Special Economic Zones (SEZ) - Meaning & Overview

Special Economic Zones (SEZs) are designated areas within a country that have different economic regulations compared to the rest of the country. These regulations are designed to attract foreign direct investment (FDI) and promote economic growth.

Benefits of SEZs:

• Tax benefits for businesses operating in SEZs
• Lower tariffs and duties
• Simplified customs procedures
• Access to infrastructure and other facilities

SEZs in India:

• Located in specific locations within the states of Maharashtra, Kerala, Andhra Pradesh, Gujarat, Tamil Nadu, Uttar Pradesh, Madhya Pradesh, and West Bengal.
• Controlled by a three-tier structure:
  • Board of Approval (BoA)
  • Development Commissioner (DC)
  • Unit Approval Committee (UAC)

Advantages of setting up an SEZ in India:

• Tax benefits
• Lower tariffs
• Access to infrastructure and other facilities
• Simplified customs procedures
• Conducive environment for foreign direct investment

SEZs play a crucial role in attracting foreign direct investment and promoting economic growth in India.

Special Economic Zones in India

Board of Approval: The supreme controlling body in the department.

Unit Approval Committee: Deals with SEZ development and other related issues at the district level.

Development Commissioner: Controls the unit approval committee.

Features of SEZs:

• Developed by the government, private, and joint sectors, providing equal opportunities to local and international players.
• At least 1,000 hectares allocated for greenfield special economic zones, with no restrictions on favorable areas.
• 100% FDI allowed for all SEZ endowments, except for activities listed under unconstructive records.
• SEZ units are required to encourage net foreign exchange yield and are not entitled to any least amount of additional guidelines or exports.
• Commodity movement from the DTA (Domestic Tariff Area) into the SEZ is known as exports, while the commodity movement from the SEZ into the DTA is called imports.

Types of Special Economic Zones in India

Free Trade Zones (FTZ)

• Tax-free areas with essential facilities for shipping, trading, import, and export.
• Businesses enjoy exempted, reduced, or less controlled rules and regulations on labor, etc.

Export Processing Zones (EPZ)

• Promote the growth of the export business in India.
• Established to help and revive the growth of Indian export commodities, particularly from fast-growing sectors.

Free Zones (FZ) / Free Economic Zones (FEZ)

• Designated by trade and commerce organizations of countries.
• Companies are taxed minimally to encourage economic activities.

Industrial Parks/ Estates (IE)

• Areas planned for industrial development within the country.
• Consist of offices and light industries instead of heavy ones.

Free Ports

• Ports or similar areas with relaxed customs and/or national regulations.
• Special customs areas or territories with less strict customs regulations.

Bonded Logistics Parks (BLP)

• Trade arrangements similar to a bonded warehouse over a particular geographic area.
• Goods can be stored, manufactured, or manipulated without duties or customs.

Urban Enterprise Zones

• Policies to encourage economic growth and development.
• Provide add-ons like tax concessions, reduced regulations, and infrastructure incentives to attract investors and private companies.

Who can set up SEZs in India?

• Any private, public, joint sector, or state government or its agencies can set up an SEZ for hassle-free trade activities.
• Foreign agencies are also allowed to establish SEZs in India with prior approval from the respective state governments.
• SEZs must satisfy certain criteria, such as water and electricity availability.

Locations of SEZs in India

The following are the functional Special Economic Zones in India:

• Santacruz (Maharashtra)
• Cochin (Kerala)
• Chennai (Tamil Nadu)
• Kandla & Surat (Gujarat)
• Noida (Uttar Pradesh)
• Visakhapatnam (Andhra Pradesh)
• Indore (Madhya Pradesh)
• Falta (West Bengal)

Advantages of SEZs to Businesses

Businesses operating in SEZs are entitled to various benefits and incentives, including:

• Duty-free import of raw materials for production
• 100% income tax exemption on export income for SEZ units for the first 5 years, thereafter 50% for the next 5 years
• Simplified operating environment
• No licenses required for imports, including second-hand machinery
• Exemption from Goods and Service Tax (GST)
• Single-window clearance mechanism
• External commercial borrowing by SEZ units up to US $500 million annually

Objectives of the SEZ Act in India

The SEZ Act in India aims to:

• Generate additional economic activity
• Promote exports of goods and services
• Attract investment from foreign and domestic sources
• Develop infrastructure facilities
• Create employment opportunities

Drawbacks of SEZs

1. Loss of Arable Land

The biggest drawback of SEZs is that they often take up arable land from farmers to set up their business activities. This can lead to decreased crop production, resulting in decreased economic growth and reduced GDP.

2. Displacement of Farmers

The displacement of farmers from their land can also have a negative impact on the local economy. Farmers may lose their livelihoods and be forced to move to urban areas in search of work. This can put a strain on urban infrastructure and services, and can also lead to social unrest.

3. Environmental Degradation

SEZs can also have a negative impact on the environment. The construction of SEZs can lead to deforestation, pollution, and soil erosion. This can damage the local ecosystem and make it less hospitable for both humans and wildlife.

4. Lack of Transparency

SEZs are often criticized for their lack of transparency. The government may not always be clear about the terms and conditions of SEZ agreements, and this can lead to corruption and abuse.

5. Negative Impact on Local Communities

SEZs can also have a negative impact on local communities. The influx of new workers into an area can put a strain on local resources, such as housing, water, and healthcare. This can lead to increased crime and social unrest.

Overall, SEZs can have a number of negative consequences, including the loss of arable land, displacement of farmers, environmental degradation, lack of transparency, and negative impact on local communities. It is important to weigh these potential drawbacks against the potential benefits of SEZs before making a decision about whether or not to establish them.