was no constitutional protection of private property in China outside
SEZs. SEZs offered reduced corporate income tax rate, including income tax exemptions for
foreign nationals working in SEZs. No custom duties were levied on imported materials and
parts as long as they were for re-exports.The development of SEZ went through several stages
which were linked with the setting and expansion of major container port infrastructure:In
1980, the first four SEZs were established in proximity to Hong Kong (Shenzhen), Macau
(Zhuhai) and Taiwan (Shantou and Xiamen). Their location was aimed at attracting "overseas"
Chinese capital and also as a showcase for the potential impacts of such a reform. This was
dramatically different from the centrally planned policies that have taken place since the
setting of the People's Republic of China in 1949. These SEZs were also close to Hong Kong, the
only modern port facility of the time, which had effective access to the global shipping network.
By 1984, the SEZ model was judged to be successful and could be expanded. The initial setting
of the four SEZs was solely concerning southern China, so 14 coastal port cities, from the Dalian
to Beihai, were selected to become SEZs. This triggered the development of modern port
infrastructures, particularly container ports, which were essential to support an export-oriented
strategy.The importance of specific economic clusters was acknowledged in 1985 when the
status of SEZ was expanded to the Yangtze River Delta, the Pearl River Delta, and the Xiamen-
Zhangzhou-Quanzhou Triangle (Min River delta). This also provided additional space for the
setting of industrial districts. In time, the Pearl River Delta would become the world's most
important manufacturing cluster. The development of manufacturing clusters was also
accompanied by the development of port terminal clusters in these deltas, particularly for the
Yangtze River Delta and the Pearl River Delta.In 1988, the status of SEZ was expanded to Hainan
Province which mostly developed the touristic and agribusiness sectors, which became the fifth
By the late 1990s, the province would become an important touristic destination for domestic
tourism. Since their inception, SEZs and their positive economic impacts were solely a coastal
endeavor with interior provinces lagging behind. By the late 1980s, a substantial migration of
labor from interior to coastal provinces was beginning to be observed. In an attempt to
counterbalance this trend, six Yangtze River ports and 11 border cities were granted the SEZ
status, in addition to all the capital cities of interior provinces and autonomous regions. Yet,
accessibility to port infrastructures and foreign markets remained the dominant factor in the
dynamism of SEZs and comparatively, limited development took place in interior provinces until
the 2000s.By 1992, 60 SEZs have been set in China, including 5 initial SEZs, 15 coastal port cities,
8 river port cities, 19 inland cities and 13 border cities. Then, the process received wide
adoption, particularly through the coastal provinces of China. Ten years later, by 2005, there
were 210 national development zones and 1,346 provincial development zones. China's
geography of production is therefore strongly coordinated by its proximity to coastal areas and
their capabilities to access global markets through port and airport terminals. The most
successful Special Economic Zone in China, Shenzhen, has developed from a small village into a
city with a population over 10 million within 20 years.
SEZ IN TAIWAN
In Taiwan, the development has received this kind of free economic zones as export processing
zones. The concept of export processing zones appeared on the country in the 60's. While the
bulk of Taiwan's exports amounted to agricultural products. There was no infrastructure
needed for industrial development. To improve the investment climate and accelerate
industrial development, the government took part of the country under the export processing
zones, where the intention was to create industrial infrastructure and to introduce simplified
procedures for investment along with providing tax incentives.
The law establishing export processing zones and management was adopted by Parliament in
January 1965. The first zone is an area of about 68 ha was established in 1965-1968 close to the
port Kaosyung, the following two – in Nantz (98 hectares) and Taygunge (26 ha) – have begun
to operate in 1969. By April 1997 the total number of enterprises in these zones was 220.
Currently planned are three special zones in Chungtao, Chengkunge and Syaokane.
By April 1997 total investment in the three export processing zones in Taiwan amounted to 1.7
billion dollars, of which the joint ventures accounted for 54%, and net foreign and purely
domestic investments – 46%. This indicates that the export processing zones have greatly
contributed to attracting not only foreign but also domestic investors.
In Taiwan, the costs of establishing the three zones, including the purchase and development of
land management and operation of zones, as well as the loss of the budget as a result of
exemptions on taxes and duties amounted to about $ 3 billion
The activities of export processing zones has contributed significantly to the expansion of
foreign trade of Taiwan. In the years 1985-1996 total exports from the zones of greater than $
49 billion, averaging about 4.1 billion year.
In Taiwan, companies are exempt from customs duties on imports of raw materials, spare parts,
components and equipment imported for use by enterprises registered there. In addition,
granted tax holidays on corporate income tax liability. Period covered by this tax benefit in
Taiwan up to 5 years.
In April 1997 directly at enterprises zones worked almost 55.5 thousand people. Job creation in
the zones, in turn, leads to increased employment in ancillary industries beyond.
Revenues of Taiwan in the form of taxes and duties, payment of licenses for construction,
contributions for compulsory insurance of workers, interest on loans reached approximately 5.9
billion Taking into account the wages paid to workers, domestic procurement, payment of
transportation revenues received by Taiwan's three zones, approximately 10.3 billion dollars
Taiwan is also an example of successful use of zones to attract investment and promote
economic and social development.
TAIWAN'S SCIENCE-BASED PARKS
1. The Hsinchu Science Park (HSP) was established in 1980 by the National Science Council
called Taiwan's Silicon Valley. Over 430 companies (including many listed on TAIEX) employing
over 130,000 people are located within the park, and paid in capital totaled US$36.10 billion in
Since 1980, the government has invested over US$1 billion in the park's infrastructure
2. The Southern Taiwan Science Park (STSP) was established in 1996 focus on integrated
circuits (ICs), optoelectronics, and biotechnology.
3. The Central Taiwan Science Park (CTSP) was established more recently in 2003 which
focuses on ICs, optoelectronics, and biotechnology, with the optoelectronics industry
accounting for 78% of its revenue in 2008
These three science parks alone have attracted over NT$4 trillion (US$137 billion) worth of
capital inflow, and in 2010 total revenue within the parks reached NT$2.16 trillion (US$72.8
TAIWAN OTHER INDUSTRIAL PARKS
The Linhai Industrial Park, established in Kaohsiung in 1960, focusing on other industries
including base metals, machinery and repairs, nonmetallic mineral products, chemical products,
and food and beverage manufacturing.
The Changhua Coastal Industrial Park, located in Changhua County, is a newer industrial cluster
with many different industries such as food production, glass, textiles, and plastics
The complete lists of industrial and science parks in Taiwan are:
Central Taiwan Science Park
Hsinchu Science Park
Kaohsiung Science Park
Nankang Software Park
Neihu Science Park
Tainan Science Park
Taiwan Free Trade Zone
Among more than 600 Free Trade Zones and similar special administrative regions throughout
the world, Taiwan FTZ is the most competitive.
The unique geographical advantage, strong transport capacities, the highly efficient customs
clearance system, strong manufacturing capabilities, and the extraordinary B2B infrastructure
of Taiwan enable enterprises to integrate business flow, logistics, cash flow, and information
flow with swift processes in manufacturing, ordering, transport and sales to meet the demand
of supply chain.
Far Glory Air Cargo Park
The Park includes import/export cargo customs clearance, cargo handling, warehousing,
logistic, value-added park, operational display and business conference center.
This Park transports through air, land and sea, and combines logistic, human resources,
business and finance information into one, making it the most competitive Free Trade Port with
cargo Park in the whole world. Hence realizing the vision of entering the world stage with
“Develop Locally, Position Globally”.
Port of Kaohsiung Free Trade Zone
It is an essential point on American, European, and Asian navigation routes– make Kaohsiung
the foremost gateway and cargo hub for Taiwan’s imports and exports.
The Kaohsiung FTZ offers the following advantages:
1. Vast areas of adjoining land, providing opportunities for achieving a multiplier effect
2. Repackaging, processing, and other value-added functions can be expanded in
combination with the offshore shipping center and logistics center mechanisms.
3. With privatization, dock operations offer high-efficiency, low-cost, and high-quality
Port of Taichung Free Trade Zone
Taichung Port Free Trade Zone exploitative area amounts to 536ha, divided into two phases
and three exploitative areas.
This is the first international harbor which has been designed and built by Taiwanese engineers.
Software and hardware construction in Taichung Port Free Trade Zone :
Software and hardware facilities hereunder for free commercial harbor area dealing with
relevant business through computer connection and electronic material transmission mode are
in the process being constructed.
Taipei Port Free Trade Zone
Taipei Port was elevated to be the auxiliary port of Keelung Port on January 8th, 2004. Currently
there are 14 operational wharves, including 2 container wharves.
The overall planning land area reaches 1038 hectares.
Keelung Free Port
Keelung was opened as a commercial port in 1863 and a naval defense headquarters was set up
here in 1872. It has already been more than one hundred years since the port began to
operate. Keelung Port has made great progress and ranks now as one of the major ports of the
Free Economic Pilot Zones
Agricultural goods from mainland China that are currently banned from Taiwan may soon be
imported through Taoyuan airport, six free-trade ports and an agricultural technology park. This
liberalization is part of a plan to promote high-tech logistics, medical services, agricultural
processing and finance.
The first phase of the plan, under which 13 regulations on foreign and mainland professionals,
land use and import procedures will be loosened by year-end.
Phase Two will kick off after a special Act governing the zones' operations, being drafted by the
Council of Economic Planning and Development, is approved by parliament.
The Act is expected to offer businesses tax breaks, free up capital flow and allow the tariff-free
import of previously restricted agricultural and industrial raw materials to be processed and
exported as Made-in-Taiwan products.
One of the anticipated features is that mainland businesses will also be allowed to invest in the
zones, subject to approval from Taiwanese authorities, without being limited to a 20 per cent
stake, as stipulated under current rules.
Taiwan's determination to liberalize trade and join regional free trade areas, namely the Trans-
Pacific Partnership that now gathers 13 countries, including Singapore and the United States,
and the Regional Comprehensive Economic Partnership, comprising 16 states in the Asian
region including Asean members.
Taiwan Strait West Coast Economic Zone
Taiwan is formally known as the Republic of China, including the Taiwan island group.
Fujian is one of the wealthier provinces of China. Xiamen was one of the first cities in China to
be opened up to foreign trade and investment as a Special Economic Zone (SEZ) in 1979.
Because of the closeness both geographically and culturally with Taiwan, the Xiamen SEZ
targeted Taiwan to attract Taiwan business people’s investment and facilitate bilateral trade. As
of December 2005, Fujian received US$ 3.9 billion of foreign direct investment from Taiwan.
Over the past twenty-five years, the Fujian province has maintained close business and trade
connections with Taiwan.
In terms of foreign trade, in 2004, Fujian’s imports and exports registered US$ 47.6 billion, an
increase of 34.6 percent over the previous year. Of that, the exports reached US$ 29.4 billion, a
rise of 39.1 percent; and the imports US$ 18.2 billion, a rise of 27.9 percent.
During the National People’s Congress (NPC) held in Beijing in March 2006, NPC deputies
advocated that Fujian should be defined as a special zone for Taiwan by implementing the
Economic Zone proposal and other political experimental proposals for unification across the
Taiwan Strait which was accepted and Fujian was declared as special economic zone for Taiwan.
INDIA AND CHINA SEZ COMPARED
Indian policymakers' ongoing fascination with special economic zones was inspired by China's
roaring success with these enclaves of galvanized production. New Delhi has sanctioned close
to 200 SEZs. Exactly six Sez have been started in china since 1979, Shenzhen, Zhuhai, Shantou,
Xiamen, Hainan and Pudong.
China's success in attracting oodles of foreign direct investment and becoming one of the top
exporting countries of the world hinged on the careful implementation of its SEZ policy. More
than two decades later, India, too, is trying to tread on the same ground.
There are, however, certain fundamental differences in the Indian and Chinese approaches to
SEZs, which make it difficult to say for sure that Indian SEZs will be able to recreate the Chinese
magic. Size, location, flexible labour laws and stable policies are the factors primarily
responsible for making Chinese SEZs attractive to foreign investors.
In India, it is the fiscal sops being offered to developers and units which are the primary driving
force. The Chinese government started building SEZs way back in 1979. The idea behind the
SEZs was to experiment with liberal policies in certain ear-marked regions while insulating the
rest of the economy from their influence. The government identified huge tracts of land, near
the coastal region, and started building mega cities with all required infrastructure.
Stringent labour laws applicable in China were relaxed in the regions and foreign investors were
wooed with sops and the promise of stability. Though India had a head-start in the direction by
building its first export processing zone in 1969 with certain minimum infrastructure and fiscal
sops (seven more followed later), it could not muster enough political will to build full-fledged
SEZs with foreign territory status in the matters of international trade till the turn of the
In 2000, former trade minister late Murasoli Maran announced that India should try to replicate
the Chinese success story in SEZs and announced an SEZ policy. However, when five years later
the SEZ Act was passed by Parliament and rules were framed, what India had was a policy very
different from China's.
As opposed to five mega SEZs built by the Chinese government (the largest being Shenzhen
built over 49,500 hectares), India opened its doors to private players and allowed sector-
specific SEZs to develop on just 10 hectares of land. As a result, India has as many as 173
operational SEZs with about 55 more having received approvals. The economies of scale, which
seems to have worked so well in China by reducing production costs, may not have the same
effect in Indian SEZs.
In China, the government chose the location for SEZs with a lot of thought with all five located
near the coastal region. This makes it easier for SEZ units to export their products and import
inputs. In India, SEZs are being built all over the country, wherever land can be acquired by
developers. This has also led to allegations of land-grabbing and conversion of productive
agricultural land by developers. This had led the Centre to make it mandatory that all proposals
should have a certificate from the state government notifying that the land being used is non-
agricultural for at least 90%.
Flexibility in labour laws, which played an important role in attracting foreign investors, is
absent in Indian SEZs. This is one of the prices India is having to pay for the advantages of a
federal democratic government.
India has, however, tried to make up for all the disadvantages by offering attractive fiscal sops.
Tax holidays for SEZs in India are longer and steeper than those given by China. This had given
rise to some dissent from the finance ministry which had complained that the fiscal loss would
Issue China India Taiwan
Size Very big. Typically in
hundreds of hectares.
Even 10 hectares will
A mixed bag varying
from 28 hectares to
Location Well thought out and
located only on coasts.
To facilitate exports and
Ports specially those
near to china.
Labour laws Relaxed in the SEZs. Flexibility is totally
Policy regime Experimentation of
liberal policies in the
specified areas while
insulating them from
the rest of the country.
Based on fiscal sops. Policy to liberalize
trade and join regional
free trade areas.
Investors Basically foreigners who
are wooed with sops
and promise of stability
Basically locals. Not
foreign investor driven;
which should have
been the case.
Mix of foreign and local
Commencement In 1979 In 1965 with the export
concept. But failed to
muster courage in
giving these regions
foreign territory status
till the year 2000 when
announced the SEZ
First zone is an area of
about 68 ha was
established in 1965-
Number of SEZ Only six: Shenzhen,
Xiamen, Hainan and
Pudong as of 1979, 212
Any where and any
operational in 2006
and 173 in 2013
Including all the FTZ,
SBIP and FEZ 18 zones
are operational as of
Tax holidays Present. Longer and steeper
than in China
Granted tax holidays on
corporate income tax
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Implications. International Affairs85 (4): 817–835.
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