SEZ is a geographical region that has economic laws that are more liberal than a country's typical economic laws.
By offering privileged terms, SEZs attract investment and foreign exchange, spur employment and boost the development of improved technologies and infrastructure. Today, there are approximately 3,000 SEZs operating in 120 countries, which account for over US$ 600 billion in exports and about 50 million jobs. By offering privileged terms, SEZs attract investment and technology.
There are 13 functional SEZs and about 61 SEZs, which have been approved and are under the process of establishment in India.
As part of its continuing commitment to liberalization, the Government of India has also, since the last decade, adopted a multi-pronged approach to promote foreign investment in India. Most developing countries in the world have recognized the importance of facilitating international trade for the sustained growth of the economy and increased contribution to the GDP of the nation. The Government of India has pushed ahead with second-generation reforms and has made several policy changes to achieve this objective.
The SEZ policy was first introduced in India in April 2000 announced the introduction of Special Economic Zones policy in the country and realizing the need to enhance foreign investment and promote exports from the country deemed to be foreign territory for the purposes of trade operations, duties and tariffs.
The units in the Domestic Tariff Area by SEZ units is on self-certification basis. To provide an internationally competitive and hassle free environment for exports, units were allowed be set up in the Domestic Tariff Area by SEZ units is on self-certification basis.
The policy provides for setting up of SEZ's in the public, private, joint sector or by State Governments. It is also being envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.
Accordingly, the Government has converted Export Processing Zones located at Kandla and Surat (Gujarat), Cochin (Kerala), Santa Cruz (Mumbai-Maharashtra), Falta (West Bengal), Madras (Tamil Nadu), Visakhapatnam (Andhra Pradesh) and Noida (Uttar Pradesh) into a Special Economic Zones. In addition, 3 new Special Economic Zones were approved for establishment at Indore (Madhya Pradesh), Manikanchan – Salt Lake (Kolkata) and Jaipur and have already commenced operations.
India is one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports. Asia’s first EPZ was set up in Kandla in 1965. With a view to create an environment for achieving rapid growth in exports, a Special Economic Zone policy was announced in the Export and Import (EXIM) Policy 2000. Under this policy , one of the main features is that the designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs. No licence required for import. The manufacturing, trading or service activities are allowed.
To provide a stable economic environment for the promotion of Export-import of goods in a quick, efficient and hassle-free manner, Government of India enacted the SEZ Act, which received the assent of the President of India on June 23, 2005. The SEZ Act and the SEZ Rules, 2006 (“SEZ Rules”) were notified on February 10, 2006. The SEZ Act is expected to give a big thrust to exports and consequently to the foreign direct investment (“FDI”) inflows into India, and is considered to be one of the finest pieces of legislation that may well represent the future of the industrial development strategy in India. The new law is aimed at encouraging public-private partnership to develop world-class infrastructure and attract private investment (domestic and foreign), boosting economic growth, exports and employment.
The Ministry of Commerce and Industry lays down the regulations that govern the setting up and administering of the SEZs. The Central Government isfunctioning, while the State Governments play a significant lead role in the development of SEZs in their respective States by stipulating the conditions to be adhered to by an SEZ and granting the necessary approvals. The policy framework for SEZs has been enacted in the SEZ Act and the supporting procedures are laid down in SEZ Rules.
The Special Economic Zone Act 2005 came into force with effect from 10th February 2006, with SEZs Rules legally vetted and approved for notification. The SEZs Rules, inter-alia, provide for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. Investment of the order of Rs.100, 000 crores over the next 3 years with an employment potential of over 5 lakh is expected from the new SEZs apart from indirect employment during the construction period of the SEZs. Heavy investments are expected in sectors like IT, Pharma, Bio-technology, Textiles, Petro-chemicals, Auto-components, etc. The SEZ Rules provides the simplification of procedures for development, operation, and maintenance of the Special Economic Zones and for setting up and conducting business in SEZs. This includes simplified compliance procedures and documentation with an emphasis on self-certification; single window clearance for setting up of an SEZ, setting up a unit in SEZs and clearance on matters relating to Central as well as State Governments; no requirement for providing bank guarantees; contract manufacturing for foreign principals with option to obtain sub-contracting permission at the initial approval stage; and Import-Export of all items through personal baggage.
With a view to augmenting infrastructure facilities for export production it has been decided to permit the setting up of Special Economic Zones (SEZs) in the public, private, joint sector or by the State Governments. The minimum size of the Special Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not be applicable to product specific and port/airport based SEZ. This measure is expected to promote self-contained areas supported by world-class infrastructure oriented towards export production. Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ).
This paper explores the Indian policy framework for an SEZ, it further discusses the various incentives available to an SEZ and an SEZ Unit, and the recent legal and regulatory developments pertaining to SEZs in India.
Salient features of the Indian SEZ initiative include:
• Unlike most of the international instances where zones are primarily developed by Governments, the Indian SEZ policy provides for development of these zones in the government, private or joint sector. This offers equal opportunity to both Indian and international private developers.
• For greenfield SEZs, the Government has specified a minimum preferable area of 1,000 hectares. However, for sector specific SEZs, there is no restriction of minimum area.
• 100 per cent FDI is permitted for all investments in SEZs, except for activities under the negative list.
• SEZ units are required to be positive net foreign exchange earners and are not subject to any minimum value addition norms or export obligations.
• Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be treated as exports and goods coming from the SEZ area into DTA are treated as imports.
Administrative setup for SEZs
SEZs is governed by a three tier administrative set up
a) The Board of Approval is the apex body in the Department,
b) The Unit Approval Committee at the Zonal level dealing with approval of units in the SEZs and other related issues, and
c) Each Zone is headed by a Development Commissioner, who also heads the Unit Approval Committee.
Approval Mechanism of SEZs
Any proposal for setting up of SEZ 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 of the Board of Approval. On the other hand, any proposals for setting up of units in the SEZ are approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government. Approval given for setting up new SEZs in Private/Joint/State Sector
Approvals have so far been given for setting up of 117 new Special Economic Zones (including 3 Free Trade Warehousing Zones) spread over 15 States and 2 Union Territories in the Private/Joint Sector or by the State Governments and its agencies. Of the 117 SEZs approved for establishment, 7 SEZs have already become operational, 6 SEZs are now getting ready for operation and the other are at various stages of implementation.
Incentives and Benefits
Besides providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ policy also provides enterprises and developers with a favourable and attractive framework of incentives:
• 100% income tax exemption for a block of five years and an additional 50% tax exemption for two years thereafter
• 100% FDI in the manufacturing sector permitted through automatic route, barring a few sectors.
• External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels.
• Facility to retain 100% foreign exchange receipts in Exchange Earners’ Foreign Currency Account.
• 100% FDI permitted to SEZ franchisee in providing basic telephone services in SEZs.
• No cap on foreign investment for small scale sector reserved items.
• Exemption from industrial licensing requirements for items reserved for the SSI sector.
• No import licence requirements
• Exemption from customs duties on import of capital goods, raw materials, consumables, spares etc
• Exemption from Central Excise duties on procurement of capital goods, raw materials, consumable spares etc., from the domestic market.
• No routine examinations by Customs for export and import cargo.
• Facility to realize and repatriate export proceeds within 12 months.
• Profits allowed to be repatriated without any dividend-balancing requirement.
• Job work on behalf of domestic exporters for direct export allowed.
• Subcontracting both domestic and international is permitted; this facility is available to jewellery units as well.
• Exemption from Central Sales Tax and Service Tax
• Facilities to set up off-shore banking units in SEZs.
Incentives to Developers
• Exemption from duties on import /procurement of goods for the development, operation and maintenance of SEZ.
• Income tax exemption for a block of 10 years in 15 years.
• Exemption from Service Tax
• FDI to develop townships within SEZs with residential, educational, health care and recreational facilities permitted on a case-to-case basis.
List of Operational Special Economic Zones
SEEPZ Special Economic Zone,( Mumbai)
Andheri (East) Mumbai-400096
Tel: (022) 28290856,(022) 28291754,
(022) 28290143, Fax:022- 28291386
Web Site : http://www.seepz.com
Kandla Special Economic Zone,
Tel: (02836) 252475,252194
Web Site : http://www.kandlasez.com
Cochin Special Economic Zone
Kakkanad, Cochin - 682030
Fax : 0484-2422530
Web Site : http://www.csez.com
Surat Special Economic Zone
Diamond Park , Sachin
E-mail : Maria@bom3.vsnl.net.in
WebSite : http://www.suratsez.com
Noida Special Economic Zone
Noida Dadri Road, Phase-II
Noida - 201205, Gautam Budha Nagar
Tel : 91-24567270-73 (4 Lines)
Fax : 24562314, 24567276
Email : email@example.com
Website : http://www.nepz.org
Visakhapatnam Special Economic Zone
Administrative Office Building
Duvvada, Visakhapatnam - 530046
Tel : 0891-2587555
Fax : 0891-2587352
Email : firstname.lastname@example.org, email@example.com
Website : http://www.vepz.com
Madras Special Economic Zone
Adminsitrative Office Building
G.S.T. Road, Tambaram
Chennai - 600046 (Tamilnadu)
Tel : 044-22628220, 22628305
Fax : 91-44-22628218
Email : firstname.lastname@example.org
Website : http://www.mepz.com
Falta Special Economic Zone
2nd M.S.O. Building, 4th Floor,
Room No. 4-4, Nizam Palace
234/4, A.J.C. Bose Road
Calcutta - 700 020
Tel : 033-22472263, 22477923, 22813117
Fax : 91-33-22477923
Email : email@example.com (internet)
Website : http://www.fepz.com
List of Special Economic Zones Approved For Establishment
Name of the SEZ Name of Promoter Telephone (Office) Website
Positra SEZ Gujarat Positra Port Infrastructure Limited, 079-26466313/22/24 www.positra.com
Ahmedabad #9; Fax: 079-2646 6302
Nanguneri SEZ Tamil Nadu Industrial 044-28554421
Development Corporation, Madras
(i) Bhadohi SEZ Secretary,Small Scale Industries & 0522-2239280
(ii) Kanpur SEZ Export Promotion, Govt. of UP Lucknow Fax: 0522-2239235
(iii) Greater Noida
Navi Mumbai SEZ Secretary,Trade Commerce and 022-22047433 www.navimumbaisez.com
Mining Dept, Govt of Maharashtra Mumbai
Vishakapatnam SEZ Principal Secretary(Industries), 040-23454449 www.apsez.com
Govt. of AP Hyderabad
(i) Paradeep SEZ, Secretary (Industries), Govt. of 0674-2401650
(ii) Gopalpur SEZ Orissa, Bhubhaneshwar
(i) Kulpi SEZ Principal Secretary, Secretary, 033-22215487
(ii) Salt Lake Commerce and Industries Dept, Govt. of
West Bengal Kolkota
Indore SEZ Principal Secretary, Commerce and Industries 0755-555
Dept, Govt. of Madhya Pradesh Bhopal www.sezindore.com
Hasan SEZ Principal Secretary, Commerce and 080-22252443/22092447
Industries Dept, Govt. of Karnataka, Banglore Fax: 080-22259870
Vallarpadam/Puthuvypeen Cochin Port Trust
Kakinada Kakinada Seaports Ltd.
Kopta (Maha Mumbai) Gujarat Positra Port Infrastructural Ltd.