SEZ : Bane or Boon for economy

• Presented to: • Presented by:

Ajgaonkar sir 1. Ashish Dixit
2. Shweta
Richharia
3. Pulkit tripathi
4. Vrishad
Shahde
5. Rajashree
radhakrishnan
6. Tahseen
Fatima
What are SEZs (special economic zones)?
• SEZ is a geographical region that has
economic laws that are more liberal than a
country's typical economic laws.
• An SEZ is a trade capacity development
tool, with the goal to promote rapid
economic growth by using tax and
business incentives to attract foreign
investment and technology.
• Today, there are approximately 3,000
SEZs operating in 120 countries, which
account for over US$ 600 billion in exports
and about 50 million jobs.
Why SEZs are set up?
• Considering the need to enhance foreign
investment and promote exports, the
Government of India introduced a policy to
set up Special Economic Zones (SEZs).
• The April 2000 SEZ policy provided
several tax incentives for SEZ developers.
 Main objectives

The main objectives of the SEZ Act are:

• generation of additional economic activity.
• promotion of exports of goods and
services.
• promotion of investment from domestic
and foreign sources.
• creation of employment opportunities.
• development of infrastructure facilities.
Objectives of SEZ
• The Primary objective appears to
facilitate exports
• Secondary objective could be
• attraction of export-oriented Foreign
Direct Investment
• enable Indian entrepreneurs to
operate under international
conditions
• Tertiary objectives could include
creation of global industries and
practices which would eventually spill
over to the mainland
Fundamentals of SEZs

• SEZs (special economic zones) are

fundamentally different from the
traditional free zones.

• They are much larger in size; offer

broader range of activities such as
• a single-window management,
• streamlined procedures,
• duty-free privileges,
• also access to the domestic
market on a duty-paid basis.
Fundamentals of SEZs

• Whether the enclave is termed an EPZ, FTZ

or SEZ, the cardinal factors are
• appropriate infrastructure and transport
facilities,
• low factor cost,
• flexible labour laws,
• convertibility of currency,
• stable legal and administrative regime, and
• a commitment to the canons of an open
economy
 Features
• A designated duty free enclave to be
treated as foreign territory for trade
operations and duties and tariffs
• No licence required for import
• Exemption from customs and central
excise on import of capital goods, raw
materials, consumables, spares etc
• 100% income tax exemption for 5 years,
50% for next 2 years
• SEZ units may be for manufacturing,
trading or service
 Features cont…

• SEZ unit to be positive net foreign

exchange earner within three years.
• 100% FDI in manufacturing, sector
allowed through automatic route barring a
few sectors
• Profits allowed to be repatriated freely
without any dividend balancing
requirement.
• In house customs Clearance.
• Support services like banking, post office
clearing agents etc. provided in Zone
Complex.
Common Features of SEZs

- Duty-free imports of capital goods and

inputs for production for Export
- Liberal access to foreign exchange
- Encouragement to FDI
- Simplified, “one-stop” approvals
- Generous tax concessions esp. in early
years
- Flexible Labour Laws
- Limitations on sales within the country
- Better Infrastructure (Power, Transport &
Communications)
 Rationale for SEZ . . . . In India
Provide Restorative and Concept of V 3 Velocity,

Z
Leading edge Volume and Value

World Wide Max. FDI &

E
Export from Zones

MNC’s Destination

S
for Intra Firm Trading

To Compete Globally
SEZ is the best..??
 SEZs in India

1. Inadequate infrastructure
2. Restrictive policies
3. Lengthy procedures – No Single Window
4. Locational disadvantages
5. Stringent labour laws

- In the 1990s, as a part of reforms, powers

delegated to zone authorities, additional fiscal
incentives were given, policy provisions were
simplified and greater facilities were provided
leading to some, not very significant,
improvements.
Historical background

- From ancient times – Harappan, Roman to mediaeval

times and later
- Small fenced-in areas specializing in manufacturing for
exports
- Modern times – Free ports – Aden, Singapore, Hong Kong
– Difference
- Modern version of export zones starting from Puerto
Rico (USA), Shannon International Airport in Ireland in
1959 – latter considered the first one
- India – Kandla in 1965. EPZs in Taiwan, S. Korea and
other countries
- Since 1979, most extensive, large and successful SEZs in
PRC (China)
- After early start, India slow in following up
- Recent interest in India
Experience with EPZs

- Starting with Kandla in 1965; SEEPZ in 1972, Based

on reviews of working, Cochin, Falta, Madras
(Chennai) and NOIDA in 1984 and Vizag in 1989
- Very limited impact
- Less than 40% of approvals fructified
- Rest cancelled or lapsed
- Employed only 0.01% of labour force
- FDI was less than 20% of total investment
- Accounted for less than 4% of exports. Net export
much lower as imports were over 60% of exports
List of SEZs in India
• The policy provides for setting up of
SEZs in the public, private, joint sector
or by State Governments. It was also
envisaged that some of the existing
Export Processing Zones would be
converted into Special Economic
Zones. Accordingly, the Government
has converted Export Processing
zones located at:
• Kandla and Surat (Gujarat)
• Cochin (Kerala)
• SEEPZ(Mumbai–Maharashtra)
SEZ Policy of 2000
- New Policy in April 2000. SEZs permitted to
be set up in the public, private, joint sector
or by the State Governments
- Minimum size of 1000 hectares (4 sq. miles)
- Main measures were:
• Conditions for automatic approval relaxed
considerably
• Customs procedures simplified
• Units could produce items reserved for
SSI units in domestic market
• 100% FDI investment for manufacturing
• Profits could be repatriated fully
• Freedom for sub-contracting
• 100% I.T. exemption for five years
• Exemption from Central Excise Duty on
capital goods, raw materials, consumable
spares from domestic market
• Reimbursement of CST paid on domestic
purchases
SWOT Analysis for Indian SEZs
• Strengths:
• Skilled Manpower – knows English
• Worldwide acceptance of capabilities in
fields like
• Pharmaceutical manufacturing &
research
• Manufacturing auto parts
• Engineering designing & consultancy,
IT & ITES
• Entertainment etc etc
• Financial & other institutional Networks
• Attraction of a large ‘Indian’ market:
• growing middle class with purchase
power
SWOT Analysis for Indian SEZs
• Weakness:

• Infrastructure bottlenecks –connecting

infrastructure like Roads leading to
SEZs.
• Political changes
• Convertibility of Currency on Capital
A/c
• Red Tape
• Labour reforms
• Zones by & large are still zones not
smart cities.
• Inappropriate locations
• Long gestation period 4 to 5 years in
absence of infrastructure development.
SWOT Analysis for Indian SEZs
• Opportunities:

• An alternative manufacturing base,

particularly compared to Chinese SEZs.
• Services SEZs do not require movement of
input and output physically and hence,
surrounding infrastructure may not matter
much.
• For multi-product SEZs, almost 23 ports are
available. Most of them are likely to be EDI
compliant.
• New small ports & airports are also being
developed keeping SEZ concept in mind.
SWOT Analysis for Indian SEZs
• Threats:

• Loosing edge of low labour costs - many

countries are competing.
• Formation of economic blocks, Effect on
Government Revenues.
• Negotiations for FTAs with many countries
may erode competitiveness.
• The pattern of buying & selling may not
continue. With relocations of industries in
other third world countries, new
competitors will emerge.
 Major Issues
• Land Acquisition

• Role of State Govt. in Land Acquisition

• Compensation Packages to land owners

• Rehabilitation packages for displaced farmers

• State Govt.’s commitment to create infrastructure

• Time frame for operationalisation

• Control over SEZs – MoC or MoF

• Amendments to Laws and Rules

• Falta (West Bengal)
• Chennai (Tamil Nadu)
• Visakhapatnam (Andhra Pradesh)
• Noida (Uttar Pradesh)
• Nanguneri and Tirunelveli (Tamil
Nadu)
• Currently, India has 811 units in
operations in 8 functional SEZs,
each an average size of 200 acres.
8 Export Processing Zones (EPZs)
have been converted into SEZs.
These are fully functional.
NMSEZ - Best positioned SEZ in India

• NMSEZ (Navi Mumbai SEZ) is spread

over an area of approximately 4,377
hectares (around 44 square kilometres).
• Comprises of four zones:
Dronagiri,
Kalamboli
Ulwe
RPZ
NMSEZ - Best positioned SEZ in India
• Proximity to international and domestic
transportation infrastructure.
• Proximity to Mumbai Port, which is also a
major port in the country.
• Chhatrapati Shivaji International Airport at
Sahar, is 60/90 minute away.
• The second Mumbai International Airport
is planned to be set up by 2010.
• Well-connected road and rail linkages -
National Highways (NH3, 4, 8, 9 & 17) link
the area to the rest of the country.
 More SEZs
• Attempts are being made to set up a
Special Economic Zone in
Nandigram, but the villagers have
protested against it.
• Genpact has announced its plans to
expand its presence in Hyderabad
by setting up a Special Economic
Zone (SEZ) across 50 acres in the
city at Jawahar Nagar.
Exports from the functioning SEZs
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%

2006-07 34,787 52.3%

 Export growth

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0
2003- 04 2004- 05 2005- 06 2006- 07
Employments and investments
• (A) Current investment and
employment:
• Investment: Rs. 43123 crores
• Employment: 35053 persons
• (B) Expected investment and
employment (by December 2009):
• Investment: Rs. 2,59,159 crores
• Employment: 17,43,530
additional jobs
• (C) Expected investment and
employment if 341 formal
approvals become operational:
• Investment: Rs. 3,00,000 crores
• Employment: 4 million
additional jobs
 Investments
350000

300000

250000

200000

150000

100000

50000

0
A B C
 Employment
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
A B C
 Barriers
• Inconsistencies in government regulations
• Insufficient comprehensive and well-
knitted internal and backup infrastructure.
• High dependence on outside
infrastructure
• Size does matters (Bada hai to behtar hai)
• Labour Environment
 SEZ: A Boon
• They attract foreign investment
• They help the growth of the export
industry
• They earn foreign exchange
• They provide employment
opportunities
• They help the indigenous
economy improve its level of
technology
SEZ: A Bane
• providing generous tax breaks would divert
existing (or already planned) investment into
these zones. FM calculated the resulting tax loss
at a staggering Rs 100,000 crore (Rs 1,000
billion) .
• It is a safe heaven for tax free investment by rich
industrialists.
• Govt find it as a excuse for not paying attention
to infrastructure problem of the whole country.
SEZ: A Bane
• No freedom from labour laws even
in SEZ.
• The difference between farm land
price and urban property price will
provide Billions for developers.
• According to the laws domestic
investments are also allowed.
• Gift wrapping of valuable farm
land to Industrialists.
• Small size,so no significant benefit
 Conclusion
• Tax Breaks are not too much more than
already given for infra development.
• Minimum size should be fixed.
• Separate labour laws should be prepared
• Fixed apportionment of land for different
purposes.
• Increased control of govt.
• The policy should be revised and benefits
on domestic investment must be reduced.