Special Economic Zones: Legal Issues

Topics: International trade, Special Economic Zone, Investment Pages: 8 (2399 words) Published: August 3, 2010
SEZ: Does the Act ensure
what the policy intends ?

4,Lokmanya Nagar,
Gangapur Road, Nasik.422002.

Exports as real contributor to forex reserve

India has recently got the honour of being one among the few countries in the world having foreign exchange reserve of more than 200 billion dollars. However during past six decades India has no trade surplus; all the times the exports have been less than the imports. Hence though there is quantitative increase in forex reserves, qualitative improvements is yet not seen. The foreign investors have found India a relatively safe & profitable destination to park their funds. That’s all! Long-term improvements in forex reserves is achieved only by positive trade surplus of considerable amount for considerably long period. Obviously all the countries try to increase their exports on one hand and to minimise their imports on the other hand.

Limiting imports may not be possible due to many reasons viz. the stage of development of the economy, the development of technology, availability of natural resources etc. Hence to achieve positive trade surplus, the real solution is to maximise the exports. Indian Government has also tried to increase exports by announcing & implementing many schemes. To mention few of them-- export financing at concessional interest rates, income tax exemption for export income, transport & storage facilities at concessional rates, etc. The latest policy adopted and largely debated for export promotion is that of ‘Special Economic Zones’.

The following are some of the factors limiting exports.

i. Insufficient and low quality infrastructure.
ii. Limited domestic capital formation & restrictions on foreign capital. iii. Administrative hurdles, and complexity.
iv. Complicated & Labour friendly labour laws.
v. Many taxes and high rates of taxes.

These hurdles cannot be removed at once throughout the country. But certain geographical islands can be identified for that purpose. They are called as SEZs. The Commerce Ministry in its Press Release on 10/05/2005 said “ The objectives of SEZ are making available goods and services free of taxes and duties supported by integrated infrastructure for export production, quick approval mechanisams and packages of incentives to attract foreign investments for promoting exports.”

The Government of India adopted SEZ policy in 2000 and passed SEZ Act 2005 & made SEZ Rules 2006 to implement the same. The Act & the Rules have to ensure that the expected results of SEZ policy are achieved and that the negative implications of SEZ policy are overcome. Analysing the Act & Rules from this angle, two issues need some attention.

1. Do the SEZ Act 2005 and SEZ Rules 2006 ensure establishment and development of SEZs?

The developer has to apply for approval of SEZ. In-principle approval and the formal/final approval are the two stages involved in the process. The land required for the SEZ is to be purchased by the Developer and obviously the Developer has to invest considerable amount for same. The argument therefore is if i) The Developer has willing applied for establishment of SEZ and ii) The Developer has invested considerable amount and has put substantial hard efforts and precious time for purchase of land, he will, without doubt, establish and develop the SEZ.

A counter argument can also be made that if

i.The developer can purchase hundreds of hectars of land with the assistance of the Govt. without the application of the provisions barring purchase of agriculture land by a non-agriculturist etc. and ii.There is no compulsion in the SEZ Act to develop the SEZ, There is every possibility that the developer will simply buy the land, hold it in full or in part and transfer the same at profit (with the...
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