Special Economic Zone (SEZ) (GS3)

Historical Background

India’s SEZ Act, 2005: This act provided the legal framework for the establishment of SEZs. It was aimed at enhancing foreign investment and providing an internationally competitive and hassle-free environment for exports.

Previous Initiatives: Before the SEZ Act, India had Export Processing Zones (EPZs), with the first one established in Kandla in 1965. These zones were the precursors to SEZs but had limited success due to several constraints.

Objectives of SEZs

1.Promote Investment: Attract foreign and domestic investment in the region.

2.Boost Exports: Increase the volume of exports by creating a favourable business environment.

3.Generate Employment: Create jobs, thereby contributing to the socio-economic development of the area.

4.Infrastructure Development: Develop world-class infrastructure facilities, such as transportation, communication, and power.

Key Features of SEZs

1.Tax Incentives: Businesses in SEZs enjoy various tax exemptions, including exemption from income tax for a specified period, exemption from customs duties, and other indirect taxes.

2.Simplified Procedures: Streamlined procedures for customs and import/export.

3.Single Window Clearance: Quick and simplified clearance of business proposals.

4.100% FDI Allowed: Full foreign ownership is allowed in most sectors within SEZs.

Types of SEZs

1.Multi-Product SEZs: These zones can host units in various sectors and typically cover a larger area.

2.Sector-Specific SEZs: These are designed for specific industries, such as IT, pharmaceuticals, textiles, etc.

Benefits of SEZs

1.Economic Growth: Contribute to GDP growth through increased industrial output and exports.

2.Employment Generation: Create direct and indirect employment opportunities.

3.Infrastructure Development: Improve local infrastructure, benefiting both businesses and the local population.

4.Technology Transfer: Encourage the transfer of technology and skills from foreign enterprises to domestic firms.

Challenges and Criticisms

1.Land Acquisition Issues: Problems related to acquiring land for SEZs, often leading to conflicts with local communities.

2.Limited Impact on Exports: Some SEZs have not achieved their export targets.

3.Uneven Growth: Benefits of SEZs may be concentrated in certain regions, leading to regional disparities.

4.Regulatory Challenges: Despite the aim for simplified regulations, businesses sometimes face bureaucratic hurdles.

5.Environmental Concerns: The rapid industrialisation in SEZs can lead to environmental degradation.

Recent Developments and Reforms

1.New SEZ Policy: The government is considering reforms to the SEZ policy to make it more effective and to align it with the changing economic environment.

2.Emphasis on Manufacturing: Recent policies emphasise boosting manufacturing through initiatives like “Make in India” which align with the goals of SEZs.

3.Global Competition: Efforts to make Indian SEZs more competitive internationally to attract greater FDI.

The Baba Kalyani led committee was constituted by the Ministry of Commerce and Industry to study the existing SEZ policy of India and had submitted its recommendations in November 2018.
It was set up with a broad objective to evaluate the SEZ policy towards making it WTO compatible and to bring in global best practices to maximise capacity utilisation and to maximise potential output of the SEZs.

Conclusion

SEZs play a crucial role in India's economic strategy by fostering a business-friendly environment that promotes investment, exports, and job creation. Despite some challenges, SEZs have significantly contributed to the country's industrial and economic growth. Continuous reforms and addressing existing issues can enhance their effectiveness and ensure more equitable and sustainable development.