Special Economic Zones in India – evolution of policy, SEZ Act 2005

A Special Economic Zone (SEZ) is an enclave area that is deemed to be a territory outside the customs territory of India for its authorised operations. Business and trade laws in SEZs are different from that in the rest of the country, and aim at boosting production. SEZs are growth engines that can boost manufacturing, augment exports and generate employment.

Are SEZs under state government or the central government ?

The SEZ Act, 2005 provides for the legal framework for establishment of SEZs and also for units operating in such zones. Under this act, a SEZ may be established, either jointly or severally by the Central Government, State Government, or any person for the manufacture of goods or rendering services or for both or as a Free Trade and Warehousing Zone. The establishment of an SEZ has to be approved by the Board of Approval constituted under the SEZ Act.
“Land” being a subject in the state list, it becomes necessary for state and central government to work together to establish a SEZ.

Evolution of SEZ Policy in India

India’s SEZs are a key element of the country’s industrial and export promotion policy. Early form of SEZs started in India with the Export Processing Zones (EPZ) model, with Asia’s first Export Processing Zone set up in Kandla in 1965. While initially Export Processing Zones were set up in coastal areas due to their proximity to ports, they are now also established in hinterlands for services exports. The EPZs established before 2000 failed to attract foreign investors, prompting India to introduce SEZs inspired by the already successful SEZ model of China. A uniform legal framework extending to the entire country was established by the SEZ Act 2005.

Issues & Challenges faced by SEZs:

  • 50% of notified SEZ land is lying unutilised, vacant due to sector specific constraints imposed by the laws.
  • There is a lack of coherence between the regulatory regimes of the multiple models of special economic zones such as Export Processing Zones, Coastal Economic Zone, Food Park, Textile Park, Delhi Mumbai Industrial Corridor.
  • SEZs face disadvantage on domestic sales as their products are subject to full customs duty while India’s free trade partners such as ASEAN countries enjoy lesser duties.
  • SEZs are accused of being centres of corruption. SEZ sites are sometimes selected not on the basis of growth and development forecasts, but for personal benefit of local politicians.

Indian SEZs are not functioning at their full capacity. Their regulatory regime needs to be more integrated, especially because ‘land’ comes under purview of state government as per the state list, while at the central level SEZ policy is implemented by the Department of Commerce, Ministry of Commerce and Industry.
More flexibility of land use, rationalisation of regulations and taxes, best rates for domestic sales are some of the measures that could be considered to up India’s SEZs.

More on other websites:
SEZ Act 2005 overview – taxguru.in
SEZ India official website – sezindia.nic.in
List of Special Economic Zones in India – Wikipedia.org
Why India’s SEZ Policy Didn’t Work – Livemint.com

1 thought on “Special Economic Zones in India – evolution of policy, SEZ Act 2005

  1. Pingback: Ministry of Commerce and Industry | broadgk

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