SEZ full form, benefits, features of Special Economic Zone in India

[ecis2016.org] A special economic zone (SEZ) is a special geographical region demarcated to encourage foreign investment and promote domestic economic activity

To encourage foreign investment and provide a competitive and hassle-free environment for businesses to flourish, the concept of Special Economic Zones (SEZs) was introduced in India, in April 2000. The objective was to offer a level playing field to all domestic enterprises to compete globally, with infrastructural support from the state and central governments. So, what are SEZs and how are they different from other manufacturing and business zones? Here is all you need to know.

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SEZ full form and meaning

SEZ refers to Special Economic Zone, which is a special demarcated area or a geographical region that is considered as a duty-free enclave and has different economic laws than the rest of the country. While the objective is to attract foreign direct investments, the SEZ also attracts domestic companies, because of its infrastructural advantages. Some of the countries that have successfully implemented the SEZ policy are China, Poland, Philippines and Russia.

Financial policies related to taxation, trading and investment, customs and labour regulations, are implemented in order to encourage businesses in setting up their operations in the SEZ. India was among the first countries in Asia to recognise the effectiveness of the Export Processing Zone (EPZ) model in promoting export. The first EPZ was established in Kandla in 1965. To tackle the challenges of absence of world-class infrastructure and to attract larger foreign investments, the Special Economic Zone (SEZ) Policy was announced in April 2000. The SEZ Act 2005 and SEZ Rules came into effect from 10th February 2006.

SEZ benefits

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Special Economic Zones (SEZs) are set up to promote rapid economic growth in the country. The main objective including promoting exports of goods and services and encouraging investment from domestic and foreign sources. Infrastructure development, and creation of employment opportunities are among the significant benefits of special economic zones.

Among the main benefits of investing in SEZs in India includes tax incentives for businesses and entities operating in the region and improved infrastructure. It promotes the growth of foreign exchange earnings through exports new employment opportunities.

What is SEZ in India? Features of special economic zone

One of the main objectives of SEZs was enhancing foreign investment and promote an favourable environment for exports. SEZs are developed with world class infrastructure, including roads, transport, storage, etc. and attract foreign investors, thus leading to economic development.

• Enterprises that set up their establishment in SEZs are entitled to incentives, which may include free electricity, water supply, subsidy on land prices, etc.
• These economic zones are designated duty-free industrial parks, to be treated as foreign territory for trade operations, duties and tariffs.
• Usually, no licence is required for import and businesses get exemption from customs duty, on import of capital goods, raw materials, consumable spares, etc.
• SEZs may enjoy exemption from payment of sales tax and service tax on the sale or purchase of goods or services.
• Any supply of goods or services or both to a SEZ unit is considered a zero-rated supply. In other words, supplies into SEZs are exempted from Goods and Services Tax (GST) and are considered as exports.
• The important special economic zones features include employer-friendly labour laws. For example, since SEZ units are considered as ‘public utility services’, no strikes are allowed in such companies without giving the employer six weeks’ prior notice, in addition to the other conditions mentioned in the Industrial Disputes Act, 1947.

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SEZ rules

Under the SEZ rules, simplified procedures are established for development, operation, and maintenance of the Special Economic Zones and setting up units and conducting business. The SEZ rules also provide for single window clearance for setting up of a Special Economic Zone, setting up a unit in a SEZ, matters relating to Central as well as State Governments. Simplified compliance procedures and documentation are also set up with emphasis on self certification.

Types of SEZ

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Special economic zones encompass Free trade zones (FTZ), Export processing zones (EPZ), Industrial parks or industrial estates, Free economic zones (FZ/ FEZ), Free ports, Bonded logistics parks (BLP) and Urban enterprise zones.

Mentioned below are the different types of special economic zones

• Sector-Specific SEZ: Involved in manufacturing one or more good in a specific sector like electronic goods (land used 10 or more hectares), or one or more services (land used 100 or more hectares).
• Multi-product SEZ: Involved in manufacturing multiple goods or providing multiple services in a specific sector or across different sectors. (land used 1000 or more hectares).
• SEZ in a port/ airport; or for free trade and warehousing:  Involved in manufacturing of goods in two or more sectors, entailing trading and warehousing (land used 40 or more hectares).

Who sets up SEZs?

In India, most of the SEZs are set up through a collaboration between the state and central governments. However, any private, public or joint sector agency can also set up SEZs. State governments have a very important role to play in the establishment of these economic zones, as the proposals have to be approved by the local authorities initially, who should give their consent for providing basic infrastructure facilities to the delineated area, such as water, electricity, transportation, etc. Also, the statutory functions of maintaining these SEZs rests with the government. A unit approval committee is formed, which consists of a development commissioner, customs officer and a state government representative, who monitor the performance of SEZs.

List of SEZ in India

FAQ

(With inputs from Surbhi Gupta)

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