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SEZs in India: Policies, Problems and Perspectives

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Special Economic Zones in India:
Policies Problems and Perspectives
OCCASSIONAL PAPER - 1
Dr B Yerram Raju
and
Sri Ramakrishna Nallathiga
March 2007
Indian Institute of Economics, Hyderabad
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
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Table of Contents
Introduction 3
International Experience of SEZs 5
Chinese Model of SEZs 7
SEZs in India 10
Performance of Indian SEZs 15
EPZs Vs SEZs 15
Issues for Discussion and Further Action 18
Criticism on SEZ Policy 22
Remedies Suggested 24
Conclusion 25
Annexure A
SEZ Act, 2005 33
SEZ Rules, 2006 33
Setting up of SEZS in Public, Private or joint Sector or by the State
Government 35
Annexure B
Andhra Pradesh SEZ Bill 41
List f Operational SEZs 45
List of SEZs approved for Establishment 47
Annexure C
Industries and Commerce Department Policy framework for SEZs in
Andhra Pradesh Orders Issued 48
Annexure D
Labour Framework for SEZ 54
Appendix IB 60
Appendix IC 61
References 63
Glossary 64
About the Authors 65
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Introduction
India had stuck to a different kind of model for economic development that
focused on import substitution and that emphasized balanced development with large
role played by the state - for a very long time since after the independence. Such policy
was suitable in the initial period of post-independence era as it had to transform the
food deficit nation into a self-dependent food secured nation on one hand and to lay
the foundations for faster growth by building the „modern temples‟ of India. It was
alright when the world was largely polarized and the global economic regimes were
largely caught in the rules formed by the few, the policy stance coupled with
unwarranted controls and bureaucratic bottlenecks acted as deterrents to India‟s
economic progress and caused much frustration to both the consumer and the
producer. Importantly, it led to stagnation of competitiveness of manufacturing sector
and curtailed industrial growth on account of several factors low capital infusion,
low labour productivity, low technological transfer as well as development and,
significantly, low quantity as well as quality of foreign trade. There was a clear
consensus emerging in the early 1990s for a radical shift in the country‟s economic
development policy encompassing sectoral, fiscal, trade and competition policies
particularly those relating to industrial and foreign trade policies.
In this context, the New Industrial Policy of 1991 has heralded „open door‟
policy on foreign investment inflows and technology transfers. It has officially been
claimed that the government policy will be continuity with change’. The key policy
phases are as follows:
1. “Cautious welcome” policy until the mid/late 1960s;
2. “Selective and restrictive” policy from the mid/late sixties to the end of
1970s;
3. “Partial liberalization” policy marked by selective relaxation of controls
during the eighties;
4. “Liberalization and open door” policy since 1991; and
5. “Globalization” policy since 2000.
Trade policies, broadly declared through the Export-Import (EXIM) Policy,
have been moving in tandem with the above-mentioned policy changes. While
liberalization policies adopted after 1991 have almost ended protective policies that
promoted import-substituting Indian industry and facilitated the entry of foreign
players as well as import of foreign goods into Indian market through gradual
reduction of tariffs and other trade barriers, the realization of promoting exports and
improving the competitiveness of Indian products started only in the late 1990s. Some
of the structural changes in this direction included the creation of Special Economic
Zones (SEZ). However, an aggressive and rapid pursuit of these changes led to
optimism on export-led growth on one side and skepticism on land and human related
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issues on the other, raising several questions on the SEZ model, which point to some
institutional inadequacies in the current arrangements and scheme of things.
Given the importance of the subject at this critical moment of time, this paper
intends to set forth in detail the SEZ Policy in the Indian as well as global setting, the
issues that have come to the stage during the course of its implementation and the
procedures for compliance by the intending units in the annexure.
The policy of setting up Special Economic Zones for promoting export-oriented
production in the public, private, joint sector or by the State Governments was first
introduced on 1st April, 2000 in the country with a view to provide an internationally
competitive and hassle free environment for exports in the designated zones, so that
the hurdles involved in the process can be streamlined through these separately treated
instruments. The policy makers‟ initial thinking in 2001 was comprehensive enough to
include even agriculture and horticulture based SEZs, which did not find any mention
in the policy subsequently, and so were the liberal concessions proposed to the
industries located in the zones in the form of full income tax exemptions for the next
twenty years. It was also envisaged during that period that some of the existing Export
Processing Zones (EPZs) would be converted into SEZs by incorporating them in the
Act. Accordingly, the Union Government had converted the EPZs located at Kandla
and Surat (Gujarat), Cochin (Kerala), Santa Cruz (Mumbai-Maharashtra), Falta (West
Bengal), Madras (Tamil Nadu), Visakhapatnam (Andhra Pradesh) and Noida (Uttar
Pradesh) into Special Economic Zones. In addition, 3 new Special Economic Zones
were approved for establishment at Indore (Madhya Pradesh), Manikanchan Salt
Lake (Kolkata) and Jaipur.
However, since after 2002-03 there has been a rapid increase in the interest in
SEZ proposals with active involvement of the State governments as well as private
players. The number of approvals given by the Ministry of Industries and Commerce,
Central Government has steadily increased over time from 18 in 2003 to 27 in 2004 to
41 in 2005, all of which, in principle should have commenced operations. The SEZ
Act, 2005 has played a major role in providing a definite direction and boost to the
sentiment of the private players and the booming of the economy as well as the real
estate/housing sector further asserted the private players that the economic policies
and growth have come in for stay for a long time. Subsequently, the Ministry of
Commerce gave approval for setting up as many as 63 Special Economic Zones in
various parts of the country in the private/joint sectors or by the State Governments,
which are now termed as notified SEZs.
Undoubtedly, SEZs have come to constitute an important aspect of the
industrialization strategy of the developing economies in an era of globalization and its
emphasis on increasing competitiveness and international trade flow. However, they
were also to serve the interests of the nation state through enhanced export earnings
and increased employment levels; also, they were expected to contribute to the overall
development of local economy by activating backward and forward linkages and to
help diversification of the export basket of the local economy. Strong indicators of
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progress in this direction are, however, not visible from the direction in which they are
heading. Some pitfalls associated with SEZs also include the investment diversion
(rather than investment creation) and industrial shifting from domestic area to SEZs as
well as the risk of dumping of low-technology industries into SEZs by foreign players
viz., simple processing industries only, given the provision of generous incentive and
availability of labour at low wages in the host countries. Therefore, besides providing
incentives, the government also needs to keep a watch on check is coming in and what
is going out in order to respond proactively, rather than merely sitting aside and
watching the show; it can also frame disincentives to avoid such unwanted outcomes.
International Experience of SEZs
Several countries have used the concepts surrounding economic zoning i.e.,
EPZ, FTZ and SEZ, for giving a boost to their manufacturing exports and attracting
foreign direct investments (FDI) into their nations. Although SEZs came into India
only about five years ago, the experience of economic zones is not new to countries
across the world (See Box 1 for the experience of a developing country Mexico). It is
claimed that world over SEZs contribute to 15-20% of country‟s manufacturing exports
and in China it is as high as 40%.
Box 1 Mexico’s Economic Zoning Policy
Mexico is a good example of how economic zoning can be used as a policy tool and
mechanism for achieving macro-economic development. In the late 1960s, it initiated the
growth model of export-based border industrialization „Maquildora‟. This was a turning
point for the „Mexican Miracle‟, which was also based on the import substitution policies until
then. Maquildoras were set up on Mexican locations along the border between Mexico and
the USA. The model provided for setting up a 100 per cent foreign owned and foreign-
managed company that may import under bond or free of Mexican import duties all the
machinery, equipment, tools, spare parts requires for its production, and use them to assemble
and produce or manufacture, toally or partially, any product, article or component and export
it from Mexico to any country in the World.
In 1980s, Maquildoras made spectacular growth and drew national recognition when
in 1985 President of Mexico, Miguel de la Madrid, declared Maquildora a national priority
because of its high foreign exchange earning capacity. That year, it surpassed tourism as the
second largest foreign exchange earner. During thirty years since inception Maquildora
industry reached high stage of development with 3200 plants that employed more than 900,000
direct workers. The Mexican private sector played a pre-eminent role in this development.
Bermudez Group of Mexico, a private enterprise, operates 10 industrial parks, Mexican EPZs
in the state of Chihuahua, on the border with the USA, and a US Free Trade Zone in El Paso,
Texas. Its early success in 1960s led other private investors to build Mexican industrial parks
which account for about 70 per cent of Maquildora exports and employment.
It was the economic zoning under Maquildora that proved to the biggest blessing for
the Mexican economy when North American Free Trade Agreement (NAFTA) went into
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effect in January 1994. These industrial parks created almost 800,000 jobs in Mexico and they
provided both infra- and supra-structure to absorb the full range of benefits emanating from
NAFTA for Mexico. The combined impact of economic zoning and NAFTA is evident from
the growth of Mexican exports to the USA constituting 25% of Mexico‟s economy, up from
13% in the earlier period.
Many Asian countries such as Hong Kong, Taiwan, Malaysia, Indonesia and
South Korea adopted the model of export oriented economic growth along with
creation of special export oriented formats such as Export Promotion Zones (EPZs),
Free Trade Zones (FTZs) etc. backed by suitable fiscal and regulatory measures
meanly only for such zones. The model has led to a significant increase in the income
levels of these countries couple with high economic growth rates averaging 7-8% per
annum. In countries such as Coasta Rica, Mauritius and Sri Lanka, these zones had
significant impact on promoting exports, particularly of manufactured products. In the
case of Mauritius, these zones accounted for 62% of the country‟s total export.
Similarly, the Jebel Ali Free Zone in Dubai has accounted for 23% of the United Arab
Emirates‟ outward trade. Describing the role of such zones in Malaysia, the World
Bank observed that
Export Processing Zones, Free Trade Zones and Licensed manufacturing warehouses that permitted duty
free import of materials to be assembled or processed for export were crucial to the successful combination of import
substitution and export promotion. As a result, Malaysia was able to build and develop its electronic production
sector since early 1970s, even though it had no particular skill in electronic production at the outset. The US
manufacturers moved the most labour-intensive part of their production process there. Even though Malaysia could
not design or produce computer chips, it was able to assemble and later, test them both labour-intensive operations.
When Intel invested in Malaysia in 1972, the country was quickly brought into a world-class production system that
drew on its comparative advantage. It now produces much more sophisticated electronic products than it did in the
early 1970s, because Malaysian firms access to the latest technology available on world markets. As a result, wages
for workers in the manufacturing sectors have grown rapidly over several decades.
Table 1 shows the change in the composition of export products between 1980
and 1996 for countries that used export platforms and recorded fastest growth in non-
primary manufactured exports between 1970 and 1996. Adoption of export platforms
led to a dramatic increase in the share of each country‟s manufactured exports in total
exports. Adoption of export platforms led to a dramatic increase in the share of each
country‟s manufacturing exports in total exports. In Malaysia, for example,
manufactured exports increased from 18% to 73% of total exports in 16 years.
Thailand‟s exports increase from 25% to 74% is almost as dramatic, as is the change in
Mauritius from 27% to 66% of total exports. Thus, a basic structural shift from
primary and natural resources exports to manufactured goods exports occurred at an
accelerated rate. In each of these countries, by 1996 more than two-thirds of all
exports were manufactured products.
Table 1 Manufactured Goods Exports as % of total exports
China
Malaysia
Korea
Tunisia
Taiwan
Mauritius
Total manufactured
1980
51.4
17.5
85.6
36.2
83.6
27.3
1996
81.8
73.4
92.2
78.5
93.5
65.9
Textile & Garments
1980
21.3
2.6
29.7
18.4
21.4
19.3
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1996
24.9
4.8
13.3
47.7
10.8
59.5
Labour intensive goods
1980
6.3
0.9
14.2
1.1
25.2
1.3
1996
17.9
3.9
8.9
3.6
8.6
1.4
Machinery
1980
1.5
1.2
3.9
0.4
14.7
0.7
1996
7.4
12.4
10.7
2.1
11.7
0.3
Electronics
1980
0.7
9.2
5.4
1.3
6.1
2.6
1996
9.3
33.7
22.7
7.1
31.4
0
Scale Intensive
1980
6.2
1.4
14.8
13.8
4.7
1.4
1996
8.4
5.2
11.8
13.7
8.8
1.2
Human Capital
1980
6
1.9
17.2
1.2
11.3
1.9
1996
13.8
12.3
22.6
4.1
12
3.5
* Labour intensive goods include toys, sports goods, leather products, pottery, glassware and
lighting/fixtures
Chinese Model of SEZs
Since the dynamics of SEZ initiative in India were initiated based on the
success achieved by China, it is considered necessary to examine what China did in
order to draw a comparison to Indian experiment. It needs to be remembered that
before enacting the SEZ policy, many Indian delegations, including the then Industries
Minister Murasoli Maran, visited the SEZs in China and were overwhelmed by their
success on ground. However, SEZs in China carry a special connotation and meaning
i.e., Economic. It implies that China‟s SEZs are neither Special Political Zones, nor
Special Administrative Areas like Hong Kong, Macao and Taiwan. They are still
under the control of Local Municipal Governments. To some extent, they are
reflective of the aspirations of the Chinese government to ensure that their economy
would not crumble in a free-capital/ free-trade era. Further, China‟s SEZs are also not
the Zones with Social and Economic Systems, but are bundled with some Special
Economic Policies and Special Economic Management systems.
The creation of SEZs in China in 1980s can be considered a milestone in the
Country‟s Economic and Political History, given its ideological orientation to
Communism/Socialism and the historical past of isolated feudal social structure. It
can be argued that China‟s decision to establish SEZs can be seen as due to
a) Economic compulsion to innovate and reform in a rapidly changing world and
the good number of well-off non-resident Chinese living abroad who were
willing to invest in the country‟s economic development.
b) Mao Tse Dong‟s, autarchic Economic Model based on Self-sufficiency had
reached its dithering end and the foundations for SEZs as new economic pillars
were then laid down by the Chinese premiere Deng Xiaping.
c) China viewed the establishment of the SEZs as useful means of accelerating the
development of Export-Oriented Enterprises while simultaneously increasing
local employment and foreign exchange earning.
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The SEZ experiment was conceived in China as a special arrangement for
achieving some long-term goals. These goals are sought to be achieved by China‟s
reformers in establishing the SEZs which would act as a bridge for the introduction of
Foreign Technology, Capital/Investment and Management Techniques to other parts
of China. The third related function of the SEZs is to serve as Centres for learning and
experimentation. On this basis, China could open up a channel for attracting Foreign
Capital from Hong-Kong, Taiwan and those ethnic Chinese settled in South-East Asia.
Since the eighties, China developed six SEZs. The Shenzhen SEZ has been extremely
successful in attracting investment and promoting indigenous exports. Foreign
investment attracted by Shenzhen SEZ is supposedly more than the total Foreign
Investment attracted by India.
The SEZ experiment was started in China first with four zones set up in 1978 in
Shenzen, Zhuhai, Xiamen and Shantou, all of them located along Southeastern
coastline in close proximity to trading and financial centers of Hong Kong, Macao and
Taiwan. The SEZs began to show significant progress only by mid 1980s with the
Shenzen SEZ in Guangdong leading over others i.e., its share of foreign investments
increased from 10% in 1980 to about 50% in mid 1980s. By the end of 1980s the four
SEZs have attracted $ 4.1 billion foreign investments and exported $ 10 billion worth
products. This has further risen to $50 billion FDI in 2000 and took away 25% of FDI
inflows.
The role played by SEZs in China‟s economic growth is evident from the
growth rates of its economy after 1980, which grew at 10.9% since then primarily
because of the SEZs. The growth of FDI between 1990 and 1995 itself has been quite
large - from about 1.7% share in the global FDI, its share reached 11.9% of total capital
flow by 1995. As a result of which China attained a trade surplus of 6%. The
significance of growth of FDI will be more obvious when we look at the share of FDI
in country GDP which increased from 0.9% in 1984 to 16.1% in 1996, which is quite
substantial. Similarly, the share of FDI in exports has increased from 1.1% in 1985 to
20.4% in 1992 and 40.7% in 1996. Even in terms of employment, the contribution of
SEZs has been remarkable. Around 5.4 mn people were employed by foreign
investment enterprises; this is around 2.7% of total employment in 1996 and much
higher than mere 0.05% in 1985 or 0.39% in 1990.
The success of Chinese SEZs point to a new direction and thrust to its reform
policy selectively opening its trade frontiers to the outside world in the following ways:
a) Most Chinese SEZs are supported with World Class Infrastructure.
b) They are strategically located next to Seaports/ and or Airports. Adequate
recreational, entertainment, and Educational facilities are provided in SEZs.
c) SEZs are highly effective efforts in terms of absorbing Foreign Capital,
Importing Advanced Technology and Scientific Management experiences
for expanding export etc.
d) Significant tax incentives are provided to Units in SEZs and there is no tax
payable by new units for the first few years of their operation.
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e) Chinese SEZs are in close proximity to Hong-Kong which serves as one of
the largest markets for goods produced in the SEZs.
In China, SEZs have been allowed Legislative freedom. State Governments and
even local authorities have been granted significant Legislative freedom to enable the
operation of SEZs independently with very little intervention from the Chinese
Government. These zones have emerged as focal points especially for foreign
investments and have attracted FDIs besides contributing over a quarter of country
exports and have served as testing grounds for reforms and policies for Government.
The Chinese experiment with SEZ is not devoid of problems. McKenney
(1993) assessed the Chinese experience of SEZs to draw following conclusions:
As the economic reforms did not happen alongwith the emergence of SEZs, they
were in an insulated condition without the major structural reforms, particularly
pricing and financial system, which affected their performance later, particularly
by raising the costs of doing business.
The laying down of infrastructure and construction of large buildings, bridges and
roads by the government has increased manifold due to the industrial expansion,
which was to be done by the government and financed through public borrowings,
resulting in high indebtness of the central and provincial governments.
The SEZs also have shown trade deficits, which was as high as 20% of the China‟s
trade deficit. The main reason was the infrastructure laying, equipment and their
spares were mostly imported, which resulted in the rise of production costs above
the value of exports.
The geographic concentration of the foreign direct investment was also a matter of
concern. Almost 70% of it came from Hong Kong and Taiwan (to the tune of
$15.4 billion during 1979-89) alongwith the high immigrant worker population (2
million), which was matter of concern from the security and national interests.
China essentially depended on both these countries for investment, management
expertise and knowledge about financial and international markets.
It has to be remembered that the SEZs relied heavily on low wage rates, low real
estate costs and low overhead expenses rather than technological
progress/transfer. The envisaged technology transfer did not take place to the
level it was expected. Moreover, their management lacked the three main
ingredients necessary for promoting technological advance: (a) strategic vision
and strong enterprising spirit (b) courage to take risks and be a pioneer (c) high
level of scientific culture and strong aptitude for management.
The problems of corruption began to grow as early as mid 1980s. Although SEZs
were free enclaves, they were still subject the policies and politics of central
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government by means of controls over exports/imports, foreign currency
availability.
Further, an important drag was the lack of outward look to the world. Being
insulated from the rest of the world, the organization and functioning of Chinese
people was highly influenced by the prevailing communist ideologies, and the
result a lack of gel between the necessary outlook/orientation and prevalent
ideologies that were inward, insular and communist.
There were serious deficiencies in China‟s financial, banking, foreign exchange,
accounting and tax collection systems which prevent the government from
maintaining stable economic conditions through the appropriate use of a variety
of economic tools. The expansion of SEZ concept throughout China without
implementing appropriate measures to control inflation and to ensure equitable
tax policies invites social and economic chaos.
An important factor in the success of China‟s SEZs in spite of the resisting factors
like political system, culture and ideologies was the leadership and strong pursuit
of Deng Xiaopeng. The future of SEZs depended much critically on the support
of political leadership, which may take a turn in case of its changes and any public
disruptions. The maintenance of social order and political drive and overcoming
the deficiencies poses greater challenge to the government in future.
SEZs in India
SEZs have come to constitute an important aspect of the industrialization
strategy of the developing economies like India. The objectives of the SEZs are to
enhance export earnings and employment and, also, to contribute to the overall
development of local economy by activating backward and forward linkages and
helping diversification of the export basket. Unlike China, India is not a command
economy; foreign investors need not to confine to SEZs alone, which make these
zones a little less special than the Chinese Case, whereas the SEZs were the only route
through which foreign investors could enter tChina. Further, India has no equivalent
to Hong Kong or Taiwan, where industries had a pressing need to relocate to low-cost
/economical zones, to which China‟s coast served as a ready relocation base.
Therefore in contrast to the geo-political push and pull factors that also gave impetus
to Chinese SEZs success, Indian case is dependent upon a significantly larger English
speaking population than does China and a skilled man power with technical and
managerial capabilities. India has an edge over a number of key knowledge based
industries such as IT and IT enabled services, engineering products, medical services,
drugs and pharmaceuticals and agro-based industries. Further, India‟s democratic
decentralization still leaves large pockets of economic development imbalances, not
necessarily arid of resources, that would call for policy-makers‟ attention. In other
words, a million rupees employed 5.49 persons in SEZs, against 6 to 7 persons in
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SMEs and 4 in large scale industries per 0.1 mn of rupees. The backwash effect initially
would, of course, be nullified over the stabilization period may be three to five years.
The key objectives of the SEZ Scheme in India are as following:
To give a boost to manufacturing sector, augment Exports, increase foreign
exchange earnings and to generate Employment.
To develop Private Sector participation, which is associated with the
development of SEZs.
To provide readily developed industrial infrastructure as well as residential
infrastructure for setting-up ExportOriented Industrial units.
To provide Self-certification procedure in order to create hassle free
operations.
To Stimulate the inflow of Foreign Direct Investment to India.
To up-grade technological as well as managerial skills.
To transfer skills and technology and attract investors into specific skills
regarded as strategically important to the economy e.g Electronics, IT, R&D
and HRD to kick start the economy.
To create backward and forward linkages with local economies and,
thereby, contributing to the regional (provincial) economic development.
Indian SEZs are, therefore, likely to develop along quite different lines from
that of the Chinese; Indian zones will more likely attract investments at the high-end,
human skill based industries and services sector industries. Some of the Indian States
like A.P, Tamilnadu, Rajasthan etc have a parallel SEZ legislation, which may make
the investor compliance more complicated than that in China where there is only one
Act to comply. Further, the federal structure of India will inevitably pose some
different issues. The States are more powerful in this structure and they are also
important instruments of the SEZ policy implementation viz., getting the SEZ
proposals from developers and providing all necessary support to the developers in
seeking approval from the Ministry of Industries and Commerce. Here, the State
Governments may trespass the jurisdiction of local governments and they may even go
against the interests of local people if the stakes on the project are very high; this has
been the case of some SEZs in the recent past. There are also several laws of land of
the State that are applicable to the SEZs, which expose them to an uncertainty to some
extent on the part of clear policy over the development of SEZs.
A possible reason for our inability to fully cash on the potential of SEZs may be
because we err in identifying and also addressing critical missing linkages as the
experiment has not been thought of carefully and its structure, operational rules and
players are continually changing. For example, although SEZs were initially though
of as diverse conglomerates of industries within a zone, the policy stance has now
shifted to encourage both mult-product SEZs as well as specialized/ uni-product SEZs.
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Although land is an important and integral part of SEZ development, an inventory and
resource base of suitable land and its location has not been prepared and neither the
consequences of land acquisition were thought well at the outset. This not only leads
to conflicts but also uncertainty to the businesses and investments that are expected to
come into SEZs. In spite of a stable macro-economic environment and strong policy
initiatives, there are numerous operational issues that may prop up and various legal
and institutional aspects that are missing might pose a greater resistance than
anticipated. To illustrate the complexity, our SEZ Policy runs into two big volumes,
whereas it is supposed to have been only a few pages. Singapore, for example, has
hardly any taxes whereas India has fifty but Singapore‟s rate of revenue collection is
more than India‟s, which points to weak enforcement mechanisms of our institutions
and possible leakages both taxes and products meant for export. Therefore, a lot of
improvement on both institutional and governance fronts is needed to be placed so that
the stumbling blocks at the implementation level are met more than adequately.
Yet, there are advantages of the SEZs, some of them are as follows. The salient
features and facilities of Indian SEZ are shown in Box 2.
[1] It could reduce the transaction cost for the exports and provide hassle-free
export and trading environment.
[2] The possible introduction of FDI in all sectors of the trading economy is one of
the priority items under implementation.
[3] Trade with our neighbouring countries under SAFTA is to be accelerated
through reduction in duties and improved infrastructure at the borders.
[4] Trade and investment Agreements with Singapore, Mauritius, ASEAN, Japan,
Korea and EU are expected to provide more market openings for Indian
exporters.
[5] There is a need for the Indian exporter to export Value-added Products and
enter the distribution channels in the Developed Countries to provide more
value for our exports and SEZs would fructify that.
[6] SEZs are considered as engines of growth, which would lead to creation of
employment on a large scale through the generation of additional economic
activity, development of infrastructure, promotion of investment and exports of
goods and services.
[7] Detailed rehabilitation packages beginning with skill formation, upgradation
and engaging local people (including women) in the developmental activity
have ensured direct and indirect benefits.
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Box 2: Indian SEZ - Salient Features and Facilities
» A designated duty free enclave and to be treated as foreign territory for trade
operations and duties and tariffs.
» No licence required for import.
» Exemption from customs duty on import of capital goods, raw
materials,consumables, spares etc.
» Exemption from Central Excise duty on procurement of capital goods, raw
materials, consumable spares etc. from the domestic market.
» Supplies from DTA to SEZ units treated as deemed exports.
» Reimbursement of Central Sales Tax paid on domestic purchases.
»100% income tax exemption for a block of five years,50% tax exemptions for two
years and upto 50% of the Profits ploughed back for next 3 years under section 10-
A of Income tax Act.
»Supplies from DTA to SEZ to be treated as exports under 80HHC of the IT Act.
»carry forward of losses
»100% Income-tax exemption for 3 years & 50% for 2 years under section 80-LA
of the Income-tax Act for off-shore banking units.
» Reimbursement of duty paid on furnace oil, procured from domestic oil
companies to SEZ units as per the rate of Drawback notified by the Directorate
General of Foreign Trade.
» SEZ units may be for manufacturing, trading or service activity.
» SEZ unit to be positive net foreign exchange earner within three years.
» Performance of the units to be monitored by a Committee headed by
Development Commissioner and consisting of Customs.
» 100% Foreign Direct Investment in manufacturing, sector allowed through
automatic route barring a few sectors.
» Facility to retain 100% foreign exchange receipts in EEFC Account.
» Facility to realize and repatriate export proceeds within 12 months.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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» Re-export imported goods found defective, goods imported from foreign
suppliers on loan basis etc. without G.R. Waiver under intimation to the
Development Commissioner.
» "Write-off" of unrealised export bills upto 5%.
» Commodity hedging by SEZ units permitted
» Capitilization of import payables
» under_con.aspNo cap on foreign investment for SSI reserved items.
» Exemption from industrial licensing requirement for items reserved for SSI
sector.
» Profits allowed to be repatriated freely without any dividend balancing
requirement.
» Domestic Sales on full duty subject to import policy in force.
» No fixed wastage norms.
» Full freedom for subcontracting including subcontracting abroad.
» Subcontracting facility available to jewellery units
» Duty free goods to be utilized in 5 years.
» Job work on behalf of domestic exporters for direct export allowed.
» No routine examination by Customs of export and import cargo.
» No separate documentation required for customs and Exim Policy.
» In house customs Clearance.
» Support services like banking, post office clearing agents etc. provided in Zone
Complex.
» Developed plots and ready to use built up space
» Exemption from Custom/Excise Duty on goods for setting up units in the zone.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
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Performance of Indian SEZs:
As on 31.3.05, there are 811 units in operation in the 8 functional SEZs.
Investment by the units in these Zones is of the order of Rs.18,309 million. The SEZ
units provide employment to about 100,650 persons out of which 32,185 are Females.
The export performance of the SEZ is shown in table 2.
Table 2 Exports from Special Economic Zones are in India-
Name of the Special Economic
Zone
Exports 2003-2004
(Rs in crores)
Exports 2004-2005
(Rs in crores)
Kandla SEZ
1018.82
1060.14
SEEPZ-SEZ
7832.81
8298.59
Noida SEZ
1534.17
4266.00
Madras SEZ
1037.96
1376.91
Cochin SEZ
298.91
462.99
Falta SEZ
825.34
569.15
Visakhapatnam SEZ
435.67
579.27
Surat SEZ
869.90
1539.72
Manikanchan SEZ
---
95.54
Jaipur SEZ
---
5.27
Indore SEZ
---
55.02
Total :
13853.58
18309.00
EPZs Vs SEZs
(A) Comparison of SEZs with EPZs and EOUs
An Export Processing Zone (EPZ) is defined as a delimited geographical area
or an export oriented manufacturing or service enterprise located in any part of the
country, which benefits from Special Investment, Promotional incentives, including
exemptions from customs duties and preferential treatment with respects to various
fiscal and financial regulations. EPZs were an integral part of industrailisation
strategies of few countries in the East Asia and East Europe, and to some extent in
American continent. They are also known as Enclaves (Honduras), Special Economic
Zones (China), Special Export Processing Zones (Philippines) etc. However, EPZs
were essentially industrial clusters or industrial complexes with basic industrial
infrastructure in place but are largely devoid of any planning done for human
inhabitations and civic infrastructure.
Enclave Zones may be considered the First-generation Zones artificially located
in diverse locations to protect domestic industry from foreign competition. Enclaves,
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
16
however, were not selected on economic criteria/rationale but were aimed at
generating foreign exchange from the industrial operations in those zones catered to
the export needs and hence failed in attracting investment on a large scale and were
largely driven at the will and wish of the governments. Cumbersome procedures for
setting up and running a business were simplified in these zones through the creation
of “one stop shops”, and high quality physical infrastructure was put at the disposal of
investors in order to attract investors.
Export Oriented Units (EOUs) are the entities of Indian construct to distinguish
them from those industrial units that were primarily catering to the domestic
consumption demand. However, the process involved in their identification and
authorization inevitably led to the licenses playing a bigger role in putting
manufactured goods in export line.
EPZs gave entrepreneurs the opportunity to internationalize their operations by
locating the labour-intensive production segments of their Global Commodity Chain
or service activities offshore. EPZ operating countries offer the investors financial
incentives, infrastructure, cheap labour and market access. It was expected that zones
will contribute to overall development and employment creation and spur economic
growth through generation of backward and forward linkages. However, EPZs also
suffered from some of the limitations faced by the Enclaves and also lacked the
ingredients and conditions suitable for their success on a large scale. They did not
offer diverse and very large industrial space required by large scale industrial
operations and confined to small to medium scale and processing units that are run on
cheap labour, tax sops and limited infrastructure; but, they were the only channels of
export trade in a relatively less open world during 1980s and 1990s. Moreover, the
employment generation potential of the EPZs was largely limited.
EPZs and EOUs formed the main stay of industrial / trade policy until the
SEZs came to fore in the EXIM Policy of 2002-07, which also announced a number of
measures to promote exports that included additional features for SEZs: a farm-to-port
approach for exports of agricultural products, a special focus on the cottage industries
sector and handicrafts, the introduction of scheme entitled Assistance to States for
Infrastructural Development for Exports (ASIDE), and various other export
promotion schemes. By March 31st, 2000, there were 708 EPZs in the country
employing approximately 80,000 persons. The key features of EXIM Policy include:
No minimum export performance or Net Foreign Exchange Earning as
Percentage of Exports (NEEPF) as for EPZ/EOU.
Corporate Tax holiday upto year 2010
Hundred percent FDI through automatic route available to SEZ Units,
whereas in EOU/EPZ approval is required by FIPB
Retention of 100 percent of export earnings in EEFC accounts for SEZ, while
it is 70 percent for EPZ.
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Profits allowed to be repatriated freely without any dividend balancing.
Export proceeds to be realized and repatriated within 12 months for SEZ and
six months for EPZ.
Exemption from Custom and Excise duties for both imports and domestic
procurement of goods including raw materials for setting up and running of
units. This subsidy is not available to EPZ units.
Reimbursement of Central Sales Tax paid on domestic purchases.
No routine examination by Customs of export and import cargo for SEZ,
unlike in EPZ, and EOU.
No fixed ceiling on Domestic Tariff Area (DTA) sales for SEZ, it being 50 per
cent of exports for EPZs and EOUs.
Duty to be recovered in case of failure to achieve positive NFEP in proportion
to shortfall, unlike in EPZ units.
All imports on self-certification, while EPZ/EOU require attestation.
Duty-free material to be utilized over five years in SEZ, the time span being
one year in EPZ/EOU.
Full exemption in electricity duty and tax on sale for self-generated and
purchased power.
Reservation policy for small-scale sector not applicable to SEZ units.
Procedural simplification for all operations including record keeping, inter-
unit transfer, disposal of obsolete and waste material, and also sub-
contracting.
Sub-contracting to be officially and freely permitted in SEZ units, an incentive
not allowed in EPZ/EOU.
Job work on behalf of domestic exporter allowed for direct exports.
Powers under Industrial Disputes Act to be with Development
Commissioner.
SEZ to be declared a Public Utility Service under the Industrial Disputes Act.
Off-shore banking units (OBU) be permitted in SEZs.
Units in SEZs should be permitted to undertake hedging of commodity price
risks, provided such transactions are undertaken by the units on stand-alone
basis. This will impart security to the returns of the Unit.
External Commercial Borrowings for a tenure of less than three years are
permitted in SEZs. This will provide opportunity to access working capital
loans for these units at internationally competitive rates.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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(B) SEZs as Legacies of EPZs and Beyond
The concept of SEZ certainly includes EPZ (most of the EPZs are now
converted to SEZs) but goes beyond it in its scope, coverage and function. Besides
bringing in the foreign exchanges and serving foreign interests, the SEZ was intended
to cater to the economic development needs of regions (provinces) and local areas.
They were to provide good backward linkages with local economy in the form of
demand for sub-contract goods and services for various basic and intermediate goods
to be used in the production as well as in the development of SEZ, including those
that for the infrastructure and real estate development within the zone. Further, they
SEZs are also supposed to cater to the domestic needs of finished goods/ products,
partially, as they are allowed to sell part of their production in the domestic tariff area
(DTA), and, thereby, develop forward linkages with the local and regional economy in
the form of supply and distribution chain.
The Indian experiment of SEZs took the leaf from the Chinese model, but it
differed from the Chinese model, wherein the State (or, Central Government) itself
engaged in the SEZ development and local governments acted as administrators and
supervisors of the performance of SEZs. However, an important macro policy step
taken by Indian government in the recent past is to reduce fiscal expenditure and
withdraw from those economic activities wherein private sector can play a major role.
Consistent with this policy, the SEZ development was left to the private developers,
who would use their own private resources capital, machinery, labour and raw
material to develop the SEZs. As the SEZ development would involve large amount
of investment capital, emphasis was also laid on attracting investments from abroad
(both direct and institutional investments) through liberal tax sops and undertaking the
facilitative role in the matters like mobilization of land and employment of labour
(through amends to current labour laws). It is these aspects that have come under
scanner now for the controversy that has arisen and rapidly spreading now.
The first controversy surrounds whether the tax sops and incentives were
„unnecessary giveaways‟. This argument has arisen after the Central Board of Direct
Taxes has given a report stating that the cumulative tax revenue losses from the
various tax sops and incentives given to SEZs amount to as high as Rs 100,000 crores
and above. However, while looking at the potential tax losses, one cannot ignore the
amount of investments that would come into SEZs and the employment that would
get created out of them; they cannot be considered as subsidies either. If the SEZs can
bring in a more than compensating formal sector (or, skilled) wage jobs, their role
cannot be questioned, as besides jobs they achieve a very high turnover of exports.
The scenario of achieving high turnover of exports is very much feasible, given the fact
that India‟s share of exports to world trade is very low.
It is the validity of labour laws and other such mechanisms to check the
exploitation of labour that are fraught with some tough questions. The investing
companies seem to be begging for adequate professional, technical and management
skills, especially in human resource management. The production cycles of export
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orientated production are different from that of domestic, as they work on the time
lines of target countries, which inevitably involve using labour either for longer hours
or in more shifts. As it raises the costs of production, the exporters may concentrate
more on containing labour costs instead of improving productivity. It is therefore
important to create right kind of organization principles and human resource practices
in place. Country experiences show that there is no conspicuous change in the mind-
set of the governments and investors in their approach to the human factors in the
SEZs. In India, although in theory, all labour laws apply to EPZs, Trade Unions have
pointed out that the public utility status given to the enterprises in the zones results in
some restrictions on collective bargaining. Certainly, the employment terms and
conditions have to be monitored and surveillance carried out by a public agency with
full cognizance of the international norms and practices and penalties imposed on the
inhuman practices and sub-standard working conditions.
In a developing country like India, dignity of labour and living are not well
recognized and the institutional mechanisms in the form of social security measures to
protect them are largely not in place. As a result, the labour has a poor bargaining
power. The basic facilitation in SEZs is the liberality in labour legislation but without
social security measures being in place. The fond hope should be that the firms in
SEZs do not abuse the freedom they are likely to enjoy in managing their affairs to that
it further undermines the human dignity. It has been noticed that some of the SEZ
firms employ illiterate women from poor families and also male labour on temporary
basis without proper appointment letters, which renders them in insecure employment.
Appalling working conditions, especially for women in difficult activities like fish
processing, have been highlighted. Though SEZs are expected to promote formal
sector employment, work arrangements in practice continue to be informal and there is
a large turnover of female employees. Therefore, monitoring mechanisms for
observing working conditions of the labour shall also be placed and the bad practices
need to be challengeable in court of law or alternative forums of justice.
More than the above two it is the land related issues that have become much
more controversial and the SEZ bogey received severe jerks on account of this (see Box
3 for a detailed series of events that were triggered in India in the recent past).
According to the industrial policy of government, any industry interested in investment
can itself procure the land for said purpose or approach State government for the same.
The State government will then procure the land on behalf of the industry, given its
ability to negotiate with large number of retail sellers and the powers vested under land
acquisition act.
It is the former course of action that would be more acceptable if the State
government legitimately makes efforts to bring all or majority of land holders agreeable
to land transfer at a „fair price‟. It is difficult to arrive at the „fair price‟ of land as
potential market prices are unobservable and most public records of land price do not
truly reflect its value. Therefore, it is better to subject to the negotiation between the
industry and land holder and, here, the State government has to ensure that the land
holder, who has little understanding of the lost value of land, will get a rewarding price
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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by negotiating on his behalf. However, the recent experience has been the opposite;
the State governments have obtained at x price and sold to industry at 10x price,
which make them worse than a real estate agent or broker. The credibility of the
government is lost in this process and yet some politicians and civil servants might be
more enthusiastic, or belligerent, about making the deal happen rather than be the
guardians of the poor land holder.
Apart from the price issue, it is pointed whether land can be acquired under
land acquisition act. First of all the act itself is archaic and is a inherited from colonial
rule that viewed land as a revenue source. The foundations for the law unearned
increment to land holder can be recouped by government is itself flawed as it clearly
violates land markets and market mechanisms of price formation. Further, this
„eminent domain‟ law only empowered land acquisition for public purposes (strictly
speaking, for civic infrastructure/ planning purposes), whereas land acquisition for the
SEZs definitely do not constitute public purpose (rather, it is land acquisition for
private purpose at public price). Therefore, the government should make a patient and
sincere effort to facilitate negotiation and bargain between land holders and industry
rather than looking for some back-of-the-door methods. The issues that should come
up in such „parleys‟ (apart from land price) include: rehabilitation package for the
displaced in case the livelihoods are dependent upon land being procured, integrating
the land holders into the development of SEZ through offer of permanent employment
to one or more members, making land holder part of the project by providing certain
stake in the whole SEZ project.
Given the fact that the government has provided some good tax sops and
incentives to the industry, the industry should also come forward to integrate the
people who are at risk of losing their livelihoods and risking themselves to insecure life
into the overall development of SEZs through some exemplary approaches. This
would make the SEZs truly reflect the new „development face‟ that takes account of
human aspects and, thereby, goes beyond the Chinese model.
Box 3 SEZs - Havens of Land Disputes
West Bengal
(a) Singur - Tatas to set up the Car Project in Singur in the State of West Bengal:
There were three SEZs in the State for Gems and Jewellery, IT and the one in Falta
that was an Export processing zone.
The Argument:
For a place like Singur, it is important to ascertain and compare the amount of wealth
created and the people employed, depending on whether the land is used for
agriculture or industry.
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The experience at Singur certainly illuminates three issues of SEZ of rehabilitation,
land acquisition and local interfaces. Singur tests that “the inevitability of some
farmland having to be diverted for industrialization”. Tata motor officials say they
have already employed, in the first twenty four hours of construction activity, fifty
villagers and hope to increase this number to 2500. In all, they expect 10,000 locals to
be connected with the project.
(b)Nandigram Indonesia‟s Salim Group has sought 10,000 acres for developing
mega Chemical Industrial Estate, including a chemical SEZ in Nandigram, close to
Haldia in a 50:50 Joint Venture with the West Bengal Industrial Development
Corporation. Land acquisition for this has turned controversial based on the argument
that the land being considered is a three-crop land or even better. They further argued
that in the name of development of Haldia, over 14000 acres of land has already been
taken up for various projects.
The Argument:
Agriculture alone is not enough to go forward. The increasing problems faced in the
farm sector, including fragmentation of the limited land available, as well as increasing
costs of inputs such as irrigation, seeds and fertilizers, were making it unviable.
(c ) Kulpi Port The West Bengal Government would acquire 3,200 acres of land for
the proposed Kulpi Port and a Port-related SEZ in south 24 Paraganas District. D P
World of Dubai, the Principal Promoter of the Port, would require 700 acres of land,
while the SEZ would come up on 2,500 acres. D P World, along with Keventer Group
and West Bengal Government, would setup the port with an investment of 2,600
crores. The multi-project SEZ would host automobile, electronics, textiles, logistics
and agro-industries. The centre had cleared the SEZ in 2003. The port and the SEZ
would provide the much needed infrastructure to local producers and traders and
create 45,000 jobs. Kulpi Port will prove to be a gateway for Eastern India and will
enable Dubai World‟s strategic vision of servicing its customers through new and
innovative trade routes to be met efficiently.
Orissa similar problems had cropped up in Orissa for the Korean Steel maker
posco‟s proposed ten million tonne steel plant.
Haryana
(d) Palwal - Infrastructure company D S Constructions will set up a 7,500 acres multi-
product SEZ at Palwal in Haryana at a cost of Rs.5,000 crores, face the same situation.
(e) Reliance SEZ in Haryana results in a similar situation.
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Issues for Discussion and Further Action
Although the Indian SEZ experiment started almost 6 years ago, it underwent
several changes and yet there are some issues that have not been discussed at length
and so the mechanisms to address the same. Some of these issues include:
Streamlining the application of labour laws, maintenance of labour
standards and recognition of rights of employees in SEZs by
governments of host States;
How to make the industrial relations climate too quite welcoming;
Considering gender sensitivity, particular emphasis should be laid on an
integrated programme of human resource development with
components of education, awareness, industrial culture and health,
family care, maternity benefits and child care. They should receive equal
wages for work of equal value and be enabled to move up to high paid
jobs depending upon their skills and achievement comparable to male
workers. These would make the development more humane and
sustainable in the long run.
With globalization, SEZs can no longer be doing only import
assembly-export type activities; Zone investment should stimulate local
industry and for this purpose consume local raw materials, goods and
services and develop local partnerships/ alliances involving shared
technology, expertise and investment in human resource development.
Zones have an investment monoculture. This should change; there
should be increasing diversification of investment in terms of sources
and sectors. Host States should develop suitable strategies towards this
end through their role in the zone promotion and administration.
In the current context, government agencies responsible for investment
promotion, zone management and labour administration have to make
changes in investment and labour administration, develop targeted
incentives, set up new theme and niche zones with appropriate
infrastructure, tackle the problematic social situation surrounding many
zones and improve human resources and ensure stable relations. What is
needed is a plan for reforms of labour and investment.
In the competitive arena of world trade, the watch words are speed, cost,
efficiency and quality. Policy and decision makers should take steps to
maximize their State‟s comparative advantage for attracting foreign
investors and shift their focus from cheap to productive labour so that
unit costs come down. Also, State governments need to upgrade their
human resources and labour relations strategies. In the long term, Zones
which can offer high-quality human resources, training facilities and
labour relations services such as conciliation and mediation are more
likely to attract and retain world investors.
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Greater competition in international product markets calls upon zone
enterprises to adapt themselves to these changes and demands quicker
response, shorter lead ties, faster turn-around periods greater flexibility
in production and lower costs. These competitive demands can be met
only through optimum human resource development and constructive
labour-management relations. Both the government as well as the
resident industries of the zone should be conscious of this premise.
Trade unions have a complicated challenge of adapting to a changing
global environment of investment and trade, of which SEZs are a key
component. In many EPZ operating countries, trade unions lack the
information for analyzing the impact of globalization and do not have
necessary resources to develop coping strategies. Matters become
difficult when unions cannot gain access into SEZs. Bad working
conditions in SEZs should get exposed as in the case of Wal-Mart
clothes being produced under sweatshops conditions in Honduras and
unacceptable health and safety practices in the production of Nike
products in Bangladesh, Indonesia and Vietnam; this exposure of breach
of working conditions can help labour movements in zone-operating
countries and make governments take up labour reforms.
For social partners in the South Asia Sub-region, the creation of a trade
block (such as the successor of NAFTA comprising all countries in
North and South America with the exception of Costa Rica) and the
phasing out of Multi-fibre Agreement in 2005 will place the countries in
that region at an advantageous position as the biggest market. Given the
competition philosophy of speed , cost and quality and the urge to put
the world trade on a fast track, the zones/ countries closer to the market
will be more competitive as their transport costs would be less compared
to those in the far away South Asia Sub-region. This crucial aspect
should be borne in mind by all the three social partners and the dialogue
should focus on how to meet such a situation.
Social partners should develop a commitment to social justice and give a
human face to economic policy. For social dialogue to be fruitful, the
contracting parties should be “moved by sentiments of justice and
humanity as well as by the desire to secure permanent peace in the
World”, as stated in the Preamble to the Constitution of the ILO.
Ideal thing would be that each of these units in SEZs should make a voluntary
declaration on the labour welfare measures annually and shall have an exclusive
General Manager or Executive Director solely responsible for social welfare.
Regulatory excesses at all costs should be avoided for healthy and faster industrial
growth. Any violation noticed or brought to the notice of the Government, if found
correct on verification shall attract stringent punishment.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Criticism on SEZ Policy
SEZs, however, have their costs and may not be the best option, in all
situations, to clear the bottlenecks in growth. It is here that some criticism made on
the policy content, intent, aspiration and limitations as below:
a) India‟s experience with Export Processing Zones (EPZs) and Export
Oriented Units (EOUs) that have been in existence for over three decades
bears this out. They have failed in India for the simple reason that the
factors that made the SEZs successful in China have been absent here.
b) In India, as in China, EPZs were thought of as a way of providing an escape
route from the rigours of the stranglehold of the controls that prevailed over
the Indian Economy.
c) The Finance Ministry apprehends a loss of nearly Rs.1,75,000 Crore in
Direct Taxes, Customs Duties and Excise Duties over the next five years.
Not only are the Normal Income and Corporation Taxes going to be
waived, along with Customs, Excise and the State Sales Taxes, even the
Minimum Alternate Tax will not be charged from the developers, leave
alone exporters. There is a widely shared perception that the SEZs are going
to generate a developers‟ scan of a scale not seen in India.
d) The act needs to seek a change in the Act to ensure use of a minimum of 50
per cent of the land for industrial purposes against the existing SEZ Act
allowing the use of up to 75 percent of land for Non-industrial or Industrial
Housing purposes, as it encourages more real estate activity than industrial
activity in the Zones and the developers may find it easy to undertake the a
speculative development in the zone.
e) The SEZ Act may allow acquisition of agricultural land for Industrial,
Housing development causing large scale displacement of farmers in the
name of Industry and other social ramifications. The changes demanded are
in line with the SEZ development policy followed by West Bengal. The
State has approved two SEZs stipulating use of 50 percent of land for
industry, 25 percent for creation of infrastructure and the rest for Industrial
Housing development. Again, most of the SEZs are proposed in industrially
developed states such as Gujarat, Maharastra, Tamil Nadu and Karnataka.
f) Food security is equally important compared to industrial development, the
lack of which leads to spiraling inflation of prices of essential food grains
and products, which enter the daily consumption basket of the people rather
than the manufactured items. It needs to be ensured that land made
available to SEZs is not agriculturally rich and the priority should flow from
waste land to land unsuitable for cultivation to land suitable for limited
cultivation/ lacking irrigation facilities to land suitable for cultivation in one
season a year.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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g) Most of the 403 SEZs approved by the Government were being set up in
around major cities and towns, whereas SEZs in the new pockets where
there has been little or no development should also be encouraged.
h) The SEZ Policy is not People Centric, it is highly Export Centric. Efforts
have to be made to put in place appropriate institutions and mechanisms
that promote overall humane development of people and spur local and
regional economies.
i) Lower interest rates will hardly provide an income he would have, on his
own, considered giving up his land for. Alternate mechanism such as the
employment guarantee schemes and pension policies for the poor need to be
given thought in the design for welfare promotion of poor.
j) There is genuine concern that the proliferation of SEZs will ruin the existing
SMEs besides shrinking government revenues with the incentives, labour
laws and tax benefits entrusted to the SEZs. It is the location of SEZs with
respect to the concentration of these units that needs to enter the decision.
Remedies Suggested
The Central Government should act out a Land Policy that should guide the
SEZ creation.
a) It needs to be ensured that all those who stood to lose their land in the cause of
industrialization are adequately compensated, whether they are Landowners,
Sharecroppers or Landless Labourers. The compensation need not to be
confined to the „fair‟ land price alone but ensuring some livelihoods are either
directly provided in the industry or created through some other financial
mechanisms e.g., pension funds and employment guarantee schemes.
b) It must ask itself whether it has taken into account all the aspects of a Farmer‟s
life that are affected by the forcible takeover of his land. A Farmer who is
distinctly unhappy about his land and livelihood being taken away has to
collect the compensation, as otherwise the very survival of his family will be
threatened. Resettlement of the farmer‟s family with alternative livelihood
opportunity at a different place which may be also culturally alien from the
place he was made to bargain for under the SEZ assume critical importance in
terms of the costs. Will the price of surrendered land be adequate to take care
of this resettlement process? What are the prescriptive boundaries for the State
intervention? State can play a gentle man‟s role by negotiating on behalf of land
and getting him a fair price rather than the opposite.
c) The Government could respond by changing the instruments of intervention.
There is a clear need to reduce the number of people dependent on agriculture,
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which inevitably requires promoting industries. But the cost of it should not be
detrimental to the existence of farmer and agriculture itself.
d) The Centre should come out with a clear policy on SEZs and it must be Sector
Specific. The States shall be made adherent to this rather than enabling them
through the model legislations, the enactment of which will take longer time
and lead to more complications to the businesses that vary from State to State
within the same country.
e) The Government should make attempts to stall proposals for SEZs within 50
kms of major towns and cities as the move will prevent speculation in land
prices leading to Real Estate Scams. The provisions of land use allocation are
completely different from the town planning principles and practices and,
therefore, there will be more pressure from developers in order to reap benefits
of selling developed land at a very high premium.
f) Many Industrial Parks that were established using Land Acquisition models,
contain mainly dead Units or have taken a very long time or just could not take
off at all. These Industrial Parks can be successfully converted into SEZs. This
move will not only save fertile agriculture land from acquisition, but also aid in
the setting up of specialized SEZs using the existing infrastructure and facilities
in the surrounding areas and that in turn could aid growth and job creation in
the years to come.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
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Conclusion
SEZ Stands between the two tools of Socialistic and Market Economy
If an Entrepreneur wants to set up an industry, irrespective of type of Business
organization he chooses, he/she would identify a piece or plot of land and purchase it
from the owner of that piece of plot at a mutually agreed price. Price of land is agreed
upon by the parties under such transactional framework of the market. Similarly, lot
of real estate builders purchased acres and acres of land; developed them and sold as
plots/ flats to the intending buyers, at a mutually agreed price that included the
development cost. The State has not come in between the buyer and seller in either of
the cases. In China, to which we often make reference as competitive economy, such
land is owned by the State and the State exercises its own options for dispensation.
SEZs are no exception. Whereas in India, the property rights over land are vested with
its land owning citizens, and, therefore, appropriation of land for uses intended is
bound to be different from that in China, which requires a different approach through
mediation and negotiation between the parties facilitated by government, if required.
In India, when SEZs are being conceived we do not see in the first place the
necessity for the state to play the role of „go between‟ the buyers and the sellers. The
State in the past with varying degrees of efficiency developed Industrial Estates, where
the quality of Infrastructure has everything to be questioned about. Agreeing that for a
moment, the State has become more efficient providing a more dependable
infrastructure, its acquisition process required that the transaction should be
transparent and least hurting the sellers and this required diluting its monopolistic and
oligopolistic approaches to acquisition. In particular, the provision of „eminent
domain‟ is limited to the development of public/civic infrastructure that too when
there is no other way, rather than making its direct application to land developed for
the purpose of SEZs, which are incentivized zones to promote private production of
goods and services meant for exports.
When the Central Government formulated the SEZ Act it was well aware that
the land policy rested with the States - in fact, there was no land policy for any State -
and therefore a prescriptive pattern for creating SEZs would not work. This is not to
mention that the States do not have any role to play in the development of SEZs. On
the other, hand, they have to play a more positive, facilitating and assertive role in
creating an enduring climate for huge investments in infrastructure. Existing land
legislation provides for the State acquiring for noble purposes of construction of
roadways, railways, defence, ports, airports, etc even by applying force because these
utilities would be in enjoyment of millions of citizens. But setting up an industrial
Enterprise is a commercial activity invariable benefiting those who set it up. The State
would do well to encourage establishment of SEZs in as many districts as possible.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
28
Wherever the scope for more than 100 hectares tranches is available with their
opportunity, cost less than the current one.
This would provide scope for SEZs triggering of Value Added Connectivity in
transport and communications as also setting right regional imbalances in growth. We
do not see any reason why SEZs should be necessarily more than 100 hectares, some
times extending even to 5000-10,000 hectares where the need exists - like the Steel
Industry, Aluminum Industry etc. The industry could go in for acquisition with state
facilitation in the case of large multi-product SEZs. It is time that the state should
demarcate its role between development and promotion.
Coming to the controversy triggered in West Bengal, but with its ramifications
to all the SEZs in the country, the issues of „fair price‟, rehabilitation of the project-
affected persons and the delivery mode and schedule of the announced compensation
have come to the fore. If the acquisition or purchase of land for SEZ is of either
degraded land or where the farmer earns income less than the interest on sale price
attached to that price of land at the current rate, he/ she would gladly agree for sale.
But where such price or parcel of land is already fetching considerable from income
despite any uncertainties that could crop up, the compensation has to be rationally
priced. The theory of rational expectations demanded appropriate compensation for
the other assets that the farmer holds; then, the other assets of the farmer like the
house, cattle, form, machinery that get approved in the process of acquisition have to
be evaluated and priced appropriately for the farmer to rehabilitate at an alternate
place of his choice. When it is a transaction between the enterprise and farmer, all
these calculations do not come in for an examination by the third eye. It is a
negotiation between them based on the opportunity cost principle into „pareto‟
optimality. A market oriented economy cannot and need not indulge in the
Government promising the role of a businessman let government bother about
governance, institutional building and facilitation.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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29
Fears and Concerns about “SEZ” Act and Policy
Possibility of large scale misuse and exploitation by real-estate racketeers who
have no genuine interest either in industry or infrastructure.
Fear that many normal units may migrate to SEZ areas.
Fear about diversion of prime agricultural land
Concern about revenue loss, virtually debilitate the economy (Approximately
Rs. 1,70,000 crores by the year 2010)
Fear that the Rules of the Act, facilitate maneuvers of Corporate players
Fear that SEZ will lead to Corporatization of Agricultural land
Concern about the conflict in the shared responsibility for the state and central
government
Fear that the SEZ would intensify the developmental imbalance among the
states
Fear that it is merely going to promote IT investment which in any case have a
competitive edge.
Fear on account of large scale rehabilitation and livelihood security of the
displaced persons.
Concern about the large scale use of water and power by SEZ‟s
Concern about the irreversible impact and damage to environment
Fear that land alienation will increasingly polarize and pre occupy social and
political conflicts on the streets
Fear of displacement as a national issue
Fear about the fate of alienated and displaced people; (run into the millions)
majority of whom depend on agriculture
Fear that the interests of workers will be severely jeopardized due to
exemptions on various provisions of the Labour enactments
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
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Summary Sheet
A summary of the views expressed in the Press and Media on Land Acquisition Policy
The rehabilitation policy should be progressive, humane and conducive to the
long-term welfare of all stake holders. The Land Acquisition Acts adopted by most of
the States are largely a continuation of the old colonial act, which viewed land a
source of its „revenue‟ and as means of exploiting the peasantry and, therefore, sought
vesting all controlling powers over it with colonial government. The Commerce
Ministry has recommended the States that Land Acquisition Acts must be amended so
that not only the displaced landowners but also the agricultural labourers and small
traders dependent on the economy of the area should be compensated at market rates.
Issues such as land acquisition and displacement of people and their rehabilitation and
resettlement should be transparently addressed and on land acquisition for the SEZ,
the benefits of the project would have to be conveyed to people.
The existing Land Acquisition Act is „too arbitrary‟. As per the existing Act,
figures of the last ten years of registered sale deeds are taken and an average calculated
to pay compensation to farmers. The fact remains that the prices quoted in registered
sales are much lower than the actual price in order to avoid direct or indirect taxes.
The Government should come out with a new Land Acquisition Act by which the
aggrieved party has a say in fixing the price of the land, through negotiation, as is the
practice in the US. The State could not be left out in land acquisition and it has to be a
facilitator between the developer and the oustees and mediate the negotiation process,
primarily to protect the interest of displaced. The developer should resort to acquire
land at “free market price, instead of involving the State in either obtaining it or to
brokerage it. Owners of the Land and Corporate houses should sit together and
negotiate and the State should only interfere to facilitate the negotiation process.
The process of zoning and principles of land use allocation could be better left
with the State Government - once the Government decides, for instance, that
wasteland can be converted for industrial use and notifies this, then it is up to the
private firms to go and buy up the land on their own. Adherence to the land use
allocation also can be left to the guidelines of State governments, whose town planning
and industrial development departments can come to an agreement about the
allocation proportion.
If a State Government promises to make land readily available to industry, it
enhances the State‟s attractiveness as an investment destination. Nobody should be
evicted from his land, till he has been fully rehabilitated and richly compensated by
either the State or the Private Company which is putting up the Project.
A new National Two-tier Compensation Package for farmers who could be
losing their agricultural land to proposed industrial estates and SEZs.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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(1) One time payment to the persons whose land would be acquired by
the Government and also a long-term security arrangement through
a staggered payment system (as is made in the endowment life
insurance policies).
(2) The second compensatory Payment could be either a monthly or
annual fixed amount to be provided by the companies that would
setup the project and would continue for the lifetime of the project
(as in the case of annuities of pension funds).
It would be compensation in perpetuity till the project lasts.
Time has come for India to think big. We need to have new industrial
townships, which would be able to supplement the crumbling urban infrastructure of
the country. The existing urban centres have great limitations in supporting further
rural- urban migration, when they have not invested adequately into civic
infrastructure development and made provisions for their annual maintenance. This
could be largely taken care of by SEZs through infusion of new infrastructure, as one
of the key provisions in them is to provide civic infrastructure for human settlements
for the people who would be engaged in the economic activity in the zones.
The Indian Economy has undergone an extraordinary transformation since the
mid-1980s. Acquisition of farmland for industrial purposes has become an
impediment in the Government‟s efforts of industrialization across the states. To
sustain the pace of industrialization and meet the targeted eleven to twelve percent
growth in industry requires land. For efficient operations, industry requires land within
a radius of one and a half hours drive from an urban centre with social and other
infrastructure. The ideal way would be for the State to step in proactively and develop
social and physical infrastructure in the hinterland of existing major urban centres,
primarily Tier I and II cities.
In some cases, the land allocated for an SEZ was tribal land; in some, it came
under the Coastal Regulation Zone. Despite land acquisition having started in
Maharashtra, there was no rehabilitation policy in the State. Land is sacred to the
farmer - who has votes and so, politics trumps economics. “While it is true that land is
a State Subject, rehabilitation comes in the Concurrent List, which makes it a concern
of the Centre”.
***The Krishi Jami Raksha (Save Farm Land) Committee, which is behind the
agitation against the acquisition of farmland in Singur includes some naxalite
factions.***
The problem of land acquisition owes its origin to Nehruvian period. Nehru
persuaded the Nation that, because inherited property was unearned the incumbents
did not deserve property rights. Mesmerized by his Vision of Social Justice, Parliament
amended the constitution to give state to power to acquire land without paying
compensation at market rates.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Farmers have four kinds of assets:
(a) Inflation protected capital in the form of land;
(b) Inflation protected income from the crops they cultivate;
(c) Employ on their farms for themselves and their children, and ,
(d) last but not the least, The prestige of land ownership
To be fair, farmers should be compensated in four ways - with permanent assets,
regular income, employment for self and children, as well as with continued prestige.
(1) Job guarantee programme
(2) Skill up-gradation It protects investors and it helps rural folk to stand tall and
compete for jobs they would never be able to do otherwise.
Land acquisition could be confined to areas of relatively low value; fertile land lying in
between could be left as they are.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM)
has urged the Prime Minister, to reconstitute a New Group of Ministers(NGoM) with
representatives from States to formulate within three months land acquisition and
rehabilitation policies for SEZs proposals.
(1) The SEZ Units should not be eligible for tax sops if they did not meet an export
obligation of 30-50 percent of total production. They are also keen that developers
be denied direct tax concessions of the units did not meet the obligation.
(2) 2 percent of all land acquired should be kept aside to be developed by the SEZ
developer and allotted as residential / commercial land on a proportional basis to
the persons from whom the land has been acquired and other displaced persons.
Current Status of SEZs
Empowered group of Ministers put on hold all 174 clearances till the contentious
issues are sorted out. These include Infosys, Wockhardt, Claridges Hotels, Jindal Steel,
Ranbaxy and Wipro that have been cleared by the Board of Approval. The 63 SEZs
already notified are, however not effected (Economic Times 23, January, 2007)
The New Development includes:
1. Land resale barred for SEZ Units
(a) Units failing to operationalise in a year will lose clearance.
(b) Builders to pay stamp duty if they fail to get SEZ notified in 6 months.
(c) No tax sop for rehabilitation work outside SEZs.
(d) Developers to declare that their land is litigation - free.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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ANNEXURE - A
SEZ Act, 2005
Important Sections
Section-2 : Co-Developer is equal to Developer
Section-51: Provides for overriding effects of SEZ Act over other existing
Central Laws.
Section- 49: Central Government can notify non- modified applicability
of any other Central Act, rules, and regulations to SEZs.
Section- 50: State Government empowered to enact Laws /notify
policies to facilitate SEZs.
Section- 52: Chapter-10 A of the Customs Act, 1962 and Special
Economic Zones (Customs Procedure) Regulations 2003 not to apply.
Section-27: Provisions of Income-Tax Act to apply to Developers and
unit as modified by the SEZ Act.
Important Schedules
First Schedule: Exempts SEZ Developers and units from levy of Tax, Duties and
Cess under 21 Central Acts.
Second Schedule: Amends Income- Tax Act (Modifies Sections 10, 10 A, 54 G,
80-IA, 115 JB, 1150, 197 A) (Inserts new Sections 10 AA, 54 GA, 80- IAB, 80 LA)
Third Schedule: Amends the Insurance Act, 1938, Banking Regulation Act, 1949;
and Indian Stamp Act, 1899.
SEZ Rules, 2006
Important Rules
Rule -5: Requirements for establishment of SEZ (Area of SEZ; Minimum Processing
Area; State Government Recommendations; State Endeavor to grant exemptions and
benefits.
Rule-7: Land to be contiguous, vacant and with no public thorough faresome
Discretion with BoA.
Rule-11 : Processing and Non-Processing Area (Sale of land not allowed; DC-
authority for demarcating the area; Fencing requirements and restricted access and
Land /Space in processing area only for units and core infrastructure)
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Rules 17 &18: Consolidated application for unit approval sub-contracting for foreign
principal allowed.
Rules 53&54: NFE requirements.
Rule 76 : “Services” defined
SEZ Units / Examples of Authorised Activity
Manufacturing
Services
1
Making, Producing , fabricating ,
assembling, processing by hand or
machine etc
Trading
2
Refrigeration
Warehousing
3
Cutting
Research and Development
4
Polishing
Computer Software Services including
ITES such as( Back Office operations call
centres etc)
5
Blending
Offshore banking Services
6
Repair
Professional Services (excluding
Accounting & Legal
7
Remaking & reengineering
Rental/ leasing services
8
Agriculture
Educational Services
9
Aquaculture
Financial Services
10
Animal Husbandry
Hospital Services
11
Floriculture
Distribution Services(excluding retail
services)
12
Poultry
Transport Service
13
Mining
Other as in Rule 76.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
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Setting up of Special Economic Zones in the Public, Private, Joint Sector or by the
State Government:
With a view to augmenting infrastructure facilities for export production it has
been decided to permit the setting up of Special Economic Zones (SEZs) in the public,
private, joint sector or by the State Governments. The minimum size of the Special
Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall,
however, not be applicable to product- specific and port/airport based SEZ. This
measure is expected to promote self-contained areas supported by world-class
infrastructure oriented towards export production. Any private/public/joint sector or
State Government or its agencies can set up Special Economic Zone (SEZ).
Full details on Setting up of SEZ are given in (Appendix)
Guidelines to Setup SEZ Unit
For setting up a unit in an SEZ, three copies of the application in the form given in
Appendix may be submitted to the Development Commissioner (DC) of the SEZ
concerned.
Proposals for setting up units in SEZ other than those requiring industrial
Licence may be granted approval by the Development Commissioner within 15 days.
Proposals for setting up units in SEZ requiring Industrial Licence may be
granted approval by the Development Commissioner after clearance of the proposal by
the SEZ Board of Approval and Department of Industrial Policy and Promotion
within 45 days.
Letter of permission (LOP)/Letter of Intent (LOI) issued to SEZ units by the
Development Commissioner would be construed as a licence for all purposes,
including for procurement of raw material and consumables either directly or through
canalising agency.
The LOP/LOI shall specify the items of manufacture/service activity, annual
capacity, projected annual export for the first years in dollar terms, Net Foreign
Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by
products and rejects in the DTA and such other matter as may be necessary and also
impose such conditions as may be required.
Conditions for Setting up of SEZ
Proposals for setting up SEZ in the public/private/joint/State sector are required to
meet the following conditions:
(i) Minimum size of the SEZ shall not be less than 1000 hectares some
exceptions like the IT/BT SEZs. This would however, not apply to existing
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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EPZs converting into SEZs as such or for notifying additional area as a part
of such SEZ or to product specific port/airport based SEZs.
(ii) The SEZ and units therein shall abide by local laws, rules, regulations or
bye-laws in regard to area planning, sewerage disposal, pollution control
and the like. They shall also comply with industrial and labour laws and
such other laws/rules and regulations as may be locally applicable.
(iii) Such SEZ shall make adequate arrangements to fulfill all the requirements
of the laws, rules and procedures applicable to such SEZ.
(iv) Only units approved under the SEZ Scheme would be permitted to be
located in these SEZ.
(v) At least 25 percent area of the SEZ shall be used for developing industrial
area for setting up of such units.
For full details see guidelines at Appendix
Developer’s Scheme in SEZ Policy
An Individual / Company can develop a Special Economic Zone or create
infrastructure in the existing SEZs.
Sector Specific SEZs / Port Based / Airport Based SEZs can also be
developed in lesser area.
For creation of New SEZs and infrastructure in the existing Zones, the
Developer is entitled to Income Tax exemption for 10 years in a block of
15 years; Import /Procure goods without payment of Customs / Excise
Duties; Exemption from Service Tax; Exemption from Central Sales Tax.
Full freedom in allocation of Developed plots /Factory buildings to
approval SEZ Units on Commercial Basis (Lease only).
Tax Benefits to Developers
Income Tax holiday on profits derived from SEZ development
100 percent for any 10 out of first 15 years (w.e.f date of
notification); Also available on commercial development in „Non
Processing Area‟.
No Dividend Distribution Tax
No Minimum Alternate Tax
Indirect-Tax Exemptions(Customs Duty, Excise Duty, Service Tax, Central /
Local Sales Tax )
Other Incentives to SEZ Developer
Developer of SEZ may import/ procure goods without payment of duty for the
development, operation and maintenance of SEZ.
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Income tax exemption for a block of 10 year in 15 years at the option of developer as
per section 80-IA of the Income Tax Act (Appendix).
Full freedom in allocation of developed plots to approved SEZ units on purely
commercial basis.
Full authority to provide services like water, electricity, security, restaurants, recreation
centers etc. on commercial lines.
Foreign investment permitted to develop township within the SEZ with residential
areas, markets, play grounds, clubs, recreation centers etc.
Develop Standard Design Factory(SDF) building in exiting Special Economic Zones.
Income Tax exemption to Investor‟s in SEZ‟s under section10(23) G of Income Tax
Act.
Exemption from Service Tax.
Investment made by individuals etc. in SEZ company also eligible for exemption u/s
88 of IT Act.
Development promoted to transfer infrastructure facility for operations and
maintenance u/s 80-I-A of IT Act.
Generation, Transmission and Distribution of Power in SEZs allowed.
SEZ Units / Tax Benefits
i. Income- Tax Holiday for up to 15 years
First 5 years - 100%
Next 5 years - 50%
Next 5 years up to 50 %( Subject to creation of reserves)
No restrictions re-splitting up/ reconstruction of existing business,
transfer of old plant or machinery
ii. No Capital Gains tax on relocation to SEZ
iii. Exemption from minimum alternate tax
iv. Indirect-Tax exemptions
Customs duty, Excise Duty, Service Tax, Central/ Local Sales Tax
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Environmental Clearance
i. Environmental Clearance necessary. BoA Approval does not include
Environment clearance.
ii. Environmental EIA Notification of 27th January 1994 of MOEF (as
amended till date) have only exempted units located in EPZs, SEZs from
Public hearing.
Minimum Area Requirements
1000 hectares Multi Product
(200 hectares in specified areas)
100 hectares Services SEZs; Port/Airport based
(can be of multiple sectors)
Sector specific
(50 hectares in specified areas*)
40 hectares Free Trade & Warehousing zone
(100,000 sq.mt built-up area)
Below 40 hectares Electronic Hardware, IT/ITES
100,000 sq.mt “built-up processing area”
Bio-Technology.
Non-Conventional Energy
Gems & Jewellery
* Specified areas are Assam, Meghalaya, Nagaland , Arunachal Pradesh, Mizoram, Tripura,
Himachal Pradesh, Uttaranchal, Sikkim, Jammu& Kashmir,and UTs.
Minimum Land Area Requirement for IT /ITES SEZs
No minimum land area required; to satisfy twin criteria of minimum built-up
area and Employment generation (based on city)
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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National Foreign Exchange Requirements
1. Cumulative for 5 years (and block of every 5 years thereafter)
2. Prescribed formula : Positive Net Foreign Exchange = A B> 0
A B
(a)
Free on Board (FOB) Value of
exports
CIF Value of all imported
inputs(RMS, intermediaries capital
goods etc.,
(b)
Exports to Nepal & Bhutan
against freely convertible
currency
All payments made in foreign
exchange(export commission,
royalty, fees, dividends, interest on
ECBs, etc
(c )
Value of eligible DTA Supplies
Procurements from another SEZ
Unit, EOV, bonded warehouses,
etc
(d)
-
CIF Value of goods and services
(prorate for capital goods) which
are- imported duty free/ obtained
n lease/ received free of cost /on
loan or transfer basis
3. Domestic Sales deemed as NFE positive
(a) Supplies against foreign currency payment
(b) ITA-1 items (IT Hardware / Software)
(c) Notified Zero Duty telecom or electronic items
4. Supplies to
Power Projects and refineries
EPCG License holders or against Advance Licenses etc
Projects financed by international funding agencies
Projects notified for Zero customs duty
Other SEZ / EOU / EHTP / STP Units
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Processing Area and Non processing Area
Processing Area
Non processing Area
Manufacturing and Service Units
Business and Social Purposes
Infrastructure for Units
Hospital , Housing , Shopping,
Entertainment, School
Minimum
25% Multi product
50% Sector specific including IT/ITES
100% FTWZ
Use of Infrastructure in the Non- Processing Area
Seventy five percent of residential houses to be used by employees at SEZ; Fifty
percent of other infrastructure including Hotel/Hospital etc. to be used by people
within SEZ.
a) Migration from DTA / STP / EOU
Not to be allowed only fresh investment envisaged;
b) MAT Exemption for Units
Exemption from MAT only on “Export Profits” only.
c) Minimum Processing Area
Minimum Processing Area in Multi- Product SEZs to increase to 50
percent from existing 25 percent.
d) Minimum land Area Requirement for Bio-Technology, Gems &
Jewellery, Non- Conventional Energy SEZs
Issue to be considered in next meeting based on inputs of Ministry of Commerce.
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
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Annexure B
Andhra Pradesh SEZ Bill
Salient Features
Approval / Screening Bodies
Not prescribed - Central Act & Rules to prevail.
Simplification of ProcedureAct to override all other State Laws; Land
acquisition for SEZ to be treated for “public purpose”.
Fiscal benefits - Stamp duty & Registration charges exemption to Developer
and & Co-Developer (only in processing area ) exemption also on loan
agreements, credit deeds etc; Exemption from VAT, No TDS under AP VAT
Rules for work done in Processing area, Entry Tax, Conversion fees for change
in Land use status.
Generation of Electricity Allowed subject to Electricity Act, 2003; Surplus
Electricity can be sold; Electricity supplied to and consumed within the
Processing Area of Zone free from Electricity Duty and Taxes.
Labour Laws Powers, Duties and Functions in respect of 10 Specified
Labour Laws vested with DC; Units to furnish consolidated annual returns to
DC for Specified Acts; Amendments to various Labour Laws through
Schedule -3
SEZ -Local Authority -Every SEZ to be LA; Committee setup by DC to
Exercise Powers of LA for Private SEZs; State Government can declare SEZ
as Industrial Township.
Environmental Laws Empowered Officer having all powers of PCB to be on
UAC; UAC to grant all Environmental Clearances.
A P SEZs
Of the 237 SEZs awarded by the Centre, AP has bagged 54. Interestly, while about
half of them are IT SEZs, the others are multi-product, textile, leather, building,
Pharma and biotech among others. Of the 54, eleven would be taken up by the
government, while the rest would come up in the private sector in A.P. The
Government estimates that the zones would ultimately create 14 lakh jobs by 2010.
“The Adidas SEZ at Tada(Nellore District) would provide jobs to 30,000 people and
the one proposed by Brandix near Vizag would generate 60,000 jobs. The exclusive
SEZ for Gems and Jewellery, which is coming near Hyderabad, promises to create
10,000 jobs. Most important thing is, women would benefit out off it.
“Dry and barren land would be allotted for the Zones”. Of the 13,000 acres allotted
for SEZs, only 920 acres are cultivable in A P. A small State like Haryana has acquired
one lakh acres and Maharashtra acquired 72,000 acres. We should avoid the misuse of
the land for real estate activity. The Act does not allow the developers to use the land
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for other activity. They can lease the land for companies only to take up the earmarked
work.
The AP Industrial Infrastructure Corporation Limited (APIIC), a nodal agency of
the State handing infrastructure, was in the process of initiating work on a multi-
product SEZ at Achutapuram and Rambili mandals near Vizag, which would be
spread over some 5700 acres. Similar SEZs have been initiated by APIIC in Vizag,
Krishna and Ranga Reddy districts of the State. These multi-product SEZs include
Kakinada Sea Ports Limited (10,214 acres), Satyavedu Reserve Infra (2500 acres), SRF
Limited (2500 acres). In the IT and ITES sector, the prominent among them include
Wipro, Satyam, K.Raheja, CMC Limited, TCS and in the pharma sector, Dr.Reddy‟s
has proposed two SEZs at Medak and Srikakulam, Hetero Drugs and Ramky Pharma
both near Vizag.
State Government Policy
Assured and adequate water supply within SEZ.
Some of the State Government have exempted transactions made between
units/establishment within SEZ and supply of goods and services from Domestic
Tariff Area to SEZ developers from all State and local taxes and levies, including sales
tax, purchase tax, octroi, cess etc.
Declaration of SEZs as industrial townships to enable the SEZs to function as self-
governing, autonomous municipal bodies.
Appropriate and exclusive arrangements within the SEZ for maintenance of law and
order.
Details of State Policy:
Model State policy on SEZ
Model State SEZ Act
Draft of
Rules/notifications/Regulations
Andhra Pradesh
Gujarat
Jharkhand
Karnataka
Kerela
Madhya Pradesh
Maharashtra
Orissa
Rajasthan
Tamilnadu
Uttar Pradesh
West Bengal
Other State Government's Policies on SEZ are awaited See Annexure
How to Apply
Applications (15 copies) indicating the name and address of the applicant, status of the
promoter (whether individual/private company/State Government/NRIs etc.) along
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with a project report covering the following particulars shall be submitted to the Chief
Secretary of the State:
(i) Location of the proposed zone with details of existing and proposed infrastructure,
(ii) Area of the proposed SEZ and its area distance from the nearest Sea Port/ Airport/
Rail/Road head etc.
(iii) Financial details including investment proposed, mode of financing the project and
viability of the project.
(iv) Details of foreign equity and repatriation of dividends etc., if any.
(v) Whether the zone will allow only certain specific industries or will be a multi-
product zone or it is a port/airport based Zone.
The State Government shall, forward it along with their commitment to the following,
to the Department of Commerce, Government of India:
The area incorporated in the proposed Special Economic Zone is free from
environmental prohibition subject to public interest; Water, Electricity and other
services would be provided as required;
Full exemption in electricity duty and tax on sale of electricity for self generated and
purchased power; To allow generation, transmission and distribution of power within
SEZ ;
(vi) Exemption from State Sales Tax, octroi, mandi tax, turnover tax and taxes, duty,
Cess, levies on supply of goods from Domestic Tariff Area to SEZ units;
(vii) For units inside the Zone, the powers under the Industrial Disputes Act and other
related Acts would be delegated to the Development Commissioner.
(viii) The Zone will be declared as a Public Utility Service under Industrial Disputes
Act.
(ix) Single point clearances system would be provided to the units in the Zone under
State Laws/Rules.
The proposal incorporating the commitments of the State Government shall be
considered by the Board of Approval (BOA) as notified vide notification No
14/1/2001-EPZ dated 7.8.2001. ( Appendix)
On acceptance of the proposal by the BOA, the Department of Commerce will issue a
Letter of Permission to the applicant.
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List of Operational Special Economic Zones
Development Commissioner,
SEEPZ Special Economic Zone,( Mumbai)
Andheri (East) Mumbai-400096
Tel: (022) 28290856,(022) 28291754,
(022) 28290143, Fax:022- 28291386
E-mail: dcseepz@bom.5.vsnl.net.in
Web Site : http://www.seepz.com
Development Commissioner
Kandla Special Economic Zone,
Gandhidham -Kachchh
Gujarat-370280
Tel: (02836) 252475,252194
Fax:(02836)-252250, 252194
E-mail: kaftz@wilnetonline.net
Web Site : http://www.kandlasez.com
Development Commissioner,
Cochin Special Economic Zone
Kakkanad, Cochin - 682030
Tel: (0484)-2422551,(0484)-2422571,
Fax : 0484-2422530
E-mail: mail@csez.com
Web Site : http://www.csez.com
Development Commissioner,
Surat Special Economic Zone
Diamond Park , Sachin
Surat 394220
E-mail : Maria@bom3.vsnl.net.in
WebSite : http://www.suratsez.com
Development Commissioner
Noida Special Economic Zone
Noida Dadri Road, Phase-II
Noida - 201205, Gautam Budha Nagar
Tel : 91-24567270-73 (4 Lines)
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Fax : 24562314, 24567276
Email : dcnepz@nda.vsnl.net.in
Website : http://www.nepz.org
Development Commissioner
Visakhapatnam Special Economic Zone
Administrative Office Building
Duvvada, Visakhapatnam - 530046
Tel : 0891-2587555
Fax : 0891-2587352
Email : info@vepz.com, vepz@rediffmail.com
Website : http://www.vepz.com
Development Commissioner
Madras Special Economic Zone
Adminsitrative Office Building
G.S.T. Road, Tambaram
Chennai - 600046 (Tamilnadu)
Tel : 044-22628220, 22628305
Fax : 91-44-22628218
Email : mepz@md5.vsnl.net.in
mepz@vsnl.com
Website : http://www.mepz.com
Development Commissioner
Falta Special Economic Zone
2nd M.S.O. Building, 4th Floor,
Room No. 4-4, Nizam Palace
234/4, A.J.C. Bose Road
Calcutta - 700 020
Tel : 033-22472263, 22477923, 22813117
Fax : 91-33-22477923
Email : fepz@wb.nic.in (internet)
dc-fepz@x400.nicgco.nic.in (Nicnet)
Website : http://www.fepz.com
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List of Special Economic Zones Approved For Establishment
Name of the SEZ Name of Promoter Telephone (Office) Website
Positra SEZ Gujarat Positra Port Infrastructure Limited, 079-26466313/22/24 www.positra.com
Ahmedabad #9; Fax: 079-2646 6302
Nanguneri SEZ Tamil Nadu Industrial 044-28554421
DevelopmentCorporation, Madras
(i) Bhadohi SEZ Secretary,Small Scale Industries & 0522-2239280
(ii) Kanpur SEZ Export Promotion, Govt. of UP Lucknow Fax: 0522-2239235
(iii) Greater Noida
Navi Mumbai SEZ Secretary,Trade Commerce and 022-22047433 www.navimumbaisez.com
Mining Dept, Govt of Maharashtra Mumbai
Vishakapatnam SEZ Principal Secretary(Industries), 040-23454449 www.apsez.com
Govt. of AP Hyderabad
(i) Paradeep SEZ, Secretary (Industries), Govt. of 0674-2401650
(ii) Gopalpur SEZ Orissa, Bhubhaneshwar
(i) Kulpi SEZ Principal Secretary, Secretary, 033-22215487
(ii) Salt Lake Commerce and Industries Dept, Govt. of
West Bengal Kolkota
Indore SEZ Principal Secretary, Commerce and Industries 0755-555
Dept, Govt. of Madhya Pradesh Bhopal www.sezindore.com
Hasan SEZ Principal Secretary, Commerce and 080-22252443/22092447
Industries Dept, Govt. of Karnataka, Banglore Fax: 080-22259870
Vallarpadam/Puthuvypeen Cochin Port Trust
Kakinada Kakinada Seaports Ltd.
Kopta (Maha Mumbai) Gujarat Positra Port Infrastructural Ltd.
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ANNEXURE -B
Industries & Commerce Department - Policy framework for Special Economic
Zones (SEZs) in Andhra Pradesh - Orders issued
Industries & Commerce(INF) Department
G.O.Ms.No.151
Dated : 09.04.2002
Read the following:
1. Letter No. F2(2)/10/2000-EPZ, dt. 26.9.2000 of Dy. Secretary,
Ministry of Commerce & Industry (EPZ Section). Govt. of India.
Annexure to G.O. Ms.No. 151, Inds & Comm. (IF) Department
Dated 9-4-2002
Andhra Pradesh Special Economic Zone Policy
1. Preamble:
1.1 The Government of India have introduced the Special Economic Zones (SEZs)
guidelines vide a revision in the Export-Import Framework 1997-2002
1.2 SEZs are specifically delineated enclaves treated as foreign territory for the purpose
of industrial service and trade operation, with relaxation in customs duties and a more
liberal regime in respect of other levies, foreign investments and other transactions,
Domestic restrictions and infrastructure inadequacies would be removed in the SEZs
to create an internationally benchmarked environment for business transactions and
operations. Government of India guidelines suggests that SEZs can be developed in
the public-private or joint sector domains, or by State Governments.
1.3 Special Economic Zone(s) development will primarily be led by Private Sector
investors and Developers to undertake international class and scale infrastructure
developments. These developers (herein after referred to as SEZ Company) will act as
SEZ Managers in Designing, Planning, Financing, Building, Operating and Marketing
the zones to investors. The SEZ Company would endeavor to provide world-class
utilities, social and municipal services.
1.4 Government will facilitate creation of linkage and social infrastructure including
telecom facilities, inter modal transport linkages (road, rail and air connectivity)
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1.5 Andhra Pradesh Government intends to exploit the SEZ concept for impacting the
State's socio-economic fabric through enhanced job opportunities and industrial
development. Andhra Pradesh Industrial Infrastructure Corporation, APIIC Ltd. has
already taken the lead in developing the SEZ at Achutapuram and Rambilli Mandals,
Visakhapatanam Dist. As a public-private partnership.
1.6 APIIC is the nodal agency for the state of Andhra Pradesh for AP Special
Economic Zones being developed at Atchutapuram and for other future SEZ
developments in the State. APIIC will also perform as Interim Development
Commissioner for the SEZs.
1.7 Development Commissioner: shall be deemed to be appropriate Development
Authority for the notified area of SEZ.
1.8 With the background of GoI guidelines for SEZs, the State has decided to
formulate the following SEZ Policy to provide a comprehensive framework for
establishment, operations and sustainability of the Special Economic Zones in the
State.
1.9 This Policy will have overbearing powers existing state policies on above issues.
For issues and areas not covered by the SEZ Framework, the prevailing State
Framework & legislation will be deemed to be in force.
Policy Framework:
2. Industries Department
2.1 Single Window Clearance : The Special Economic Zone will provide for a single
Window Clearance for approvals and clearances for investors. This will be targeted for
timely clearances using electronic formats on Electronic Data Interchange (EDI)
platform.
a. Each Special Economic Zone will designate a Development Commissioner (DC).
DC would be the Designated Authority representing State and Central Government
and their agencies for all investments by SEZ Units for the Specific SEZ.
b. Single window for all agencies of GoAP including Power, water, Commercial Tax
Department (sales tax, entertainment tax), Food & Drug Administration, Andhra
Pradesh Pollution Control Board (APPCB), Industries & Commerce Department,
Commissioner of Industries/District Industries Commissioner, Chief Inspector of
Factories, State Labour Officer, Employment Exchange Officer (Apprenticeship Act
etc.) District Fire Officer, AP Transco, Police Department (Foreigners' registration
cell) available at SEZ etc. and other terms and agencies included from time to time by
GoAP, Officials of above state departments and agencies will be nominated to DC's
office to assist the DC on a need basis, at the discretion of the DC.
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2.2 Simplified Business Working Environment : All procedures will have pre-laid
guidelines and time lines for disposing off cases as well as approval with certification
fees.
a. Self-certification will be enabled for all industries using empanelled private sector
inspection agencies.
b. To the extent possible, regulation and governance on the SEZ shall rest with the
DC. Physical inspections would be undertaken in accordance with schedule in
consultation with DC.
c. Exemption for small scale industries and IT industries from registration.
d. SEZ Company will provide necessary infrastructure (building, office space and
equipment) for DC and pay equitable amounts as salary and prerequisites to the DC's
office staff through suitable escrow account.
2.3 Development Authority :
a) The Development Commissioner is deemed to be appropriate authority for the
Industrial Development Area for the notified SEZ area.
b) Role of Development Commissioner
Regulation : To provide clearances under various statues and regulations of
Government of India and State Government.
Facilitation: To facilitate clearances not granted within the SEZ and advise
Government on issues requiring Framework amendments of clarifications.
Promotion: To undertake marketing of the zones along with private promoter.
3. Revenue Department:
3.1 50% exemption will be allowed on Stamp Duty, Registration Fee on transfer of
lands meant for Industrial use in the Special Economic Zone area.
3.2 Complete exemption of stamp duty and registration fee for loan agreements, credit
deeds, mortgages and hypothecation deeds executed by the SEZ Units for assets in the
SEZ in favour of banks or financial institutions will also be allowed.
3.3 With due regard to the National Uniform floor rate policy and exemptions given to
SEZs throughout the Country, the State Government proposes to extend the following
exemptions to AP-SEZ, Achutapuram.
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'Other state taxes including sales tax, VAT, luxury tax and entertainment tax and state
duties on transactions within SEZ. Sale tax and other State Taxes on inputs (goods and
services) made to SEZ units from Off Zone suppliers within the State.
A Consensus would also be attempted at National level for exemption being given to
SEZs throughout the country.
4. Energy Department :
4.1 The State exempts Power in SEZ from Electricity Duty and Tax.
4.2 Captive Power will be allowed in SEZ. Government will take a view as to whether
SEZ units will be given exemption from wheeling charges and grid protection charges
levied on Captive Power.
4.3 The APSEZ will take necessary steps to make arrangements in respect of
transmission, distribution and collection of bills.
5. Water Supply:
The SEZ Company will ensure the provision of adequate water supply within the SEZ.
6. Labour Department :
6.1 The State Govt. delegates power of Labour Commissioner to the DC.
6.2 State Govt. will also place an officer of Labour Department under the DC.
6.3 The State Govt. approves simplified submissions of reports by SEZ Units and
created a Consolidated Annual Report System. Self-Certification is also approved.
6.4 Appropriate officials with DC will be designated as Inspectors, Conciliation
Officers and Registration Officers under the labor laws to provide Single Window
service.
6.5 For inspection relating to workers' health and safety, the State Government permits
units to undertake inspection by accredited agencies notified by DC.
6.6 Summary of proposed simplifications under labour laws is given at Appendix-A.
7. Environment Department and Andhra Pradesh Pollution Control Board:
7.1 Development Commissioner will be notified as the appropriate authority to
represent the APPCD, with regard to clearances for all SEZ Units. In respect of
inspections pertaining to pollution control, these would be taken up by the Pollution
Control Staff deputed to the Development Commissioner of SEZ.
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7.2 SEZ does not require Environment Impact Assessment (EIA) approval.
7.3 Industrial Approvals:
7.3 (a) Non-Polluting Units: Approval will be based on SEZ EIA Master Plan. DC
will provide Consent for Establishment and Operations.
7.3 (b) Polluting Units: SEZ Level Empowered Committee (with experts nominated
by MoEF, APPCBO will assist DC in speedy approvals to polluting units. Such Units
will approach Ministry of Environment and Forests, GoI and receive consent on EIA
within 45 days.
7.4 Operating Framework for Industries :
a. Periodic Self Certification for all industries in the SEZ, assisted by private
certification agencies. Random sampling monitoring by DC of Units for
environmental management.
b. Afforestation: SEZ Level Empowered Committee may grant approvals for
developments on specific pockets based on compensatory afforestation in line with
guidelines established by SEZ Town Planning Authority.
c. No Development Zone: Government will consider establishing a no industrial
development zone around the SEZ periphery, to extent possible as a green belt in order
to avoid unplanned development.
8. Municipal Administration Department and Panchayat Raj Department :
8.1 The State Government will declare the SEZ as a local authority, which shall
replace the existing Panchayats. Such local authority will be vested with all powers
and shall carry out all functions in the existing provisions. The State Government may
further declare this local authority as a Municipality.
8.2 SEZ land will be notified in line with the SEZ Master plan approved by DC. The
SEZ Master Plan will be undertaken in accordance with international best practice in
town planning and Environment and Social Management Planning norms. Town
planning Authority (with nominees from State and SEZ Company) will be established
for regulating land usage in SEZ.
9. Home Department:
The State govt. will process creation of State Police, Fire Services and Home Guard
Structures for SEZ(s) for the maintenance of Law & Order.
10. Law Department:
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Special territorial jurisdiction will be accorded to Special Courts as necessary in the
SEZ, in consonance with High Court approvals. Prescribed court fee and suitable
service fees may be notified for such courts.
11. Education Framework:
The State Gov. will facilitate development and augmentation of education and training
facilities through suitable formats including private sector formats. The education
policy for SEZ aims to proactively create highly skilled and managerial human
resource bases in line with the needs and dynamics of international markets.
12. All other Policies of the State would remain in force for the SEZ, unless they are
amended by the appropriate authority.
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Annexure C
Labour Framework for SEZ
Amendments to
1. Industries Disputes Act, 1947.
Notified 100% EUs as Public Utility Services
Exemption from Sec 9A-Notice of Charge to SEZ Units
Development Commissioner delegated powers for Sec 25-M and 25-N
Development Commissioner and other senior officers notified as Conciliation Officers
for SEZ.
Deletion in Chapter V.B (2 months advance period for Lay offs/ retrenchment) from
Act.
2. Minimum Wages Act, 1948:
a) Exemptions under Sec 18, 11 and 13
Sec 18 - Maintenance of Registers and Records.
Sec 13-Fixing hours for normal work days.
b) Jurisdictional Labour Officer to be notified as Inspector under Minimum Wages
Act., Payment of Bonus Act and Payment of Gratuity Act.
Simplification of Procedures: Changes by notification
3. AP Shops and Establishments Act, 1988
Suitable exemptions to make possible 365 days working for 24 hours in a day,
provided suitable overtime allowance is paid.
4. Industrial Employment (Standing Orders) Act, 1946
Exemption from publication of working time, wage rate and shift working
5. Contract Labour Employment
Power of registering and Licensing delegated to jurisdictional Labour Officer
Sec. 31 presently allows exemption by State under emergency - amendment to
empower appropriate Govt. to exempt establishments from Act without reference to
Emergency.
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6. Payment of Equal Remuneration, 1976:
Appointment of two State Officers to SEZ-DC to be designated as Authority and
nominee to SEZ as Inspector for SEZ.
7. Trade Union Act, 1926
Exclude outsiders from becoming officer bearers of a Trade Union.
The Govt. has agreed that at least 30% of workmen employed be members of the
recognized Trade Union.
8. Single Labour Authority
Factories Act, 1948 - issuing notification of labour officer in SEZ as Inspector and
Chief Inspector of Factories for units in SEZ.
9. General Provisions
Introducing a provision in Factories Act for exempting Units located in an SEZ area or
of a class of units from all or some provisions of the Act.
Enabling Chief Inspector of Factories to give approvals within 15 days for approval of
plans, canteen and registration of Factories.
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Appendix 1A
(GUIDELINES FOR SEZ DEVELOPERS)
(TO BE PUBLISHED IN PART II SECTION 3(ii) OF THE GAZETTE OF
INDIA EXTRAORDINARY )
Ministry of Commerce & industry
Department of Commerce
EPZ section
* * *
S.O No. In excise of the power conferred under Section 80 IA of the Income Tax Act,
1961, read with sub rule (2) of rule 18 C of the Income Tax Rules, 1962, the Central
Government hereby makes the following scheme to develop, operate and maintain
Special Economic Zones for the period beginning on the 1st day of April, 2001 for the
Zones developed on or before 31.3.2006.
1. Objectives of the Scheme:
(a) The scheme shall aim at development of integrated world class infrastructure for
exports including carrying out manufacture of goods, rendering of services or in
connection therewith and would include industrial, commercial and social
infrastructure. Components of a Special Economic Zone shall include roads, airports,
ports, transport system, generation and distribution of power, telecom, hospitals,
hotels, educational institutions, leisure and entertainment units,
residential/industrial/commercial complexes, water supply sanitation and sewerage
system and any other facility required for development of the Zone.
(b) Special Economic Zones may be developed and managed in the private sector or
jointly by State Government and a private agency or exclusively by the State
Government or their agencies. In the case of privately developed zones, the investors
could be either Indian individuals, NRIs, Indian or foreign companies.
(c) New infrastructural development works such as construction of Standard Design
Factory Building etc. and operation and maintenance of infrastructure in the Zones
may also be undertaken through private/joint/State sector in the Export Processing
Zones converted into Special Economic Zones.
2. Criteria for approval:
Proposals for setting up SEZ in the public/private/joint/State sector are required to
meet the following conditions:
(i) Minimum size of the SEZ shall not be less than 1000 hectares. This would however,
not apply to existing EPZs converting into SEZs as such or for notifying additional
area as a part of such SEZ or to product specific SEZs or port/airport based SEZs on a
case to case basis.".
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(ii) The SEZ and units therein shall abide by local laws, rules, regulations or bye-laws
in regard to area planning, sewerage disposal, pollution control and the like. They shall
also comply with industrial and labour laws and such other laws/rules and regulations
as may be locally applicable.
(iii) Such SEZ shall make adequate arrangements to fulfill all the requirements of the
laws, rules and procedures applicable to such SEZ.
(iv) Only units approved under the SEZ Scheme would be permitted to be located in
these SEZ. At least 25 % area of the SEZ shall be used for developing industrial area
for setting up of such units.
(v) The predominant objective of development of a SEZ would be to create
infrastructure, which would facilitate setting up of industrial area for units therein as
indicated in the para (iv) above.
3. Procedure for Approval:
3.1 Applications (10 copies) indicating the name and address of the applicant, status of
the promoter (whether individual/private company/State Government/NRIs etc.)
along with a project report covering the following particulars shall be submitted to the
Chief Secretary of the State:
(i) Location of the proposed zone with details of existing and proposed infrastructure,
(ii) Area of the proposed SEZ and its aerial distance from the nearest Sea
Port/Airport/Rail/Road head etc.
(iii) Financial details including investment proposed, mode of financing the project and
viability of the project.
(iv) Details of foreign equity and repatriation of dividends etc., if any.
(v) Whether the zone will allow only certain specific industries or will be a multi-
product zone.
3.2 The State Government shall, forward it along with their commitment to the
following, to the Department of Commerce, Government of India:
(i) The area incorporated in the proposed Special Economic Zone is free from
environmental prohibition ;
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(ii) Water, Electricity and other services would be provided as required;
(iii) Full exemption in electricity duty and tax on sale of electricity for self generated
and purchased power;
(iv) To allow generation, transmission and distribution of power within SEZ;
(vi) Exemption from State Sales Tax, octroi, mandi tax, turnover tax and taxes, duty,
Cess, levies on supply of goods from Domestic Tariff Area to SEZ units;
(vii) For units inside the Zone, the powers under the Industrial Disputes Act and other
related Acts would be delegated to the Development Commissioner.
(viii) The Zone will be declared as a Public Utility Service under Industrial Disputes
Act.
(ix) Single point clearances system would be provided to the units in the Zone under
State Laws/Rules.
3.3 The Government may grant of in-principle approval to proposals for setting up of
SEZs. The in-principle shall be valid for a period of 1 year. The valid period may be
extended by the Department of Commerce on a case to case basis.
3.4 On acceptance of the proposal by the BOA, the Department of Commerce will
issue a Letter of Permission to the applicant ; hereafter referred to as "developer".
3.5 On acceptance of the proposal by the BOA, the Department of Commerce will
issue a Letter of Permission to the applicant; hereafter referred to as "developer". The
approval shall be valid for a period of 3 years within which time effective steps shall be
taken by the developer to implement the project. The valid period may be extended by
the Department of Commerce on a case to case basis. Provided that commercial,
residential and recreational facilities shall be approved only if the applicant has at least
26% equity in such entities
3.6 In case of converted EPZ into SEZ approval for development, operation and
maintenance of requirements in infrastructure will have to be obtained from BOA on
case to case basis. Para 3.5 shall mutates mutandis apply to creation of new
infrastructure in the converted SEZs.
4. General Conditions:
(1) The undertaking applying for approval shall undertake to continue to operate under
the SEZ scheme during the period in which benefits under Section 80 IA of the Income
Tax Act are to be availed.
(2) The Central Government may withdraw the approval given to an undertaking for
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setting up of SEZ if the undertaking fails to comply with any of the conditions of
approval.
5. Agreement with Central Government
The Letter of Permission issued by the Government of India (Department of
Commerce) to the developer for setting up of Special Economic Zone shall be treated
as 'Agreement' for availing exemption under the Section 80-IA of the Income Tax Act.
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Appendix -IB
CRITERIA TO BE ADOPTED FOR AUTOMATIC APPROVAL OF UNITS
UNDER EOU/SEZ SCHEME
APPROVAL OF NEW UNITS:
Proposals for setting up units under EOU/SEZ scheme under automatic route shall be
considered by the Unit Approval Committee taking into account the following: -
(i) Residence proof in respect of individual/partnership firms of all Directors/Partners.
(Passport/ration card/driving licence/voter identity card or any
other proof to the satisfaction of Development Commissioner;
(ii) Income Tax return of all the promoters for the last three years;
(iii) Experience of the promoters;
(iv) Marketing tie-ups
(v) In case of EOUs, inspection of the project site by an Officer
(vi) A report from other DCs as to whether any case under SEZ/EOU Scheme in
regard to diversion of goods etc. is pending.
Wherever necessary, the above may be verified through personal interview with the
promoters of the project. In the event of the promoters being a well-established entity,
the procedure of personal interview may be dispensed with.
The Unit Approval Committee shall meet on Monday, every week. In case of the
absence of Development Commissioner, the meeting will be held by the next senior
officer in the Zone. The unit shall intimate the problems being faced by them in
advance. In the meetings, apart from the promoters, the other concerned agency with
which difficulties are being faced by the unit, may also be called.
Recycling of ferrous and non-ferrous metal proposals will be considered only if the unit
has Ingots making facility and proposes to achieve value addition.
Sensitive Sectors:
Care shall be taken by the Development Commissioner while approving projects in
sensitive sectors such as yarn texturising unit, textile processing,
pharmaceuticals/drugs formulations/re-cycling of ferrous and non-ferrous metal
scraps etc. Projects for setting up units in sensitive sectors under EOU scheme shall be
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approved by the Development Commissioner after personal verification of the
Directors and inspection of the factory site before signing LUT. Verification could also
be carried out through General Manager, District Industries centre or jurisdictional
DY/ Assistant Commissioner of Customs/Excise.
Appendix -IC
Sector Specific Requirements for EOU/SEZ Units:
(1) Coffee
Export of imported coffee shall be subject to approval from Coffee Board under
relevant Act.
(2) High Grade Iron Ore
Proposals for export of high-grade i.e. 64% Fe Iron Ore and above, except iron ore of
Goa origin and Redi origin are presently canalized through MMTC and its exports
would be subject to annual quantity allocation by the BOA.
(3) Polyester Yarn:
(i) No job work with EOU/SEZ/DTA unit shall be permitted. However, this shall not
be applicable to units who intend to send the fabric {made out of Polyester (or)
texturised yarn within the unit} for jobwork to EOU/SEZ/DTA unit for dyeing of the
fabric.
(ii) None of the units making polyester yarn - existing or new - shall be permitted to do
exports through third party and they have to export directly;
(iii) These restrictions shall not apply to units in the same SEZ.
(4) Sale of Surplus Power:
The following procedure shall apply in regard to sale of surplus power by EOU/SEZ
units:-
(i) Henceforth whenever the Development Commissioner receives proposals for sale of
surplus power, it would be examined in consultation with the State Government,
including State Electricity Board. This shall, however, not apply to sale of power
within the SEZ. The Development Commissioner will report the norms of raw
materials and consumables required for generation of a unit of power for consideration
and approval by the Board of Approval.
(ii) No duty shall be required to be paid on sale of surplus power from an EOU/SEZ
unit to another EOU/ SEZ unit. Development Commissioner of SEZ concerned
would be informed in writing of such supply and proper account of the consumption of
raw material would be maintained by the supplying unit. The value of imported inputs
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
61
and consumables shall be taken into account for NFE calculations of the supplying
unit.
(iii) The unit will obtain permission of the Assistant Commissioner of Customs/
Central Excise for sale of surplus power in the DTA, after obtaining permission from
the SEBs under the relevant statute. Duty on sale of power to the DTA shall be as per
the Notification of the Department of Revenue in this regard.
(iv) Due care shall be taken by the Development Commissioner / Board of Approval
while approving the power plants by EOU/SEZ units vis a vis their actual
requirement.
5. Guidelines for the existing Plastic units
The following shall be guidelines for the existing plastic units under EOU/SEZ
scheme: -
(i) Extension of LOP of the existing units under EOU/SEZ Scheme may be granted
based on the terms & conditions of earlier LOP.
(ii) No enhancement of the production capacity be allowed.
(iii) Relocation of the existing units from one Zone to another will be approved on case
to case basis.
(iv) EOU/SEZ units be exempted from the purview of Public Notice No. 392 dated
1.1.1997 regarding restrictions on physical forms & sizes and inspection would be done
by Zone. However for any supply into DTA, all conditions of public notice will apply.
(6) Non ITA-I Items that may be sold in DTA
Following non-ITA-I items may be sold in the DTA in terms of para 13.1(f) of the
EOU Scheme and 16(f) of the SEZ Scheme:
(i) Colour Display Tubes(CDT) for monitors
(ii) Deflection components for colour monitors
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
62
REFERENCES
[1] Business Standard, Economy and Industry Weekend 16/17 Dec.2006
[2] Business Standard, 19th Jan 2007, Pg.No.15 and Advt.
[3] Business Line , 18th and 19th Jan,2007.
[4] EPW; April 8 2006 Vol-XLI, No.14; ( PP 1300-1301)
[5] EPW; Sep30 Oct 6 (2006) Vol-XLI, No.39; ( PP 4095-96)
[6] EPW, Nov 4 2006 (pp 4533-4536)
[7] The Economic Times, 15th Dec, 2006
[8] The Economic Times, Jan.23,2007.
[9] G.K.Pillai, “Special Economic Zones Act, Initiatives by MoU and the Future
of Indian Economy”. Vol.VI- Issue 50, 12, Dec 2006, FAPCCI Review
[10] Majumder, S “SEZs: Go the Chinese Way”, The Business Line, May 7 2003
[11] McKenney, I. (1993). “An Assessment of China‟s Special Economic Zones”,
Executive Research Project, The Industrial College of Armed Forces,
National Defense University, Washington DC.
[12] Oberai,A.S, A.Sivananthiran and C. S. Venkata Ratnam (Ed.) “ Labour
Issues in Export Processing Zones in South Asia: Role of Social Dialogue;
South Asia Multi-disciplinary Team (SAAT), International Labour
Organisation (ILO), NewDelhi (2001).
[13] Siddiqui, J. A. (2002). “Economic zoning: strategy for development”,
<http://www.rediff.com>
[14] The Hindu- Business line, Economy, pg.9, Sep 15th 2006
[15] The Financial Express, pg.8, Dec.16, 2006
[16] The Financial Express, Vol.3, No.208, Dec 21, 2006.
[17] The Financial Express, Jan. 27, 2007.
[18] The Gazette of India Extra Ordinary (2005), Part II, Section-1, No.31,
Ministry of Law and Justice, Legislative Dept., New Delhi.
[19] The Gazette of India Extraordinary (2006); Part II, Section-3, Sub-section(i),
Government of India, Ministry of Commerce and Industry, Dept of
Commerce Notification.
[20] www.businessline.in/webextras
[21] www.tribuneindia.com/2007
[22] Yojana, Vol.46, Dec.2002
[23] Yojana Vol.49, May.2005
[24] Yojana Vol.50, July 2006
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
63
Glossary
ASSOCHAM
Associated Chambers of Commerce and Industry of India
APPCB
AP Population Control Board
ASEAN
Association of South East Asian Nations
BOA
The Board of Approval as notified by the Department of Commerce
CEN VAT
Central Value Added Tax
CST
Central Sales Tax
Developer
A person or body of persons, company, firm and such other private or
government undertaking, who develops, builds, designs, organises,
promotes, finances, operates, maintain or manages a part or whole of
the infrastructure and other facilities in the Special Economic Zones as
approved by the central Government.
Development
Commissioner
The Development Commissioner of the Special Economic Zone.
EDI
Electronic Data Interchange
EU
European Union
EOU
Export Oriented Unit
EGoM
Empowered Group of Ministers
EHTP
Export Oriented Hardware Technology Parks
EIA
Environment Import Assessment
Exporter
A person who exports or intends to export and holds an Importer-
Exporter Code number unless otherwise specifically exempted.
EPZ
Export Processing Zones
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
64
EXIM
Export and Import
FDI
Foreign Direct Investment
FII
Foreign Institutional Investment
FIPB
Foreign Investment Promotion Board
GoAP
Government of Andhra Pradesh
Importer
A person who imports or intends to import and holds an Importer-
Exporter Code number unless otherwise specifically exempted.
IT
Information Technology
ITES
IT Extension Service
Infrastructure
facilities
Industrial, commercial and social infrastructure or any other facility for
the development of the Special Economic Zone as notified.
ILO
International Labour Organisation
Licensing
Authority
The authority competent to grant a licence under the Act/Order.
LOP
Letter of Permission
MAT
Modern Alternate Tax
NAFTA
North American Free Trade Agreement
NGoM
New Group of Ministers
NFEP
Net Foreign Exchange Earning as a percentage of exports.
Notification
A notification published in the Official Gazette.
PAN
Permanent Account Number
SEZs in India: Policies, Problems and Perspectives Occasional Paper 1
Indian Institute of Economics, Hyderabad.
65
Public Notice
A notice published under the provisions of paragraph 2.4 of the Policy.
Rules
Rules made by the Central Government under Section 19 of the Act.
SAFTA
South Asian Free Trade Association
SDF
Standard Design Factory
STP
Software Technology Park
TN
Tamil Nadu
Unit Approval
Committee
The Committee notified for Special Economic Zones to consider
proposals on matters relating to Special Economic Zone unit under its
jurisdiction.
VAT
Value Added Tax
WB
West Bengal
Zone
Development
Board
The Zone Development Board notified for Special Economic Zones to
consider matters relating to development, operation and maintenance of
SEZs.
About the Autors
Dr Yerram Raju is currently the Director of Indian Institute of Economics, Hyderabad. He has
held senior position at reputed institutes like the Administrative Staff College of India (ASCI),
Hyderabad, Institute of Public Enterprise (IPE), Hyderabad and LBS Academy of
Administration (LBS NAA), Mussorie in various Capacities.
Sri Ramakrishna Nallathiga is currently Knowledge Manager at Centre for Good Governance
(CGG), Hyderabad. He was associated with research institutes like National Environmental
Engineering Research Institute (NEERI), Nagpur, Indira Gandhi Institute of Development
Research (IGIDR), Mumbai as well as Indian Institute of Technology (IIT) Bombay. He was
a Programme Manager at Bombay First/ Bombay City Policy Research Foundation, Mumbai.
ResearchGate has not been able to resolve any citations for this publication.
Special Economic Zones Act, Initiatives by MoU and the Future of Indian Economy
  • G K Pillai
G.K.Pillai, "Special Economic Zones Act, Initiatives by MoU and the Future of Indian Economy". Vol.VI-Issue 50, 12, Dec 2006, FAPCCI Review
SEZs: Go the Chinese Way
  • S Majumder
Majumder, S "SEZs: Go the Chinese Way", The Business Line, May 7 2003
An Assessment of China " s Special Economic Zones The Industrial College of Armed Forces
  • I Mckenney
McKenney, I. (1993). " An Assessment of China " s Special Economic Zones ", Executive Research Project, The Industrial College of Armed Forces, National Defense University, Washington DC.
Labour Issues in Export Processing Zones in South Asia
  • A S Oberai
  • A Sivananthiran
  • C S Venkata
  • Ratnam
Oberai,A.S, A.Sivananthiran and C. S. Venkata Ratnam (Ed.) " Labour Issues in Export Processing Zones in South Asia: Role of Social Dialogue " ; South Asia Multi-disciplinary Team (SAAT), International Labour Organisation (ILO), NewDelhi (2001).
Trade Commerce and 022-22047433 www.navimumbaisez.com Mining Dept
  • Navi Mumbai
  • Sez Secretary
Navi Mumbai SEZ Secretary,Trade Commerce and 022-22047433 www.navimumbaisez.com Mining Dept, Govt of Maharashtra Mumbai
of Madhya Pradesh Bhopal www.sezindore
  • Govt Dept
Dept, Govt. of Madhya Pradesh Bhopal www.sezindore.com
Maha Mumbai) Gujarat Positra Port Infrastructural Ltd. REFERENCES [1] Business Standard, Economy and Industry Weekend 16
  • Kopta
Kopta (Maha Mumbai) Gujarat Positra Port Infrastructural Ltd. REFERENCES [1] Business Standard, Economy and Industry Weekend 16/17 Dec.2006
Executive Research Project, The Industrial College of Armed Forces
  • I Mckenney
McKenney, I. (1993). "An Assessment of China"s Special Economic Zones", Executive Research Project, The Industrial College of Armed Forces, National Defense University, Washington DC.
Section-3, Sub-section(i), Government of India, Ministry of Commerce and Industry
  • Part -Ii
Part -II, Section-3, Sub-section(i), Government of India, Ministry of Commerce and Industry, Dept of Commerce Notification.