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India is one of the fastest growing economies of the world with 8%+ GDP growth during the years 2006-2011. Even during worst ever economic crisis worldwide, Indian economy proved its resilience and emerged as a stronger and well managed economy with GDP growth rate close to 8-9%. In current financial year, Indian Economy is expected to grow at 7.0%.

India has many advantages like

  • Vast pool of talented manpower,
  • Growing Consumer markets,
  • Thriving democratic institutions,
  • Abundant availability of raw materials and other natural resources,
  • Large domestic consumer base and
  • One of the highest saving rates in world.

All these strengths of Indian Economy make it capable to emerge as an economic giant. Both Manufacturing and Service sector has potential to drive Indian Economy and help sustain a 9-10% GDP growth rate for next 10 years or so, making it among world's top 5 economy by 2020. Experts worldwide believe that India will become world's third largest economy, only behind China and USA by 2030.

However major impediments to economic growth and poverty elimination were controlled economy, regressive tax structure and lack of economic resources. In spite of liberalization process and large scale FDI, Indian Industries are still suffering from many structural inefficiencies and weaknesses such as

  • Inadequate Infrastructure- both industrial and Social
  • Multiple Taxes and Duties imposed by State, Central and Local bodies
  • High cost and Shortage of Power
  • Non Availability of Land for Industries
  • Outdated, onerous and Cumbersome Labor Laws
  • Unstable fiscal regime

Govt. realized these structural inefficiencies and to further augment export, employment and attract large scale private investment from Domestic and Foreign investors, Parliament of India promulgated The SEZ Act, 2005 which was notified along with SEZ Rules in February, 2006. SEZs have been declared as "deemed foreign territories". They are duty free enclaves with virtually no restrictions on investments and import of goods and services. To attract foreign investors and companies, government has offered several incentives such as tax exemptions, access to the domestic tariff area, 100 % FDI, greater flexibility with respect to foreign exchange earnings, single window clearance and fewer procedural issues.

This was one of the major steps in the direction of economic liberalization. China has achieved tremendous economic growth in export, employment and FDI by driving exports through units located into SEZ. People believe that this initiative would be a game changer for Indian Economy.

True to the expectation, SEZ has shown quick results- Exports from SEZ for 2010-11 was Rs.315,867 Crores, up from 22,840 Crores in 2005-06, growth of 43% over previous year and 1382% growth in 5 years. SEZ export is amount to 28% of national exports.

SEZ sector is providing employment to 676,608 people in the country as on 31.3.2011. The total investments in SEZs are Rs.202,810 crores as on 31.3.2011

It was expected that SEZs will be the new growth engines for Indian Economy but SEZ failed to pick up due to many reasons most important them being,

  • Issue of land acquisition- large scale contiguous land required for SEZ was not available. Except some states like Gujarat, AP and Tamilnadu, State Govts had handled land acquisition in a repressive manner resulting into mass agitation and farmers'unrest.
  • Lack of consensus among political parties also played a role of spoiler. Vote bank politics had played a major role in this matter
  • Proposal to withdrawal of tax reliefs was last nail to the coffin of the SEZ policy. Withdrawals of exemptions from MAT and Dividend distribution tax etc. have shaken the confidence of the industrialists in this policy. This has resulted into de-notification of large number of SEZ

SEZ policy was like a dream for Indian entrepreneurs who believed that they would run businesses in a hassle free, transparent and open environment within SEZ but it seems that Govt of India has left SEZs to die their own and its most unfortunate part of this entire story.