• facebook
  • twitter
SEZ Horizon SEZ Enquiry Advertise with us

Being the first country among Asia to have an Export Processing Zone ('EPZ'), Special Economic Zones' in India need no introduction. India's association with SEZ's has been long and sturdy which can be evidenced from the fact that the First SEZ "no marks for assuming" was set up in the year 1965. In this long journey of 45 years; SEZ's in India have witnessed many up's and down's. In our first edition, I have tried to shed some light and take all my lovely readers on a short tour of this rather amazing journey.

Before we embark upon the journey, let's understand what Special Economic Zone (SEZ) is. So here is a brief introduction:-

What do you think Special economic zone Is? For the Government, it is a source of promotion of exports of goods and services, promotion of investment from domestic and foreign sources; For the business fraternity it is a tool for boosting the development of infrastructure facility; and for the Young India it is a hub of employment opportunities; but to be precise it is a combination of all these factors which had made the implementation of SEZ in India such a huge success.

Poetries apart, SEZ as per the EXIM Policy is defined as follows:

"Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs."

The definition though very simple to read is hard to understand. Let's make a word to word analysis and break open the definition:

  • The word Special mainly means special economic systems and policies. The preferential policy framework within which an SEZ functions is designed to give an impetus to exports and provide the necessary supporting environment to make these export hubs an attractive investment destination point for global as well as domestic players with multi-lateral trade dimensions.
  • The word delineated duty free means demarcated as separate land which enjoys several duty exemptions. Some of them are given:
  • 100% income tax exemption for a block of five years and 50% for the subsequent five years.
  • 100% exemption for subsequent 5 years if the profits are ploughed back for reinvestment into the SEZs.
  • 100% income tax exemption in a block of 10 years out of 15 years for the SEZ developer and co-developer (as per choice of developer).
  • Exemptions from customs and excise duties, VAT, sales tax, service tax, Octroi and local taxes on domestic procurement of construction material, capital equipment, raw material, spares, and consumables as well as imports. **Please note that local taxes / duties which are under the purview of the State Government are governed by the respective State Governments**
  • Exemption on stamp duty and land registration charges.
  • The word foreign territory has been used since all trade inflows into the SEZ are treated as imports and where as all outflows from the SEZ are treated as exports.

Hope the above analysis has clarified the initial thoughts or doubts on the definitional aspect of Special Economic Zones.

When India started its journey on Special Economic Zones, it was in the form of Export Processing Zones which was set up as a tool to promote dwindling exports of India. In the year 2000, as a part of Export-Import ("EXIM") policy of India the SEZ policy was introduced, this christened the name of EPZ's to Special Economic Zones.

Speaking about statistics, there are 143 Notified and operational SEZ's in India and almost 381 SEZ's have been notified and are in different stages of coming into operations.

Now that we have a generic knowledge about Special Economic Zones, it would be interesting to read about the Evolution, growth and current scenario of SEZ's in India, which will be the content of this issue of SEZ Horizon. But before we embark upon or journey, I would like to discuss in brief the issues which SEZ's are currently facing, so that while you read through the magazine you may come up with any pertinent solution and the same can be discussed on our forum http://www.sez-forum.sezindiainvest.com/.

To be honest the initial euphoria about the SEZ's is dimming and the ground realities are popping up their heads. This has made the commerce ministry go into top gear to make this SEZ policy work. The ministry in its efforts has come out with a Discussion Paper to facilitate stakeholder consultation on potential reform of the Special Economic Zone policy and operating framework. The idea is to invite suggestions to make the schemes more attractive and carve out a road map for the future.

So what made the policy makers to go into a huddle?
The present state of the SEZ's will answer this question.

  • Out of 583 formal approvals, only 17 multi-product SEZ's have come up.
  • Information technology and petroleum sectors account for 2/3rd of the total exports from SEZ's.
  • Only six states account for 92 percent of exports from SEZ's and most of them are in urban area.
  • Much of the exports of SEZ have come from units which have migrated from Domestic Tariff Areas to SEZs.

To be brief the current policy of SEZ's has merely facilitated diversion of investments from DTA's to SEZ's. Also with many small SEZ's the expected infrastructure build up has not materialized. The so called Discussion Paper has the following minutes:

  • Proposing to review all land-related aspects of the SEZ policy since land availability for SEZs has become a constraint accentuated by fairly onerous requirements of minimum size.
  • Reduction of minimum area requirement form 1000 hectares to 250 hectares for multi-product SEZs.
  • Allowing SEZs where commercial building exists.
  • Allowing broader category of units to come up in sector-specific SEZs.
  • Treating DTA sales from SEZs on par with imports under Free Trade Agreements.
  • Giving duty credit to SEZ exports on par with exports made from DTA.

The revamping of the SEZ policy assumes significance in the wake of waning interest of developers in special economic zones due to uncertainty over tax incentives. The steps undertaken also substantiates the ministry's statement that "special economic zones (SEZs) could act as a potent instrument to increase the country's shipments and attract more foreign direct investment (FDI)."