Special Economic Zone

Oct 12, 2013 1 Comment by

 SEZ and their impact on Indian Economy

 

India was one of the first countries 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 .SEZs are duty free areas for the purpose of trade, operations, duty and tariffs. As per the law the goods which are coming from Domestic Tariff Area (DTA) to SEZs are termed as exports and goods going from SEZs to DTA are termed as Imports into India.

At present there are fourteen functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake (West Bengal), Nodia (Uttar Pradesh), Indore (Madhya Pradesh), Jaipur (Rajasthan).

F            The objectives of SEZs are generation of additional economic activity, promotion of exports of goods and services, promotion of investment from foreign and domestic sources, creation of employment opportunities and development of infrastructure facilities.

F            There are approx. 3000 SEZs operating in 120 countries with over $600 billion in exports. The revenue growth of the SEZs in India accounts for $66 billion which represents 23% of the total India’s exports.

 

Impact on Indian Economy

 

F            The SEZs has helped in the creation of many jobs in the country. Thus these productive jobs will results in huge amount of savings which in turn helps in huge investments and economic growth of the country

F            SEZs have also helped to increase the growth of manufacturing sector in India. Thus due to this there would be more inflows of foreign capital and technology in the country which may lead to increase in the global economy of the country.

F            SEZ Units are free to import from the domestic sources without paying any duty on capital goods, raw materials, consumables, spare, packing materials, office equipment, etc. Adding to this there is an import free duty for 5 years without any license, this would increase the number of imports which would be equalized to the number of exports which in turns increases the national income of the country. And hence GDP also increases.

F            Sales to DTA (Domestic Tariff Area) by SEZ units are subject to all normal import duties. As a result the Small and medium sized enterprises can import at the nominal rate. There by increasing the productivity of the enterprise hence the countries income would increase.

F            SEZs in India covers hundreds of hectares of land. Thus this has an impact on the country’s food production capacity.

F            One of the disadvantage of SEZ in India is that there is a huge loss to the government of India due to the tax holidays given to the SEZ units. Thus this may lead to downfall of the economy of the country.

 

Benefits provided to The Special Economic Zones of the country

F            Income tax benefits for 15 years

F            Duty free enclave throughout the stay in SEZ

F            100% FDI through Automatic route

F            Freedom from industrial licensing

F            No minimum export obligation

 

Indian SEZs have been an attraction for the economic growth throughout the world for attracting overseas technology and investments. These SEZs have helped to generate more than 50 million jobs and exports worth $600 billion

 

 

 

 

The exports of the SEZs increased from Rs 3,64.477.73 Crores to 4, 76,159 Crores in 2012-13 registering a growth of 31% according to latest government data.

The total investments in SEZs rose to $44 billion in 2012-13. The government has so far approved 577 SEZs of which 389 are notified. At present 170 operate across India.

By the end of the year there will be a domestic investment of Rs 75,000 Crore and an FDI of Rs 25000 Crores in SEZs alone.

Problems

  • SEZs failed promote manufacturing sectors and became centers of information technology.
  • Government started offering incentives under the Foreign Trade Policy to exporters outside SEZs
  • Duty Draw Back schemes in which the import duties on the imported raw materials are refunded when the finished goods are exported
  • Focus market and focus product schemes to promote the export of particular goods and to particular geographical regions
  • Tax incentives breach the WTO guidelines that bar financial contribution by government or any public body. Around 33 litigations have been lodged against India.
  • Imposition of Minimum Alternate Tax and Dividend Distribution Tax
  • Reliance, DLF, Essar, L&T, Jindal Stainless Limited & Unitech sending requests for denotifying of SEZs

 

 

Conclusion

The SEZs in India can improve the economic activity of the country by making the country’s export competitive as well as globally noticeable.  Through this it can be a net foreign exchange earner and provide immense employment opportunity, but this should not be done in respect of bringing the agricultural activities, land grabbing which should be properly regulated so that the common man is not the net sufferer.

India should adopt the SEZs pattern of China where majority of SEZs are setup by the government. A Public Private Partnership(PPP) is also a good way of implementing SEZs.

To be economically viable SEZs should have relaxed tax norms, Labor laws and DTA regulations which will attract foreign investment and major industries to setup industries in SEZ zones. And in turn be good for the growth of the economy.

Economy

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One Response to “Special Economic Zone”

  1. Special Economic Zones: I heard in a documentation that India plans around 700 special economic zone, what is it all about? - Quora says:

    […] The tone of your question – "bypassing Indian law and democracy" suggests wariness of capture and corruption by businesses. That is a fair concern. But unfortunately, the failures I talk about is even more first order. Many zones have just not taken off and have not created any wealth for someone to loot!I quote from a news article Government’s policy on SEZ is failingThe Special Economic Zone (SEZ) policy is failing in India. Out of the total 558 approved SEZs, only 158 are operational. On the other hand, many companies, which were allotted land for SEZs are surrendering them.Embed QuoteComment Loading… • 17 Aug 1  Shubham Deva http://52weekhigh.in/… […]

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