ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S.

MAITRA/HAND OUT #23 1

For all Handouts and more, visit :iasstudymat.blogspot.com

India was one of the first in Asia to recognize the effectiveness of the
Export Processing Zone (EPZ) model in promoting exports, with Asia's first
EPZ set up in Kandla in 1965. With a view to overcome the shortcomings
experienced on account of the multiplicity of controls and clearances;
absence of world-class infrastructure, and an unstable fiscal regime and
with a view to attract larger foreign investments in India, the Special
Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth
supported by quality infrastructure complemented by an attractive fiscal
package, both at the Centre and the State level, with the minimum
possible regulations. SEZs in India functioned from 1.11.2000 to
09.02.2006 under the provisions of the Foreign Trade Policy and fiscal
incentives were made effective through the provisions of relevant
statutes.
To instill confidence in investors and signal the Government's
commitment to a stable SEZ policy regime and with a view to impart
stability to the SEZ regime thereby generating greater economic activity
and employment through the establishment of SEZs, a comprehensive
draft SEZ Bill prepared after extensive discussions with the stakeholders.
A number of meetings were held in various parts of the country both by
the Minister for Commerce and Industry as well as senior officials for this
purpose. The Special Economic Zones Act, 2005, was passed by
Parliament in May, 2005 which received Presidential assent on the 23rd of
June, 2005. The draft SEZ Rules were widely discussed and put on the
website of the Department of Commerce offering suggestions/comments.
Around 800 suggestions were received on the draft rules. After extensive
consultations, the SEZ Act, 2005, supported by SEZ Rules, came into
effect on 10th February, 2006, providing for drastic simplification of
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 2
For all Handouts and more, visit :iasstudymat.blogspot.com

procedures and for single window clearance on matters relating to central

as well as state governments.
The main objectives of the SEZ Act :
(a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and
domestic investment in SEZs, in infrastructure and productive capacity,
leading to generation of additional economic activity and creation of
employment opportunities.
The SEZ Act 2005 envisages key role for the State Governments in
Export Promotion and creation of related infrastructure. A Single Window
SEZ approval mechanism has been provided through a 19 member inter-
ministerial SEZ Board of Approval (BoA). The applications duly
recommended by the respective State Governments/UT Administration
are considered by this BoA periodically. All decisions of the Board of
approvals are with consensus.
The SEZ Rules provide for different minimum land requirement for
different class of SEZs. Every SEZ is divided into a processing area where
alone the SEZ units would come up and the non-processing area where
the supporting infrastructure is to be created.
The SEZ Rules provide for:
• " Simplified procedures for development, operation, and
maintenance of the Special Economic Zones and for setting up units
and conducting business in SEZs;
• Single window clearance for setting up of an SEZ;
• Single window clearance for setting up a unit in a Special Economic
Zone;
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 3
For all Handouts and more, visit :iasstudymat.blogspot.com

• Single Window clearance on matters relating to Central as well as

State Governments;
• Simplified compliance procedures and documentation with an
emphasis on self certification
Facilities and Incentives Incentives and facilities offered to the SEZs
The incentives and facilities offered to the units in SEZs for
attracting investments into the SEZs, including foreign
investment include:-
• Duty free import/domestic procurement of goods for development,
operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under
Section 10AA of the Income Tax Act for first 5 years, 50% for next 5
years thereafter and 50% of the ploughed back export profit for next
5 years.
• Exemption from minimum alternate tax under section 115JB of the
Income Tax Act.
• External commercial borrowing by SEZ units upto US $ 500 million in
a year without any maturity restriction through recognized banking
channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the
respective State Governments.
The major incentives and facilities available to SEZ developers
include:-
• Exemption from customs/excise duties for development of SEZs for
authorized operations approved by the BOA.
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 4
For all Handouts and more, visit :iasstudymat.blogspot.com

• Income Tax exemption on income derived from the business of

development of the SEZ in a block of 10 years in 15 years under
Section 80-IAB of the Income Tax Act.
• Exemption from minimum alternate tax under Section 115 JB of the
Income Tax Act.
• Exemption from dividend distribution tax under Section 115O of the
Income Tax Act.
• Exemption from Central Sales Tax (CST).
• Exemption from Service Tax (Section 7, 26 and Second Schedule of
the SEZ Act).
• Export Performances
Exports from the functioning SEZs during the last few years are
as under:
Year Value (Rs. Growth Rate ( over
Crore) previous year )
2003- 13,854 39%
2004
2004- 18,314 32%
2005
2005- 22 840 25%
2006
2006- 34,615 52%
2007
2007- 66,638 93%
2008
2008- 99,689 50%
2009
2009- 2,20,711.39 121.40%
2010
ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 5
For all Handouts and more, visit :iasstudymat.blogspot.com
ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 6
For all Handouts and more, visit :iasstudymat.blogspot.com
ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 7
For all Handouts and more, visit :iasstudymat.blogspot.com
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 8
For all Handouts and more, visit :iasstudymat.blogspot.com

The EOU Scheme introduced in early 1981, is complementary to the

SEZ scheme (erstwhile EPZ scheme). It adopts the same production
regime but offers a wider option in location with reference to factors like
source of raw materials, port of export, hinterland facilities, availability of
technological skills, existence of an industrial base, and the need for a
large area of land for the project.
Over the last decade, Export Oriented Units have evolved as a major
player in the country's export effort. They have grown consistently at
double digit level, and recorded a growth of about 27.48% during the
year 2004-05
SALIENT FEATURES
 No license required for import.
 Exemption from Central Excise Duty in procurement of capital
goods, raw-materials, consumables spares etc. from the domestic
market.
 Exemption from customs duty on import of capital goods, raw
materials, consumables spares etc.
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 9
For all Handouts and more, visit :iasstudymat.blogspot.com

 Reimbursement of Central Sales Tax (CST) paid on domestic

purchases.
 Supplies from DTA to EOUs treated as deemed exports.
 Reimbursement of duty paid on furnace oil, procured from domestic

oil companies to EOUs as per the rate of drawback notified by the

Directorate General of Foreign Trade.
 100% Foreign Direct Investment permissible.

 Exchange earners foreign currency (EEFC) Account.

 Facility to retain 100% foreign exchange proceeds in EEFC Account.

 Facility to realize and repatriate export proceeds within twelve
months.
Further extension in time period can be granted by RBI and their
authorized dealers.
 Re-export of imported goods found defective, goods imported from
foreign suppliers on loan basis etc.
 Exemption from industrial licensing requirement for items reserved
for SSI sector.
Profits allowed to be repatriated freely without any dividend
balancing requirement
 Access to Domestic Market upto 50% of FOB value of export on
concessional rate of duty.
 Duty free goods to be utilized in two years. Further extension
granted on liberal basis.
 Job work on behalf of domestic exporters for direct export allowed.
 Conversion of existing Domestic Tariff Area ( DTA) unit into an EOU
permitted.
 Can procure duty-free inputs for supply of manufactured goods to

advance licence holders.

 Suppy of ITA-I items in the domestic market which would be counted
for fulfillment of NFE.
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 10
For all Handouts and more, visit :iasstudymat.blogspot.com

 EOUs in agriculture and horticulture engaged in contract farming

may be permitted to take out duty free goods listed to the fields of
contact farmers for production.
OBLIGATIONS OF EOU
The EOUs are required to achieve Positive Net Foreign Exchange Earning(NFE). NFE
shall be calculated cumulatively for a period of five years from the commencement of
production .For this purpose, a Legal Undertaking is required to be executed by the
unit with the Development Commissioner.
The units have to provide periodic reports to the Development Commissioner and
Zone Customs. Units have to obtain Customs Bonding from the concerned
jurisdictional Central Excise Authority.
Zonewis ZonewiseT
Functional E Zone total Export(Pr Export(Pr
S.N eTotal otal
Zone States/UTs OUs as Functiona ov.)*In Rs ov)*In US
o. ExportI ExportUS$
on 31.3.2008 lEOUs Crores $ Million
n Rs. Cr. Million
Visakha Andhra
1 243 246 4400.25 1092.94 4415.64 1096.76
SEZ Pradesh
2 Chhatisgarh 3 15.39 3.82
Falta West
4 80 111 1347.95 334.81 2104.20 522.64
SEZ Bengal
5 Bihar 0 0.00 0.00
6 Jharkhand 6 49.11 12.20
7 Orissa 23 705.75 175.30
8 Assam 0 0.00 0.00
9 Tripura 0 0.00 0.00
10 Mizoram 1 0.00 0.00
11 Manipur 0 0.00 0.00
Meghalaya 1 1.39 0.35
12 Nagaland 0 0.00 0.00
Arunachal
13 0 0.00 0.00
Pradesh
14 Sikkim 0 0.00 0.00
Kandla
15 Gujarat 289 289 83836.48 20823.40 83836.48 20823.40
SEZ
Cochin
16 Kerala 70 468 1065.00 264.53 19222.00 4774.38
SEZ
17 Karanataka 398 18157.00 4509.86
Madras
18 Tamil Nadu 435 466 12969.86 3221.47 13543.14 3363.86
SEZ
19 Pondichery 27 572.96 142.31
A&N
20 4 0.32 0.08
Island
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 11
For all Handouts and more, visit :iasstudymat.blogspot.com

SEEPZ-
21 Maharashtra 374 446 6577.48 1633.72 9310.06 2312.44
SEZ
22 Goa 52 2349.79 583.64
Daman and
23
Diu
Dadra&Nag
24 20 382.79 95.08
ar Haveli
Noida
25 Delhi 61 452 881.59 218.97 8768.40 2177.91
SEZ
26 Haryana 116 1588.00 394.43
Uttar
27 111 4197.59 1042.60
Pradesh
28 Punjab 27 579.05 143.83
29 Rajasthan 121 1417.00 351.96
Himachal
30 6 45.61 11.33
Pradesh
Jammu &
31 3 29.98 7.45
Kashmir
32 Chandigarh 3 7.76 1.93
33 Uttrakhand 4 21.82 5.42
Indore Madhya
34 19 19 1011.38 251.21 1011.38 251.21
SEZ Pradesh
142211.3
Total Total 2497 2497 142211.30 35322.61 35322.61
0

Export Performance of EOUs & SEZ Units ---> Statement showing year-wise Export
performance by EOUs & SEZ Units

Year SEZ Units EOUs TOTAL

US
Rs. In Gro US $ Growt Rs. In US $ Growt
Growth Rs. In Growth $ Growth
wth Millio h Millio h
% Crore % Mill %
Crore % n % Crore n %
ion
1992-
1376 474 2170 748 3546 1222
93
1993-
1960 42.4 632 33.33 3086 42.20 995 33.02 5046 42.281 1627 33.142
94
1994-
2653 35.37 856 35.44 4710 52.61 1519 52.66 7363 45.914 2375 45.974
95
1995-
3236 21.96 981 14.60 7009 48.83 2123 39.76 10245 39.147 3104 30.695
96
1996-
4339 34.1 1240 26.40 8729 24.53 2494 17.48 13068 27.552 3734 20.296
97
1997-
4817 11.03 1302 5.00 10279 17.76 2778 11.39 15096 15.521 4080 9.2662
98
1998-
5252 9.034 1250 -3.99 12058 17.32 2871 3.35 17311 14.673 4121 1.0049
99
1999-
6709 27.72 1560 24.80 13701 13.63 3186 10.97 20410 17.903 4746 15.166
2000
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 12
For all Handouts and more, visit :iasstudymat.blogspot.com

2000-
8552 27.48 1859 19.17 15912 16.14 3536 10.99 24464 19.865 5395 13.675
01
2001-
9190 7.451 1915 3.01 18735 17.74 3930 11.15 27925 14.146 5845 8.3431
02
2002-
10057 9.435 2095 9.40 23591 25.91 4875 24.03 33647 20.491 6970 19.237
03
2003-
13814 37.36 2996 43.01 28828 22.20 6274 28.70 42641 26.73 9270 33
04
2004- 1286
18655 35.05 4140 38.18 39228 36.08 8727 39.11 57883 35.745 38.808
05 7
2005- 1633
22840 22.43 5159 24.61 49462 26.09 11172 28.02 72302 24.91 26.924
06 1
2006- 2315
34787 52.31 7688 49.02 69965 41.45 15462 38.40 104752 44.882 41.755
07 0
2007- 5168
66638 91.56 16492 114.51 142211 103.26 35194 127.62 208849 99.374 123.27
08 6

EXPORT, IMPORT, NFE, DURING 2008-09 AND CUMULATIVE INVESTMENT &

EMPLOYMENT TILL MARCH, 2009 BY EOUs (Values In Rs Crores)
EXPORT IMPORT In NFE In Rs INVESTMENT
S.No. SEZs Employment
In Rs crores Rs crores crores In Rs crores
NSEZ 10608.82 2531.47 8077.35 2274.45 43714
2 SEEPZ-SEZ 18539.12 7309.11 11230.01 5227.93 41858
3 MSEZ 14044.65 4709.98 9334.67 23949.19 54204
4 CSEZ 17697.20 5808.35 11888.85 8416.22 86333
5 VSEZ 7908.36 3642.66 4265.70 1013.20 19731
6 FSEZ 3086.39 1070.13 2016.26 1275.38 9946
7 KASEZ 98582.38 86472.58 12109.80 3410.40 24514
8 ISEZ 1031.29 162.89 868.40 189.71 3305
Total 171498.21 111707.17 59791.04 45756.48 284105
EXPORT, IMPORT, NFE, DURING 2008-09 AND CUMULATIVE INVESTMENT &
EMPLOYMENT TILL MARCH, 2009 BY EOUs (Values In US $ Million)
EXPORT IMPORT INVESTMENT
NFE In US $
S.No. SEZs In US $ In US $
Miln.
Miln. Miln. In US $ Miln.
1 NSEZ 2306.60 550.40 1756.20 494.52
2 SEEPZ-SEZ 4030.83 1589.17 2441.66 1136.67
3 MSEZ 3053.63 1024.06 2029.57 5207.10
4 CSEZ 3847.78 1262.87 2584.91 1829.88
5 VSEZ 1719.46 792.00 927.46 220.29
6 FSEZ 671.05 232.67 438.38 277.30
7 KASEZ 21434.07 18801.13 2632.95 741.50
8 ISEZ 224.23 35.42 188.81 41.25
Total 37287.65 24287.70 12999.95 9948.51
 ICSA/CSE-2011/GENERAL STUDIES(PRELIMS)/PROF. S. MAITRA/HAND OUT #23 13
For all Handouts and more, visit :iasstudymat.blogspot.com

Export from EOUs & its share in Country's Export & Net Foreign Exchange earned by EOUS (Values
In Rs Crores)

EOUs'
EOUs' India's
%
ExportGrowth ExportGrowth
Year EOUs'Exports India'sExports share of EOUs'Imports
Rate % over Rate % over
India's
prev. year prev. year
export
1997-
10278.51 130101 9.50 7.90 2566.88
98
1998-
12058.27 17.32 139753 7.40 8.63 3104.80
99
1999-
13701.29 13.63 159561 14.20 8.59 3014.70
2000
2000-
15912.00 16.14 203571 27.60 7.82 3659.01
01
2001-
18743.45 17.79 209018 2.70 8.97 5940.81
02
2002-
23590.60 25.86 255137 22.06 9.25 6973.00
03
2003-
28827.58 22.20 293367 14.98 9.83 9928.00
04
2004-
39228.40 36.08 375340 27.94 10.45 16692.11
05
2005-
49462.35 26.09 456418 21.60 10.84 30485.96
06
2006-
69964.60 41.45 571779 25.28 12.24 30154.50
07
2007-
168838.80 141.32 655863 14.71 25.74 108209.59
08
2008-
171498.20 1.58 839978 28.07 20.42 111707.17
09(P)
Average Annual growth rate percentage (during last 5 Years (2008-09/2003-04)
In Rs.Term In US $ Term
Growth rate of Export over last 5 years 469.43 468.91
Avg Annual Growth Rate % 93.89 93.78