Today’s era is an ‘era of Liberalisation-Privatisation-Globalisation’. In this liberalised world, no country can afford to remain in isolation and needs to focus on improving its international trade. The emerging economy like India has also made certain changes in its policy from time to time, in order to increase its exports and to attract more and more foreign investments in various sectors of the economy. In order to attract the foreign investment for export oriented production in an economy, the concept of Special Economic Zones (SEZs) was introduced in India. As a part of growth journey of resurgent India, everybody of us should be aware about the concept of SEZs and its role in development of Indian economy. The basic understanding of concept of SEZ and its related current affairs would place the professionals in an advantageous situation during their personal interviews or Group Discussion exercises. This article tries to focus on the need of SEZs, their objectives, functioning of SEZs and the advantages & disadvantages of SEZ policy in India.

Indian economy is progressively marching on the path of becoming the economic superpower. In its journey towards supremacy, Indian economy needs a massive investment in manufacturing, basic infrastructure development and its productive capacities. It also needs to aggressively promote the exports of goods and services in a highly competitive global market. India was the first country in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports and hence it had set up Asia’s first EPZ at Kandla in year 1965. Apart from Kandla EPZ, seven more EPZs were also set up by the Government of India in later years.

However, the EPZs were not able to emerge as effective instruments for export promotion on account of‘Licence-Permit-Quota Raj’ prevalent in Indian economy. In order to improve export oriented production in Indian economy, the Government of India initiated the Special Economic Zone (SEZ) policy in April 2000 which was further concretised through the SEZ Act 2005 and SEZ Rules 2006. The SEZ policy is intended to make SEZ, an engine of economic growth, supported by quality basic infrastructure for industrial development, complemented by an attractive fiscal package, both at the Centre and State level, with the minimum possible regulations. The main objectives of the SEZ Act included- generation of additional economic activity; promotion of exports of goods and services; promotion of investment from domestic and foreign sources; creation of employment opportunities in India and development of basic infrastructure facilities for industrial development.

The SEZ concept recognises the issues related to economic development and provides for developing self-sustaining industrial townships so that the increased economic activity does not create pressure on the existing infrastructure. SEZ units are self-contained and integrated having their own infrastructure and support services. China has the distinction to pioneer the idea of SEZs gobally, by creating four of them in year 1980. The first four SEZs were all based in south-eastern coastal China and were located at Shenzhen, Zhuhai, Shantou and Xiamen. Functionally, every SEZ is divided into a processing area where alone the SEZ units are developed and the non-processing area where the supporting infrastructure is created. The SEZ developers are responsible for establishing and developing the SEZs. The SEZ developer can be any private or public sector company, Central Government or any State Government in India. The SEZ developer submits a proposal of development of SEZ to the respective State Government which is processed by the Board of Approval within 45 days time limit. The functioning of the SEZs in India is governed by a three tier administrative set up, consisting of Government of India, Board of Approval and the Approval Committee.

SEZ is essentially an industrial cluster meant largely for exports. SEZs are‘duty free enclaves’ which are treated as foreign territory only for trade operations, duties, tariffs and are typically marked by the provision of best infrastructure facilities and the least delay in issuing various clearances. The units in SEZs are supposed to become net foreign exchange earners within three years and domestic sale from them are subject to full customs duty and the import policy in force. After the implementation of GST reforms in India, the output from SEZs would be levied with Integrated GST tax rates.

The advantages of SEZs are many fold. Apart from providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ also provides enterprises and developers with a favourable and attractive framework of incentives which include 100% income tax exemption for a period of five years and an additional 50% tax exemption for two years thereafter. Similarly, 100% FDI is also provided in the manufacturing sector. Exemption from industrial licensing requirements and no import license requirements is also given to the SEZ units. While the benefits of SEZs are visible and evident, the most controversial aspect of SEZs has been the acquisition of land from the farmers and their resettlement and rehabilitation issues. The Central Government has already formulated the requisite land reforms with regard to the same.

The latest data available on SEZs in India mentions that the total number of notified SEZs in India are 363, out of which 218 SEZs has been already operational as on 31^st March 2017.The total number of approved industrial units in these SEZs are 4456. The recent reforms in Indian economy in terms of relaxation of FDI norms by the Government of India, implementation of path-breaking GST tax reforms, focus on ‘Make in India’ programme and passage of Land Acquisition Bill, 2015 facilitating SEZs functioning in India- are some of the important steps taken in right direction by the Government of India to emerge as the global economic superpower in the upcoming years.

(The author of this article, Lt Col (Dr) Satish Dhage, is an ex-Army officer and has been qualified for IPS (Indian Police Services) through IPS LCE 2012. Presently, he is Director, MGM Institute of Competitive Exams Aurangabad. For any queries or feedback, he can be contacted on email id : drsatishdhage@gmail.com)