Sez- Challenges Before Indian Economy

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Prof. Shashikant Mundhe.

Dept. of Business Economics,
Siddharth College of Comm. & Eco. Mumbai.

SEZ – Challenges Before Indian Economy

Introduction :

Over the years it has been seen that the growth rate of the Indian economy, employment generation, improvement in the standard of living of the people has not been as expected. It was realized that foreign (and even domestic) investments in India were much lesser as compared to the much smaller South East Asian countries mainly due to multiplicity of controls and clearances, absence of world class financial infrastructure, etc. With a view to overcome the shortcomings experienced in attracting investments, increasing exports and accelerating economic growth the Special Economic Zones (SEZs) policy was introduced by the then NDA government in April 2000.

This policy intended to make SEZs a tool for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations Further, 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 employment through the establishment of SEZs, a comprehensive draft of SEZ Bill was prepared after extensive discussions with the stakeholders.

The over enthusiasm to push the SEZ policy as an instrument of rapid industrialization has met with a series of roadblocks especially after the Nandigram incident. The SEZ policy is a part of the policy of “Growth at any Cost”, with the cost falling on the marginalized section of the rural population. Thus, those who gain and those who lose will be different sections of the population. This simply means that the SEZs are not Pareto-optimal over a situation where SEZs are absent. Therefore, this policy can lead to various socio-economic and political challenges.

Meaning of SEZs?

The Special Economic Zones (SEZs) are well developed enclaves of industrial infrastructure with plots, built up space, power, water supply, transport, housing etc. Besides industrial facilities, the SEZs provides social infrastructure including schools, hospitals, roads, hotels and the like.

The SEZs are specifically delineated areas wherein units may be set up for specified purpose of manufacturing or trading or rendering services or providing warehousing facility for exports.

In terms of the Section 2(i) of the said SEZ Act 2005, the Domestic Tariff Area (DTA) is defined to mean the whole of India (including its territorial waters and continental shelf) but not including the areas of SEZs. Furthermore, section 53 of the said SEZ Act provides that the SEZ shall be deemed to be a territory outside the Customs territory of India. The legal implication is that the SEZs are treated as the foreign territory for the purpose of trade operations, duties and tariffs. In other words, goods and services going into the SEZ (from the DTA) are treated as exports and goods and services coming from SEZ into the DTA are treated as imports. Therefore, domestic laws do not generally apply to the SEZs and the units therein. In short, SEZs will be considered sovereign territories of MNCs setting up shops there and ordinary Indians will require passports to enter these enclaves.

Historical Background & SEZ Act:

The SEZ Act was enacted only recently, in 2005, but the origin of the SEZ scheme can be traced to as far back as 1965 when the Kandla Free Trade Zone (FTZ) was started. Thus there were Export Processing Zones (EPZs) in the country well before the new legislation was enacted, but these were few in number (only eight, operated by Central Government) and did not have a major impact on exports or investment. This led to a comprehensive review of the policy framework for existing EPZs/FTZs In 1999, which included a study of many SEZs world-over. The finding...
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