The Features and Characteristics of The Indian Special Economic Zone

Published: 01st September 2006
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The Special Economic Zone in India was launched in April 2000 .Section 9-A of the Exim policy defines policies related to setting up SEZs in India. The main features of SEZS India are:

1. The Special Economic Zone would be a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

2. Goods going into the SEZ area from DTA shall be treated as deemed exports and goods coming from the SEZ area into DTA shall be treated as if the goods are being imported.

3. SEZ units can be set up for manufacture of goods and rendering of services, production, processing, assembling, trading, repair, remaking, reconditioning, and re-engineering including making of gold / silver/platinum jewellery and articles thereof or in connection therewith.

4. SEZs may be set up in the public, private or joint sector or by State Governments

5. SEZ should have an area preferably of 1000 hectares

6. SEZ units would have to be positive Net Foreign Exchange Earners and would not be subject to any minimum value addition norms or export obligations.

7. 100% FDI would be permitted for all investments in SEZs except for activities under the negative list

8. The Ministry of Commerce and Industry through issue of a notification can also convert the existing Export Processing Zones (EPZs) into SEZ.

9. The Development Commissioner would be responsible for administrative control of the zone.

Some o the main characteristics of the Indian SEZ are as follows;

A. International experience shows that Governments have largely developed special economic zones and have invested the necessary funds to create zone infrastructure. As an extension, Governments have also taken the principal responsibility for marketing these zones internationally. Unlike this, the primary thrust of the Indian SEZ model is to facilitate 'private sector led' SEZs. This has opened up possibilities for developing SEZs in the private sector and joint sector.

B. Keeping in view learning from other countries, the Indian SEZ model also envisages a minimum size of 1000 ha for all Greenfield SEZs. As highlighted earlier in this paper, a minimum critical mass or size is necessary to give rise to the desired economic multiplier. The combined utilized area under all EPZs & FTZs in India is 2100 acres i.e. less than 1000 hectares, the minimum size stipulated for green-field SEZ. The simultaneous conversion of existing EPZs / FTZs into SEZs provides an opportunity to test and fine-tune the SEZ policy before being finally applied to green-field SEZs.

C. Experience of comparable countries shows that decisions such as location selection, number of SEZs to be promoted and the focus for investment attraction have largely been influenced by national Governments. In the Indian SEZ model, states are being encouraged to take these choices while the central government is largely focusing on policy-making and facilitation. This has resulted in a number of proposals from states for developing SEZs. Since much of the funding for SEZs is envisaged through private sector /banks, soundness of the business model, competitive differentiation and market forces would be the key determinants of bank ability of these projects.

D. Special over riding laws and legislation has been formulated at the outset in various countries to provide the necessary regulatory foundation for SEZs. Until such legislation comes into effect in India, the government is providing the framework through a series of changes in the EXIM policy, Income Tax Act and Customs and Excise notifications. The federal structure also makes it imperative to have special overriding legislation at Central as well as State levels to comprehensively cover all aspects.

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