Analysis of Special Economic Zones in India Essay

* INTRODUCTION: SPECIAL ECONOMIC ZONES is a geographical region that has economic and other laws that are more free-market oriented than a country’s typical or national laws. â€Å"Nationwide† laws may be suspended inside a special economic zone. The category ‘SEZ’ covers the following: * free trade zones (FTZ), * export processing Zones (EPZ) * free Zones (FZ) * industrial parks or industrial estates (IE) * free ports * free economic zones * urban enterprise zones Usually the goal of a structure is to increase foreign direct investment by foreign investors, typically an international business or a multinational corporation (MNC), development of infrastructure and to increase the employment. India was one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. In order to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. * HISTORY: The world first known instance of SEZ have been found in an industrial park set up in Puerto Rico in 1947. In the 1960s, Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain global currency with its largest SEZ being the metropolis of Shenzhen.From 1965 onwards, India experimented with the concept of such units in the form of Export Processing Zones (EPZ). But a revolution came in 2000, when Murlisone Maran, then Commerce Minister, made a tour to the southern provinces of China. After returning from the visit, he incorporated the SEZs into the Exim Policy of India. Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ Rules were formulated. The SEZ Act, 2005, was an important bill to be passed by the Government of India in order to instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employme nt through their establishment, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10 February 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The remaining part of India, not covered by the SEZ Rules, is known as the Domestic tariff area. Exports from Indian SEZ totalled 2.2 Trillion in 2009-10 fiscal. It grew by a stupendous 43% to reach 3.16 Trillion in 2010-11 fiscal. Indian SEZs have created over 840,000 jobs as of 2010-11. Within SEZs, a units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc. As per law, SEZ units are deemed to be outside the customs territory of India. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India. Currently, there are about 143 SEZs (as of June 2012) operating throughout India[5] and an additional 634 SEZs (as of June 2012) that have been formally/principally approved by the Government of India [6]: State/Union Territory| Number of operational Special Economic Zones (June 2012) * BENEFITS OF SPECIAL ECONOMIC ZONES: * Providing state-of-the-art infrastructure. * Access to a large well-trained and skilled work force * Incentives which include 100% income tax exemption for a period of five years and an additional 50% tax exemption for two years thereafter. * 100% FDI is also provided in the manufacturing sector. * Exemption from industrial licensing requirements and no import license requirements is also given to the SEZ units. Attractive incentive and great investment opportunities have attractive many business tycoons to step into the SEZ all over the country. The first step was taken by the Mahindra World City at Chennai. The SEZ was promoted by Mahindra & Mahindra Ltd and later on by the Tamil Nadu Industrial Development Corporation. Mahindra & Mahindra Ltd holds 89% equity in the same. Later on, Reliance Industries also signed a pact with the Haryana government for setting up of the Rs. 25,000 crore multi products SEZ near Gurgaon in 2006. * OBLIGATIONS UNDER SPECIAL ECONOMIC ZONES: It is compulsory for every SEZ units in India to achieve positive net foreign exchange earning as per the formula given in paragraph Appendix 14-II (para 12.1) of Handbook of Procedures, Vol.1. For this particular purpose, a legal undertaking is required which has to be executed by a separate unit of the Development Commissioner. The is responsible for providing periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1 * ROLE OF STATE GOVERNMENT IN ESTABLISHMENT OF SEZ UNITS: State Governments play a very active role to play in the establishment of SEZ unit. Any proposal for setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce), the States Government properly checks all the necessary inputs such as water, electricity, etc required for the establishment of SEZ units. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval. Representative of the State Government. * ADVANTAGES: * Allowed to carry forward losses. * No license required for import made under SEZ units. * Duty free import or domestic procurement of goods for setting up of the SEZ units. * Goods imported/procured locally are duty free and could be utilized over the approval period of 5 years. * Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc. * Exemption from Central Excise duty on the procurement of capital goods, raw materials, and consumable spares, etc. from the domestic market. * Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that, the goods are meant for undertaking authorized operations. * Exemption from payment of Service Tax. * The sale of goods or merchandise that is manufactured outside the SEZ (i.e., in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports. * No routine examination by Customs officials of export and import cargo. * Setting up Off-shore Banking Units (OBU) allowed in SEZs. * OBU’s allowed 100% income tax exemption on profit earned for three years and 50 % for next two years. * Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act, 1947. * The Government has exempted SEZ Units from the payment of stamp duty and registration fees on the lease/license of plots. * External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions. * DISADVANTAGES: * Revenue losses because of the various tax exemptions and incentives. * Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves. * Terms and conditions: Only units approved under SEZ scheme would be permitted to be located in SEZ. 1. The SEZ units shall abide by local laws, rules, regulations or laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labor laws as may be locally applicable. 2. Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZ. 3. The SEZ should have a minimum area of 1000 hectares and at least 35 % of the area is to be earmarked for developing industrial area for setting up of processing units. 4. Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.. * FUNCTIONING/ SET UP OF SEZ: The functioning of SEZs is governed by a three-tier administrative set-up. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zone level deals with approval of units in the SEZs and other related issues. * Board of Approval The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the major decisions are taken by the Board of Approval. The Board of Approval has 19 Members * Unit Approval Committee All the request for setting up of units in the SEZ is approved at the Zone level by the Approval Committee consisting of Development Commissioner after a discussion with the Customs Authorities and representatives of State Government. All post approval clearances in matters related to importer-exporter code number, change in the name of the company or implementing agency; broad banding diversification, etc. are given at the zonal level by the Development Commissioner. A separate units is also there who monitor the performance of the SEZ units on a periodic basis and is governed by the Approval Committee. SEZ units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of any violation in the rules formulated by the Approval Committee. * Development Commissioner SEZs / EOUs, each zone are headed by a Development Commissioner, who is also heading the Unit Approval Committee. Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units or developer. In all SEZ’s, the statutory functions are controlled by the Government while the rest of the operations are privatized. * DIFFERENCE BETWEEN FREE TRADE ZONES(FTZ) AND SPECIAL ECONOMIC ZONES(SEZ): A free trade zone (FTZ) , also called foreign-trade zone, formerly free port is an area within which goods may be landed, handled, manufactured or reconfigured, and re exported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. Free-trade zones are organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade. . The world’s first Free Trade Zone was established in Shannon, County Clare, and Shannon Free Zone.[3] This was an attempt by the Irish Government to promote employment within a rural area, make use of a small regional airport and generate revenue for the Irish economy. It was hugely successful, and is still in operation today. The number of worldwide free-trade zones proliferated in the late 20th century A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country’s typical or national laws. â€Å"Nationwide† laws may be suspended inside a special economic zone. PROMINENT EXPORT PROCESSING ZONES IN INDIA: * Kandla Free Trade Zone (KAFTZ), Kandla, Gujarat * Santa Cruz Electronic Export Processing Zone (SEEPZ), S. Cruz, Maharashtra * Cochin Export Processing Zone (CEPZ), Cochin, Kerala * Falta Export Processing Zone (FEPZ), Falta,West Bengal * Madras Export Processing Zone (MEPZ), Madras, Tamil Nadu * Noida Export Processing Zone (NEPZ), Noida, Uttar Pradesh * Visakhapatnam Export Processing Zone (VEPZ), Visakhapatnam, Andhra Pradesh * While the Santa Cruz Electronics Export Processing Zone (SEEPZ) is meant exclusively for the exports of electronics and gems and jewelry, all other zones are multi-product zones. 100% foreign equity is welcome in EOUs and EPZs * INDUSTRIAL PARKS: Industrial parks are usually located on the edges of, or outside the main residential area of a city, and normally provided with good transportation access, including road and rail.[1] One such example would be the large number of Industrial Estates located along The River Thames in The Thames Gateway area of London. Industrial parks are usually located close to transport facilities, especially where more than one transport modes coincide: highways, railroads, airports, and ports. This idea of setting land aside through this type of zoning is based on several concepts: * To be able to concentrate dedicated infrastructure in a delimited area to reduce the per-business expense of that infrastructure. Such infrastructure includes roadways, railroad sidings, ports, high-power electric supplies (often including three-phase power), high-end communications cables, large-volume water supplies, and high-volume gas lines. * To be able to attract new business by providing an integrated infrastructure in one location. * Eligibility of Industrial Parks for benefits[2][3] * To set aside industrial uses from urban areas to try to reduce the environmental and social impact of the industrial uses. * To provide for localized environmental controls that are specific to the needs of an industrial area. * CRITICISM: Different industrial parks fulfill these criteria to differing degrees. Many small communities have established industrial parks with only access to a nearby highway, and with only the basic utilities and roadways. Public transportation options may be limited or non-existent. There may be few or no special environmental safeguards. * FREE ZONES: Free Zone are a geographically distinguished areas, possess a particular laws and regulation varies than those applied within the state. Free zone investors enjoy the particular incentives and privileges associated to these areas, such as: * Freedom to initiate any legal form for the activity * The investor has the freedom to determine prices of his services or products and the profit margin he desires. * The investor enjoys the exemption of Capital assets assets, productions supplies and imports and exports from customs, sales or any type of taxes or fees.