SPECIAL ECONOMIC ZONE (SEZs)
with example of
MUNDRA PORT & SPECIAL ECONOMIC ZONE, GUJARAT
Special Economic Zones (SEZs) were established in many countries as testing grounds for implementation of liberal market economy principles. SEZs are viewed as instruments enhancing the acceptability and credibility of transformation policies, attracting domestic and foreign investment and also for the opening upon the economy. SEZs in India seek to promote the value addition component in exports, generate employment as well as mobilize foreign exchange. Globally, many countries initiated Free Trade Agreements (FTAs)which eventually led to a spurt in investments in infrastructure developments for Free Trade Zones (FTZs) and SEZs. A close examination of the evolution of SEZs in countries with similar economies as India eg; China, Iran, UAE and Jordan, will help us to understand their success stories and thereby implement those factors, in order to curb the SEZ bottlenecks faced by India today. The Shenzhen SEZ in China is a perfect example of a SEZ success story.
In India, the government has been proactive in the development of SEZs. They have formulated policies, reviewed them occasionally and also ensured that ample facilities are provided to the SEZ developers as well as the companies setting up units in SEZs. These favorable conditions resulted in the biggest ever corporate rush for the development of SEZs in India. Over 234 companies received formal approval, 162 companies received in-principle approval and 100 companies received notification to set up SEZs. The Indian government is expecting an investment to the tune of Rs.53,561 crore (USD 13274 million) and an additional job creation for 15,75,452 individuals in SEZs by December 2009. Despite all the efforts, SEZ development has become the most controversial issue for India today. It is very important to understand all aspects of SEZs such as basic concepts, its various models and the life cycle of its business before initiating any policy or investments for these projects. Despite the fact that the existing SEZ Act and FDI Policies for SEZs are very lucrative; the rationale behind the rapid economic and industrial growth of the Indian SEZ policy is being questioned. The diagram below is a snapshot of the different types of SEZs. With the unending list of trouble-shooting problems in India, it becomes very important to understand the business of SEZ’s in India. The report emphasizes on certain issues which brings clarity to SEZ issues.
Special Economic Zone (SEZ) is a duty free area which is meant for the purposes of trade operations, duties and tariffs for investors. SEZs are specifically demarcated areas within the country where raw materials and capital goods can be imported duty free from abroad or the domestic market and a special package of tax holiday and incentives are given with a view to boost exports from the country. Manufacturing and Services operations are allowed in an SEZ. The Foreign Trade Policy of Government of India provides for setting up of Special Economic Zones (SEZ) in the country with a view to provide an hassle free environment for exports. Units may be set up in SEZ for manufacture of goods and rendering of services. The units in SEZs have to be a net foreign exchange earner but they are not subjected to any pre-determined value addition or minimum export performance requirements. SEZs could be set up in public, private, joint sector or by State governments. 100% FDI is allowed in setting up of SEZs. The government of India has also converted existing Export Processing Zones into SEZs. The minimum size of the SEZs shall be 1000 hectares except in product specific and port/airport based SEZs. Approval for setting up of new SEZs is given by Department of Commerce, Government of India. For setting up units in...
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