Special Economic Zones, or SEZs, have made significant strides in key performance indicators such as exports, investments, and job creation over the past three years. These zones – areas within a country with relaxed business laws and often duty-free customs regulations – are designed to promote investment, generate employment, and simplify business administration.
The Inception of SEZs in India
The genesis of SEZs can be traced back to 1965 when Asia’s first Export Processing Zone was set up in Kandla, Gujarat. The structure of SEZs eventually evolved and was formally established in 2000 under the Foreign Trade Policy, targeting to overcome infrastructural and bureaucratic obstacles hindering EPZs’ success. The Special Economic Zones Act came into force in 2005, accompanied by the SEZ Rules in 2006.
Present Scenario of SEZs in India
From 2000 to 2006, SEZs began to operate in India under the Foreign Trade Policy, drawing inspiration from China’s successful model. Today, there are 379 officially notified SEZs, out of which 265 are operational. Significantly, 64% of these SEZs are situated in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh, and Maharashtra. The Board of Approval, the highest decision-making body for SEZs, is led by the Secretary of the Department of Commerce, part of the Ministry of Commerce and Industry.
Baba Kalyani Committee and SEZ Policy Refinement
In 2018, the Ministry of Commerce and Industry instituted the Baba Kalyani led committee to review the SEZ policy of India. This committee aimed to make the SEZ policy compatible with World Trade Organization guidelines and introduce global best practices to boost the SEZs’ efficiency and potential output.
Purposes of the SEZ Act
The SEZ Act has several objectives at its core. These include fostering additional economic activity, enhancing export of goods and services, spurring employment, promoting both domestic and foreign investments, and improving infrastructure facilities.
Incentives and Facilities for SEZs
SEZs boast various incentives and facilities. Duty-free import/domestic procurement of goods for maintaining and operating SEZ units, multiple tax exemptions, external commercial borrowing allowance up to US $500 million yearly without any maturity limitation through recognized banking channels, and single window clearance for central and state-level approvals are a few notable benefits.
Performance Review of SEZs
There has been a dramatic increase in exports, investment, and employment within SEZs over recent years. For example, exports rocketed from Rs. 22,840 Crore (2005-06) to Rs. 7,59,524 Crore (2020-21). Investments rose from Rs. 4,035.51 Crore (2005-06) to Rs. 6,17,499 Crore (2020-21), and the number of jobs jumped from 1,34,704 persons (2005-06) to 23,58,136 persons (2020-21).
Challenges Faced by SEZs
Despite their success, SEZs also face certain challenges such as unutilized land due to low demand and pandemic-related disruptions. The existence of multiple types of economic zones, including SEZ, coastal economic zone, Delhi-Mumbai Industrial Corridor, and National Investment and Manufacturing Zone, adds to the complexity. The stiff competition from ASEAN countries, which have recently amended their policies to attract global investors, has diminished some of the competitive advantages of Indian SEZs.
The Way Forward for SEZs
To enhance the performance and impact of SEZs, the Baba Kalyani Committee on SEZs suggests promoting MSME investments in SEZs, tying them with MSME schemes and allowing various sectors to invest in sector-specific SEZs. Additionally, the committee recommends further enabling provisions and procedural relaxations, as well as granting SEZs infrastructure status to improve finance access and facilitate long-term borrowing.