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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 andla in !"#$% &ith a
view to overcome the shortcomings experienced on account of the multiplicit' of controls and
clearances( a)sence of world*class infrastructure, and an unsta)le fiscal regime and with a view
to attract larger foreign investments in India, the +pecial Economic Zones (+EZs) Polic' was
announced in April ,---%
.he main o)/ectives of the EZ are0
(a) generation of additional economic activit'
()) promotion of exports of goods and services(
(c) promotion of investment from domestic and foreign sources(
(d) creation of emplo'ment opportunities(
(e) development of infrastructure facilities(
A +pecial Economic zone (+EZ) is a geographical region that is designed to export goods
and provide emplo'ment% +EZs are exempt from federal laws regarding taxes, 1uotas, 23I*)ans,
la)our laws and other restrictive laws in order to ma4e the goods manufactured in the +EZ at a
glo)all' competitive price%
.he categor' +EZ includes free trade zones (2.Z), export processing Zones (EPZ), free
Zones (2Z), industrial par4s or industrial estates (IE), free ports, free economic zones, and ur)an
enterprise zones%
.he ma/or incentives and facilities availa)le to +EZ developers include0*
o Exemption from customs5excise duties for development of +EZs for authorized
operations approved )' the 67A%
o Income .ax exemption on income derived from the )usiness of development of
the +EZ in a )loc4 of !- 'ears in !$ 'ears under +ection 8-*IA6 of the Income
.ax Act%
o Exemption from minimum alternate tax under +ection !!$ 96 of the Income .ax
o Exemption from dividend distri)ution tax under +ection !!$7 of the Income .ax
o Exemption from :entral +ales .ax (:+.)%
o Exemption from +ervice .ax (+ection ;, ,# and +econd +chedule of the +EZ Act)%
It is a geographical region that has economic laws that are more li)eral than a countr'<s
t'pical economic laws% An +EZ is a trade capacit' development tool, with the goal to promote
rapid economic growth )' using tax and )usiness incentives to attract foreign investment and
technolog'% .oda', there are approximatel' =,--- +EZs operating in !,- countries, which
account for over >+? #-- )illion in exports and a)out $- million /o)s% 6' offering privileged
terms, +EZs attract investment and foreign exchange, spur emplo'ment and )oost the
development of improved technologies and infrastructure%
@oreover +EZ<s provide a medium wherein it not onl' attracts foreign companies
loo4ing for cheaper and efficient location to setup their offshore )usiness, )ut it also allows the
local industries to improve their export through a proper channel and with the help of the new
foreign partners to the outside world at a ver' competitive price% +EZ<s offer relaxed tax and
tariff policies which is different from the other economic areas in the countr'%
3ut' free import of raw materials for production is one example% @oreover the 2ree trade
zones attract )ig pla'ers who want to setup )usiness without an' license hassles and the long
process involved in it% @ost of the allotment is done through a single window s'stem and which
is highl' transparent s'stem% .he )ottom*line therefore is increased export and 23I (2oreign
3irect Investments) ena)ling increased Pu)lic*private partnership and ultimatel' resulting in a
development of world class infrastructure, )oost economic growth, exports and emplo'ment%
.he concept of +EZ<s was largel' pioneered )' :hina, wherein the +EZ<s contri)ute to
,- percent of the total 23I% .hen the +EZ model was also successfull' implemented in Poland
and Philippines% In the former the +EZ<s contri)ute to almost =$ percent of the 23I inflows%
+henzhen in :hina has )een at the helm of rapid economic development, after growing )' a
staggering ,8 percent for the last ,$ 'ears%
.he +EZ<s are important in toda'<s context for the third world countries which have )een in the
race for rapid economic growth% .here are man' positives which emerge out of esta)lishing an
+EZ% Aet us have a loo4 on these factors%
2or underta4ing an' 4ind of massive development program the government re1uires huge
amount of funds% +o it loo4s out for potential partners to help the government carr' out the
program% Bow sa' for setting up an +EZ, the government ma' tie up with a private partner
whose willing to invest in that area, thus a win*win situation for )oth% As in the government gets
the capital needed to esta)lish the re1uired infrastructure and also the expertise%
+EZ<s create immense emplo'ment opportunities% .he setting up of +EZ<s creates lot of
indirect emplo'ment in terms of la)our re1uired% .hen after the completion it ena)les
emplo'ment in the relevant industries operating in the +EZ% .hen there are lots of indirect
emplo'ments generated wherein people start investing around +EZ% 2or example +EZ<s are
townships of their own( there)' there are shopping malls, restaurants, amusement par4s setup
around to attract people, thus resulting in more economic development in that area%
@oreover +EZ<s improve the countr'<s foreign export% 6ecause of the increased 23I and
Private E1uit' presence, the local manufacturers get to tie up with these )ig names and export
their products which now carr' a )etter )rand value, therefore helping in creating a greater
demand for the goods of local manufacturers% @oreover the massive capital re1uired for
expansion is )rought in form of 23I resulting in increased economic activit'%
.he increased exports from the countr' )ring in more revenue for the countr' which
improves the economic growth%+EZ<s help in creating a )alanced economic growth in a countr'
if the' are properl' located and implemented leading to tapping of local talent and contri)uting
to increased economic activit' in the area%
.he )iggest challenges faced )' +EZ<s in toda'<s scenario are the ta4ing awa' of
agricultural land from the farmers% .he farmers are )eing paid disproportionate mone' which is
not in lieu of the current land prices% .he )est example could )e seen in the case of farmers from
alinganagar in 7rissa where the mone' given was disproportionate to as high as !0!- with
respect to the mar4et rates% @oreover +EZ<s are leading to decrease in crop production (ara)le
Aand Cra))ingD) thus slowing down of agricultural activit' in the countr'% (.hough it ma' help
)oost it in other wa's )' increased export of local goods, )oth processed and non*processed)%
@ore and more farmers are moving towards the lucrative manufacturing side in search of greater
economic securit'% @oreover the greatest pro)lem that seems to )e emerging out is that ara)le
land is )eing used for non agricultural purpose which could lead to food crisis and loss of self
sustenance in future% 2or example0 Badigram district of &est 6engal% 6ut 23I could also help in
providing our farmers to gain access to technological )etter farming methods%
.he +EZ polic' was first introduced in India in April ,---, as a part of the Export*Import
(EEFI@G) polic' of India% :onsidering the need to enhance foreign investment and promote
exports from the countr' and realizing the need that level pla'ing field must )e made availa)le to
the domestic enterprises and manufacturers to )e competitive glo)all', the Covernment of India
in April ,--- announced the introduction of +pecial Economic Zones polic' in the countr'
deemed to )e foreign territor' for the purposes of trade operations, duties and tariffs%
.o provide an internationall' competitive and hassle free environment for exports, units
were allowed )e set up in +EZ for manufacture of goods and rendering of services% All the
import5export operations of the +EZ units are on self*certification )asis%
.he units in the Zone are re1uired to )e a net foreign exchange earner )ut the' would not
)e su)/ected to an' pre*determined value addition or minimum export performance
re1uirements% +ales in the 3omestic .ariff Area )' +EZ units are su)/ect to pa'ment of full
:ustom 3ut' and as per import polic' in force% 2urther 7ffshore )an4ing units are )eing allowed
to )e set up in the +EZs%
SEZ ACT "##$:
.o provide a sta)le economic environment for the promotion of Export*import of goods
in a 1uic4, efficient and hassle*free manner, Covernment of India enacted the +EZ Act, which
received the assent of the President of India on 9une ,=, ,--$% .he +EZ Act and the +EZ Hules,
,--# (E+EZ HulesG) were notified on 2e)ruar' !-, ,--#% .he +EZ Act is expected to give a )ig
thrust to exports and conse1uentl' to the foreign direct investment (E23IG) inflows into India,
and is considered to )e one of the finest pieces of legislation that ma' well represent the future of
the industrial development strateg' in India%
.he new law is aimed at encouraging pu)lic*private partnership to develop world*class
infrastructure and attract private investment (domestic and foreign), )oosting economic growth,
exports and emplo'ment%
&ith a view to augmenting infrastructure facilities for export production it has )een
decided to permit the setting up of +pecial Economic Zones (+EZs) in the pu)lic, private, /oint
sector or )' the +tate Covernments% .he minimum size of the +pecial Economic Zone shall not
)e less than !--- hectares% @inimum area re1uirement shall, however, not )e applica)le to
product specific and port5airport )ased +EZ% .his measure is expected to promote self*contained
areas supported )' world*class infrastructure oriented towards export production% An'
private5pu)lic5/oint sector or +tate Covernment or its agencies can set up +pecial Economic Zone
+EZs is governed )' a three tier administrative set up
a) .he 6oard of Approval is the apex )od' in the 3epartment,
)) .he >nit Approval :ommittee at the Zonal level dealing with approval of units in the +EZs
and other related issues, and
c) Each Zone is headed )' a 3evelopment :ommissioner, who also heads the >nit Approval
In India, there are /ust two or three privatel' developed +EZ, exceeding !,--- hectares%
@ost of the others approved are less than !-- hectares% 6ut it is heartening to realize that the
government has decided to up the ante and have made guidelines to have a minimum of !---
hectares of area for approving an +EZ%
.he incentive pac4age in India is 1uite li)eral and ma' even )e a shade )etter than that
for :hinese +EZs% In fact, it is more or less on a par with the pac4age for the existing EPZs%
3ut' free import of capital goods and raw materials, reim)ursements of :entral +ales
.ax, tax holida' for specified period, !-- per cent repatriation of profits for su)contracting
facilities are allowed% .he Covernment has done well )' extending incentives for the
infrastructure sector to zone developers and the units as well% .his can attract foreign direct
investment for providing internationall' competitive infrastructure%
.he +EZ<s could drasticall' improve the economic activit' in the countr', ma4e the
countr'<s export competitive and glo)all' noticea)le, )e net foreign exchange earner and provide
immense emplo'ment opportunit'% 6ut this should not )e done at the cost of )ringing down the
agricultural activities, Aand gra))ing and real estate mafia should )e properl' regulated so that
the common man is not the net sufferer to get the net foreign exchange earner up and running%