India was one of the first in Asia to recognise the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. Seven more zones were set up thereafter. However, the zones were not able to emerge as effective instruments for export promotion on account of the multiplicity of controls and clearances, the absence of world-class infrastructure, and an unstable fiscal regime. While correcting the shortcomings of the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs) Policy announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
The salient features of the SEZ Scheme are :-- A designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs.
- No licence required for import.
- Manufacturing or service activities allowed.
- SEZ units to be positive net foreign exchange earner within three years.
- Domestic sales subject to full customs duty and import policy in force.
- Full freedom for subcontracting.
- No routine examination by customs authorities of export/import cargo.
In order to impart stability to SEZ regime and to achieve generation of greater economic activity and employment through the establishment of SEZs, a Special Economic Zone Act has been enacted. The SEZ Act, 2005, supported by SEZ Rules, has come into effect on 10th February 2006. Incentives and facilities offered to units in SEZs under the Act, for promotion of investment, including foreign investment include: duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units, 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years, exemption from Central Sales Tax, exemption from Service Tax and single window clearance mechanism for establishment of units.
All the 8 Export Processing Zones (EPZs) located at Kandla and Surat (Gujarat), Santa Cruz (Maharashtra), Cochin (Kerala), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (U.P.) have been converted into Special Economic Zones. Under SEZ Act, formal approvals have so far been given for setting up of 366 Special Economic Zones in the private/joint sector or by the State Governments and its agencies, which include the 142 approvals for which Notifications have been issued.
Benefit derived from SEZs is evident from the investment, employment, exports and infrastructure developments additionally generated. Investment of the order of Rs. 100,000 crores including FDI of US $ 5 - 6 billion is expected by the end of December 2007. 100,000 direct jobs are expected to be created by December 2007. The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition. Stability in fiscal concession is absolutely essential to ensure credibility of Government intension's.
- Exports from the functioning SEZs during the last three years are as under:
- Investment and employment in the SEZs set up prior to the SEZ Act, 2005: At present, 1216 units are in operation in the SEZs. In the SEZs established prior to the Act coming into force, there are 1098 units providing direct employment to over 1.93 lakh persons; about 40% of whom are women. Private investment by entrepreneurs in these SEZs established prior to the SEZ Act is of the order of over Rs. 5844 crore.
- Investment and employment in the SEZs notified under the SEZ Act 2005:
Current investment and employment:
- Investment: Rs. 46075 crores
- Employment: 40153 persons
- Investment: Rs. 2,83,219 crores
- Employment: 21,09,589 additional jobs
- Expected investment and employment if 366 formal approvals become operational:
- Investment: Rs. 3,00,000 crores
- Employment: 4 million additional jobs
| Year | Value (Rs crore) | Growth Rate(over previous Year) |
|---|---|---|
| 2003-2004 | 13,854 | 39% |
| 2004-2005 | 18,314 | 32% |
| 2005-2006 | 22,840 | 24.7% |
| 2006-2007 | 34,787 | 52/3% |
| Projected exports from all SEZs for 2007-08: Rs. 67088 crores | ||
The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the list of Developers who have set up SEZs:
- Nokia SEZ in Tamil Nadu
- Quark City SEZ in Chandigarh
- Flextronics SEZ in Tamil Nadu
- Mahindra World City in Tamil Nadu
- Motorola, DELL and Foxconn
- Apache SEZ (Adidas Group) in Andhra Pradesh
- Divvy's Laboratories, Andhra Pradesh
- Rajiv Gandhi Technology Park, Chandigarh
- ETL Infrastructure IT SEZ, Chennai
- Hyderabad Gems Limited, Hyderabad
