WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT &

RESEARCH
SUMMER PROJECT
ON
CORPORATE FINANCE
BY
SAGAR BIYANI
MMS 2013-2015 SEMESTER III
SPECIALISATION: FINANCE
ROLL NO. 49

Page | 2

Acknowledgement

This project was made possible by the support and assistance of a number of people
whom I would like to thank.
First and foremost I would like to thank Mr. Sanjay Punkhia, Vice President Navi
Mumbai SEZ (Reliance Group) for his unflinching support, guidance and motivation throughout
the project. His constant insights and ideas are much reflected throughout this study and are
highly appreciated. He has been a single point of contact for me at NMSEZ and has always been
very welcoming, understanding and compassionate. He has always created an atmosphere
conducive for growth.
I would also like to acknowledge Mr. Pratik Somani and Mr. Mayank Garg, Senior
Manager, NMSEZ for their time and patience, helping me meet and understand the needs of the
investors and the thinking process which drives the investment decision, lending a patient ear
whenever required.
I have greatest respect and gratitude for all the staff members associated with NMSEZ,
they were kind, friendly and open, this attitude stood me in good stead while completing this
project.
Last but not the least; I would like to express my gratitude to my family for the support
they provided me through my studies. This would not have been possible without their support
and understanding.

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EXECUTIVESUMMARY
Choosing a project was not an easy task considering the fact that there are presently many
socioeconomic factors whose impact is immense in the Indian Economic and Financial Growth.
After visualizing the various aspects, we decided to move forward with Special Economic Zone
(SEZ), also, currently, the growth rate at which it is growing provides lots of hope towards
boosting Indian Economy.
India over the past decade has progressively opened up its economy to effectively face new
challenges and opportunities of the 21st Century. To compete in the global market, the
Government of India (GoI) has liberalized export policies & licensing of technology and
implemented tax reforms providing various incentives. As a result, in 2004-2005 exports rose to
Rs.356,069 crores, a 123.8% increase since 1999-2000. FDI inflows increased to nearly Rs.
17,267 crores in the calendar year 2004, a 48.6% increase over the previous calendar year.
Traditionally, SEZs are created as open markets within an economy that is dominated by
distortionary trade, macro and exchange regulation and other regulatory governmental controls.
SEZs are believed to create a conducive environment to promote investment and exports. And
hence, many developing countries are developing the SEZs with the expectation that they will
provide the engines of growth for their economies to achieve industrialization.
To achieve its three-fold objectives of attracting FDI, increasing exports and accelerating the
country's economic growth, the Government of India announced the introduction of SEZs in its
Export-Import Policy of March 2000. Special Economic Zones (SEZs) were established in many
countries as testing grounds for implementation of liberal market economy principles. SEZs are
viewed as instruments enhancing the acceptability and credibility of transformation policies,
attracting domestic and foreign investment and also for the opening up of the economy. SEZs in
India seek to promote the value addition component in exports, generate employment as well as
mobilize foreign exchange. Globally, many countries initiated Free Trade Agreements (FTAs)
which eventually led to a spurt in investments in infrastructure developments for Free Trade
Zones (FTZs) and SEZs. A close examination of the evolution of SEZs in countries with similar
economies as India are China, Iran, UAE and Jordan, will help us to understand their success
stories and thereby implement those factors, in order to curb the SEZ bottlenecks faced by India
today. The Shenzhen SEZ in China is a perfect example of a SEZ success story. In India, the
government has been proactive in the development of SEZs. They have formulated policies,
reviewed them occasionally and also ensured that ample facilities are provided to the SEZ
developers as well as the companies setting up units in SEZs. These favorable conditions resulted
in the biggest ever corporate rush for the development of SEZs in India. Over 234 companies
received formal approval, 162 companies received in-principle approval and 100 companies
received notification to set up SEZs. The Indian government is expecting an investment to the
tune of Rs.53,561 crores (USD 13274 million) and an additional job creation for 15,75,452
individuals in SEZs by December2009.

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TABLEOFCONTENTS
CHAPTER
1

TITLE
INTRODUCTION

PAGENo.
8

1.1

CorporateFinance

1.2

FirmStructuralSetup

10

1.3

FirstPrinciples

1114

INDUSTRYPROFILE
Introduction
Facilities&Incentives
AdministrativeSetup

15

2
2.1
2.2
2.3
3
3.1
3.2
3.3
3.4
3.5
4
4.1
4.2
4.3
5
5.1
5.2
5.3
5.4

16
1718
1920

COMPANYPROFILE

CompanyProfile
CIDCODevelopedCities
NaviMumbaiSEZPrivateLimited(NMSEZ)
TheBestPositionedSEZinIndia
NMSEZNODE

21
22
2324
2425
2526
2728

OBJECTIVE&SCOPE

ObjectiveofCorporateFinance
CharacteristicsofCorporateFinance
Importance&NeedofCorporateFinance

OBSERVATION&ANALYSIS

Introduction
SEZPolicyof2000
SEZssuccessSaga
DrawbacksofSEZs

29
30
3132
3233
34
35
36
3738
3941

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CONCLUSION

4244

BIBILIOGRAPHY&REFERENCE

4546

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LISTOFCHARTS&TABLES
No.

Name

PageNo.

1.1

FinancialBalanceSheet

11

1.2

ConventionalBalanceSheet

11

2.1

ConstitutionofMembers

18

2.2

19

5.3

MinimumRequirementof
SEZ
ObjectiveofCorporate
Finance
CharacteristicsofCorporate
Finance
Sectoralperformanceof
SEZsinIndia
Zonewisecompositionof
exportsfromSEZsin2004
05
EmploymentAnalysis

5.4

ProgressAnalysisinIndia

40

5.5

InvestmentAnalysisof
SEZeinIndia

41

4.1
4.2
5.1
5.2

30
31
38
38
39

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CHAPTER1
INTRODUCTION

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1.1 COPORATE FINANCE

Corporate finance deals with various monetary aspects of a business organization. Every
business organization needs finance for its efficient functioning, to increase its profits, to
minimize the cost of production, to make decisions, for acquisition and investment, to ensure that
there are sufficient funds etc. In short, finance is the life blood for all types businesses; profitable
as well as non-profitable.
The importance of corporate finance can be classified as follows:

Decision Making: There are several decisions that have to be done on the basis of
available capital and limited resources. If an organization has to start a new project, then
it has to consider whether it would be financially viable and if it would yield profits. So
while investing in a new project or a new venture, a company has to consider several
things like availability of finances, the time taken for its completion, etc. and then make
decisions accordingly.
Research and Development: In order to survive
in a volatile market for a long duration, a business
organization needs to continuously research the
market and develop new products to appeal the
consumers. It may even have to upgrade its old
products to compete with new vendors in the
market. Some companies employ people to
conduct market surveys on a large scale; prepare
questionnaire for consumers; do market analysis,
while other may outsource this work to others.
All these activities would require financial
support.

Fulfilling Long Term and Short Term Goals: Every organization has several long term
goals in order to survive in the market. The short term goals may include paying the
salaries of employees, managing the short term assets, acquiring corporate finances like
bank drafts, trade credit from suppliers, purchase of raw materials for production etc.
Some long term goals would include acquiring bank loans and paying them off;
increasing the customer base for the company etc.

Depreciation of Assets: When you invest in a new software or a new equipment, you
would require to keep aside some amount to maintain it and upgrade it in the long run.
Only then you could be assured that it would yield good results over a period of time. In
the fast changing times of today, if this is not done, you might end up losing business if
you do not have finances for it.

Minimizing Cost of Production: Corporate finance helps in minimizing the cost of

production. With the rising cost of prices of raw materials and labor, the management has
to come up with innovative measures to minimize the cost of production. In many
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organizations that spend a lot of money on large scale production, deploy professionals
for this purpose. These people tend to buy quality products from vendors who offer it at
lowest possible rates. For example, a products based software company might buy
software from a vendor that sells it at a lower rate than an internationally acclaimed
company selling the same thing.

Raising capital: When an organization has to invest in a new venture, it is very

important that it has to raise capital. This cab be done by selling bonds and debentures,
stocks of the company taking loans from the banks etc. All this can be done only by
managing corporate finances in a proper manner.

Optimum Utilization of Resources: The resources available to organizations may be

limited. But if they are utilized efficiently, they can yield good results. For example, a
business organization needs to know the amount of money it can spend on its employees
and how much hike should be given to them. The proper management of corporate
finance would also help in utilizing its profits in such a manner that would help in
increasing them; for example, investing in government bonds, keeping up with the latest
technology trends to increase efficiency.

Efficient Functioning: A smooth flow of corporate finance would enable businesses to

function in a proper manner. The salaries of employees would be paid on time, loans
would be cleared in time, purchase raw materials can be done when required, sales and
promotion for existing products and launch of new products, etc.

Expansion and Diversification: Before an organization decides to expand or diversify in

to a new arena, it has to consider various aspects like the capital available, risks involved,
the amount to be invested for purchase of new equipment etc. All this can be done by
experts and this would be very beneficial

for the organization.

Meeting Contingencies: Running a business involves talking several risks. Not all risks
can be foreseen. Although you can transfer some of these risks to third parties by buying
an insurance policy, you cannot have every contingency covered by your insurer. You
would have to keep some amount aside to tide over these situations.

Corporate finance plays a very important role in the overall functioning, growth and
development of a business. In India, finance advisors help entrepreneurs and businesses by
providing them with vital information through market research and analysis. This helps then to
make decisions, expand their business, and survive in a competitive market in the long run.
Therefore, the management of corporate finance is very important for profitable as well as nonprofitable organizations.
1.2 The Firm: Structural Set-Up
In corporate finance, we will use firm generically to refer to any business, large or small,
manufacturing or service, private or public. Thus, a corner grocery store and Microsoft are both
firms. The firms investments are generically termed assets. Although assets are often categorized
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by accountants into fixed assets, which are long-lived, and current assets, which are short-term,
we prefer a different categorization. The assets that the firm has already invested in are called
assets in place, whereas those assets that the firm is expected to invest in the future are called
growth assets. Though it may seem strange that a firm can get value from investments it has not
made yet, high-growth firms get the bulk of their value from these yet-to-be-made investments.
To finance these assets, the firm can raise money from two sources. It can raise funds from
investors or financial institutions by promising investors a fixed claim (interest payments) on the
cash flows generated by the assets, with a limited or no role in the day-to-day running of the
business. We categorize this type of financing to be debt. Alternatively, it can offer a residual
claim on the cash flows (i.e., investors can get what is left over after the interest payments have
been made) and a much greater role in the operation of the business. We call this equity. Note
that these definitions are general enough to cover both private firms, where debt may take the
form of bank loans and equity is the owners own money, as well as publicly traded companies,
where the firm may issue bonds (to raise debt) and common stock (to raise equity).
1.1

Thus, at this stage, we can lay out the financial balance sheet of a firm as follows:

1.2 Note the contrast between this balance sheet and a conventional accounting balance sheet.

An accounting balance sheet is primarily a listing of assets in place, though there are some
circumstances where growth assets may find their place in it; in an acquisition, what gets
recorded as goodwill is a conglomeration of growth assets in the target firm, synergies and
overpayment.
1.3 First Principles

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Every discipline has first principles that govern and guide everything that gets done within it.
All of corporate finance is built on three principles, which we will call, rather unimaginatively,
the investment principle, the financing principle, and the dividend principle. The investment
principle determines where businesses invest their resources, the financing principle governs the
mix of funding used to fund these investments, and the dividend principle answers the question
of how much earnings should be reinvested back into the business and how much returned to the
owners of the business. These core corporate finance principles can be stated as follows:

The Investment Principle: Invest in assets and projects that yield a return greater than the
minimum acceptable hurdle rate. The hurdle rate should be higher for riskier projects and
should reflect the financing mix usedowners funds (equity) or borrowed money (debt).
Returns on projects should be measured based on cash flows generated and the timing of
these cash flows; they should also consider both positive and negative side effects of these
projects.

The Financing Principle: Choose a financing mix (debt and equity) that maximizes the
value of the investments made and match the financing to nature of the assets being financed.

The Dividend Principle: If there are not enough investments that earn the hurdle rate,
return the cash to the owners of the business. In the case of a publicly traded firm, the form
of the returndividends or stock buybackswill depend on what stockholders prefer.

When making investment, financing and dividend decisions, corporate finance is singleminded about the ultimate objective, which is assumed to be maximizing the value of the
business. These first principles provide the basis from which we will extract the numerous
models and theories that comprise modern corporate finance, but they are also commonsense
principles. It is incredible conceit on our part to assume that until corporate finance was
developed as a coherent discipline starting just a few decades ago, people who ran businesses
made decisions randomly with no principles to govern their thinking. Good businesspeople
through the ages have always recognized the importance of these first principles and adhered to
them, albeit in intuitive ways. In fact, one of the ironies of recent times is that many managers at
large and presumably sophisticated firms with access to the latest corporate finance technology
have lost sight of these basic principles.
The Objective of the Firm
No discipline can develop cohesively over time without a unifying objective. The growth
of corporate financial theory can be traced to its choice of a single objective and the development
of models built around this objective. The objective in conventional corporate financial theory
when making decisions is to maximize the value of the business or firm. Consequently, any
decision (investment, financial, or dividend) that increases the value of a business is considered a
good one, whereas one that reduces firm value is considered a poor one. Although the choice of a
singular objective has provided corporate finance with a unifying theme and internal consistency,
it comes at a cost. To the degree that one buys into this objective, much of what corporate
financial theory suggests makes sense. To the degree that this objective is flawed, however, it can
be argued that the theory built on it is flawed as well. Many of the disagreements between
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corporate financial theorists and others (academics as well as practitioners) can be traced to
fundamentally different views about the correct objective for a business. For instance, there are
some critics of corporate finance who argue that firms should have multiple objectives where a
variety of interests (stockholders, labor, customers) are met, and there are others who would have
firms focus on what they view as simpler and more direct objectives, such as market share or
profitability.
Given the significance of this objective for both the development and the applicability of
corporate financial theory, it is important that we examine it much more carefully and address
some of the very real concerns and criticisms it has garnered: It assumes that what stockholders
do in their own self-interest is also in the best interests of the firm, it is sometimes dependent on
the existence of efficient markets, and it is often blind to the social costs associated with value
maximization.
The Investment Principle
Firms have scarce resources that must be allocated among competing needs. The first and
foremost function of corporate financial theory is to provide a framework for firms to make this
decision wisely. Accordingly, we define investment decisions to include not only those that create
revenues and profits (such as introducing a new product line or expanding into a new market) but
also those that save money (such as building a new and more efficient distribution system).
Furthermore, we argue that decisions about how much and what inventory to maintain and
whether and how much credit to grant to customers that are traditionally categorized as working
capital decisions, are ultimately investment decisions as well. At the other end of the spectrum,
broad strategic decisions regarding which markets to enter and the acquisitions of other
companies can also be considered investment decisions. Corporate finance attempts to measure
the return on a proposed investment decision and compare it to a minimum acceptable hurdle
rate to decide whether the project is acceptable. The hurdle rate has to be set higher for riskier
projects and has to reflect the financing mix used, i.e., the owners funds (equity) or borrowed
money (debt). In the discussion of risk and return, we begin this process by defining risk and
developing a procedure for measuring risk. In risk and return models, we go about converting
this risk measure into a hurdle rate, i.e., a minimum acceptable rate of return, both for entire
businesses and for individual investments.
Having established the hurdle rate, we turn our attention to measuring the returns on an
investment. In analyzing projects, we evaluate three alternative ways of measuring returns
conventional accounting earnings, cash flows, and time-weighted cash flows (where we consider
both how large the cash flows are and when they are anticipated to come in). In extensions of this
analysis, we consider some of the potential side costs that might not be captured in any of these
measures, including costs that may be created for existing investments by taking a new
investment, and side benefits, such as options to enter new markets and to expand product lines
that may be embedded in new investments, and synergies, especially when the new investment is
the acquisition of another firm.
The Financing Principle

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Every business, no matter how large and complex, is ultimately funded with a mix of
borrowed money (debt) and owners funds (equity). With a publicly trade firm, debt may take the
form of bonds and equity is usually common stock. In a private business, debt is more likely to
be bank loans and an owners savings represent equity. Though we consider the existing mix of
debt and equity and its implications for the minimum acceptable hurdle rate as part of the
investment principle, we throw open the question of whether the existing mix is the right one in
the financing principle section. There might be regulatory and other real-world constraints on the
financing mix that a business can use, but there is ample room for flexibility within these
constraints. We begin the discussion of financing methods, by looking at the range of choices
that exist for both private businesses and publicly traded firms between debt and equity. We then
turn to the question of whether the existing mix of financing used by a business is optimal, given
the objective function of maximizing firm value. Although the trade-off between the benefits and
costs of borrowing are established in qualitative terms first, we also look at two quantitative
approaches to arriving at the optimal mix. In the first approach, we examine the specific
conditions under which the optimal financing mix is the one that minimizes the minimum
acceptable hurdle rate. In the second approach, we look at the effects on firm value of changing
the financing mix.
When the optimal financing mix is different from the existing one, we map out the best
ways of getting from where we are (the current mix) to where we would like to be (the optimal),
keeping in mind the investment opportunities that the firm has and the need for timely responses,
either because the firm is a takeover target or under threat of bankruptcy. Having outlined the
optimal financing mix, we turn our attention to the type of financing a business should use, such
as whether it should be long-term or short-term, whether the payments on the financing should
be fixed or variable, and if variable, what it should be a function of. Using a basic proposition
that a firm will minimize its risk from financing and maximize its capacity to use borrowed funds
if it can match up the cash flows on the debt to the cash flows on the assets being financed, we
design the perfect financing instrument for a firm. We then add additional considerations relating
to taxes and external monitors (equity research analysts and ratings agencies) and arrive at strong
conclusions about the design of the financing.
The Dividend Principle
Most businesses would undoubtedly like to have unlimited investment opportunities that
yield returns exceeding their hurdle rates, but all businesses grow and mature. As a consequence,
every business that thrives reaches a stage in its life when the cash flows generated by existing
investments is greater than the funds needed to take on good investments. At that point, this
business has to figure out ways to return the excess cash to owners. In private businesses, this
may just involve the owner withdrawing a portion of his or her funds from the business. In a
publicly traded corporation, this will involve either paying dividends or buying back stock. the
discussion of dividend policy, we introduce the basic trade-off that determines whether cash
should be left in a business or taken out of it. For stockholders in publicly traded firms, we note
that this decision is fundamentally one of whether they trust the managers of the firms with their
cash, and much of this trust is based on how well these managers have invested funds in the past.
Finally, we consider the options available to a firm to return assets to its ownersdividends,
stock buybacks and spin-offsand investigate how to pick between these options.
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CHAPTER2
Industry Profile

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2.1 Introduction

The term special economic zone (SEZ) is commonly used as a generic term to refer to any
modern economic zone. In these zones business and trades laws differ from the rest of the
country. Broadly, SEZs are located within a country's national borders. The aims of the zones
include: increased trade, increased investment, job creation and effective administration. To
encourage businesses to set up in the zone, financially libertarian policies are introduced. There
policies typically regard investing, taxation, trading, quotas,customs and labour regulations.
Additionally, companies may be offered tax holidays.
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.
A comprehensive draft SEZ Bill was 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 draft SEZ Rules were
widely discussed and put on the website of the Department of Commerce. Around 800
suggestions were received on the draft rules.
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SEZ Act and SEZ Rules have been drafted in haste and are an example of bad legislative drafting
e.g. SEZ Act provides for Customs duty on services cleared into DTA. It does not take care of
service sector issues like networking of servers etc.
It was hoped that the bill would instill confidence in investors and signal the Government's
commitment to a stable SEZ policy regime. Thereby generating greater economic activity and
employment through their establishment.
The Special Economic Zones Act was passed by the Government of India in May 2005, it
received Presidential assent on the 23rd of June, 2005. While introducing the act, then Prime
Minister of India, Dr. Manmohan Singh, said:SEZs are here to stay.
The bill came into effect on 10 February 2006, providing for drastic simplification of procedures
and for single window clearance on matters relating to central as well as state governments. The
remaining part of India, not covered by the SEZ Rules, is known as the Domestic tariff area.
Exports from Indian SEZ totalled INR 2.2 Trillion in 2009-10 fiscal. It grew by 43% to reach
INR 3.16 Trillion in 2010-11 fiscal. Indian SEZs have created over 840,000 jobs as of 2010-11.
[14]
Exports through Indian SEZs grew further by 15.4% to reach INR 3.64 Trillion (roughly
US$66 billion). As of 2011-12 fiscal, investments worth over US$36.5 billion (INR 2.02 Trillion)
have been made in these tax-free enclaves. Exports of Indian SEZs have experienced a growth of
50.5% for the past eight fiscals from US$2.5 billion in 2003-04 to about US$65 billion in 201112 (accounting for 23% of India's total exports)
The objectives of SEZs can be explained as:
1. Generation of additional economic activity;
2. Promotion of exports of goods and services;
3. Promotion of investment from domestic and foreign sources;
4. Creation of employment opportunities;
5. Development of infrastructure facilities

2.2 Facilities and Incentives

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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 unitsupto 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.
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).

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Approval mechanism and Administrative set up of SEZs

Approva mechanism
The developer submits the proposal for establishment of SEZ to the concerned State Government.
The State Government has to forward the proposal with its recommendation within 45 days from
the date of receipt of such proposal to the Board of Approval. The applicant also has the option to
submit the proposal directly to the Board of Approval.
The Board of Approval has been constituted by the Central Government in exercise of the powers
conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus.
The Board of Approval has 19 Members. Its constitution is as follows:
2.1 Constitution of Board of Members

(1) Secretary, Department of Commerce

Chairman

(2) Member, CBEC

Member

(3) Member, IT, CBDT

Member

(4) Joint Secretary (Banking Division), Department of Economic Affairs,

Ministry of Finance
(5) Joint Secretary (SEZ), Department of Commerce

Member

(6) Joint Secretary, DIPP

Member

(7) Joint Secretary, Ministry of Science and Technology

Member

(8) Joint Secretary, Ministry of Small Scale Industries and Agro and Rural
Industries

Member

(9) Joint Secretary, Ministry of Home Affairs

Member

(10) Joint Secretary, Ministry of Defence

Member

(11) Joint Secretary, Ministry of Environment and Forests

Member

(12) Joint Secretary, Ministry of Law and Justice

Member

(13) Joint Secretary, Ministry of Overseas Indian Affairs

Member

(14) Joint Secretary, Ministry of Urban Development

Member

(15) A nominee of the State Government concerned

Member
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(16) Director General of Foreign Trade or his nominee

Member

(17) Development Commissioner concerned

Member

(18) A professor in the Indian Institute of Management or the Indian Institute Member
of Foreign Trade
(19) Director or Deputy Sectary, Ministry of Commerce and Industry,
Department of Commerce

Member
Secretary

2.3 Administrative set up

The functioning of the SEZs is governed by a three tier administrative set up. The Board of
Approval is the apex body and is headed by the Secretary, Department of Commerce. The
Approval Committee at the Zone level deals with approval of units in the SEZs and other related
issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of the
Approval Committee.
Once an SEZ has been approved by the Board of Approval and Central Government has notified
the area of the SEZ, units are allowed to be set up in the SEZ. All the proposals for setting up of
units in the SEZ are approved at the Zone level by the Approval Committee consisting of
Development Commissioner, Customs Authorities and representatives of State Government. All
post approval clearances including grant of importer-exporter code number, change in the name of
the company or implementing agency, broad banding diversification, etc. are given at the Zone
level by the Development Commissioner. The performance of the SEZ units are periodically
monitored by the Approval Committee and units are liable for penal action under the provision of
Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the
approval.
How to Apply
Any individual, co-operative society, company or partnership firm can file an application for
setting up of Special Economic Zone. The application is to be made in Form-A to the concerned
State Government and the Board of Approval (BOA) in the Department of Commerce,
Government of India. However the application would be considered by the BOA only when the
State Government recommendation is received.
2.2 Minimum area requirements for setting up a SEZ are as follows:
Multi Sector SEZ

1000 hectares

Sector Specific SEZ

100 hectares

FTWZ

40 hectares

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IT/ITES/handicrafts SEZ Bio-technology/

non-conventional energy/gems and jewellery Sector

10 hectares

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CHAPTER3
CompanyProfile

3.1 Company Profile:

CIDCO Indias Premiere Town Planning Agency! When it says, We make Cities,
CIDCO does not solely attribute this claim on the creation of eminent
housinginfrastructure rather various urban development projects, some of
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which are very unique, fully justify CIDCOs legendary vision in city planning and
development.
City and Industrial Development Corporation of Maharashtra Ltd., is a company
wholly owned by the Govt. Of Maharashtra and was incorporated on 17th March
1970, with the specific aim of Mumbai city and at the same time creating a new
planned, self sufficient and sustainable city on the mainland across Thane creek
adjoining Mumbai. What began as a mission to Mumbai ended up in the creation of
one of the largest planned city known today and elevated CIDCO into the position
of Indias premier town planning agency.
With a wide spectrum of activities, CIDCO is a multi faceted and multi disciplinary
organization having 1,750 employees, which includes planners, architects, engineers
and other professionals. Since its inception, CIDCO has diversified its working
spectrum to accommodate new activities, even though its primary attention is still
concentrated in overlooking the constant development of Navi Mumbai. The
multidimensional activities undertaken today by CIDCO can be classified under
these three broad concepts:

Planning and Development of New Towns.

Consultancy.

Project Management and Designing.

The Concept of New Towns has evolved manifolds under the competent expertise of
CIDCO, CIDCO is designated Special Planning Authority by Government of
Maharashtra
for
new
towns
to
fulfill
the
following
objectives:
1. Reduction of population overcrowding in core cities
2. Absorption of emigrants and preventing the emigration of present population
by providing better
3. Conditions and new opportunities
4. Setting the industrial pace of the State with the help of balanced urban
development
5. Provision of excellent socio-economic facilities, thereby improving the
quality of life
3.2 CIDCO Developed Cities:
Navi Mumbai (34400 sq. m.)
Oros-Sindhudurg (430 Ha.)

New Nanded (172 Ha.)

Waluj (8571 Ha.)
Page | 23

Aurangabad Fringe Area (15184 Ha.)

Jalna New Town (470 Ha.)
New Nashik (398 Ha.)
Meghdoot, New Nagpur

Khopta (9400 Ha.)

New Aurangabad (1012 Ha.)
Vasai-Virar Sub Region (38000 Ha.)
Chikhaldara Hill Station (1953 Ha.)

Latur Fringe Area (25131 Ha.)

Jai Corp was incorporated in 1985. It has traditionally been into manufacturing businesses like
steel, plastic processing and spinning yarn. Apart from expansion of its plastic processing
business, it is now focusing and investing in emerging opportunities like developing SEZs,
infrastructure, venture capital and real estate. It is listed on Bombay Stock Exchange and
National Stock Exchange.
Jai Corp is focusing on developing one of the largest Special Economic Zones in India. Jai Corp
has invested in 2 Multi product Special Economic Zones near Mumbai - Navi Mumbai SEZ
(NMSEZ) and Mumbai SEZ (MSEZ). Both the SEZs are being conceived and developed as a
futuristic business hub and gateway for trade, commerce, industry, service and tourism.
Both the SEZs are strategically located in Maharashtra. Its inherent locational advantages are:
Close proximity to Mumbai, financial and commercial capital of India access to Jawaharlal
Nehru Port Trust, India's largest and modern port connectivity through existing rail links and
road network close to new Navi Mumbai International Airport
PROJECT 1
NMSEZ is promoted by Reliance Group (headed by Shri MukeshAmbani), Jai Corp and CIDCO.
It is proposed to be developed over 5,250 acres, out of which 4,125 acres have already been
handed over to NMSEZ.
PROJECT 2
MSEZ is promoted by Reliance Group (headed by Shri MukeshAmbani) and Jai Corp. It is
proposed to be developed over 5,000 hectors out of which 1,845 hectors have been registered.
Reliance Industries Ltd is not only Indias largest private sector enterprise in power utility but
also the largest private sector player in many other infrastructure sectors of India.
In the infrastructure space the company is focused on roads, Urban infrastructure which includes
MRTS, Sealink and Airports, Specialty Real Estate which includes business districts, trade
towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as
free trade zones.

Page | 24

Reliance Industries has returned nearly 1,384 acres of land in Gurgaon that was acquired for its
SEZ, saying that the withdrawal of the concessions offered to special economic zones has made
such projects unviable. "Reliance Haryana SEZ Limited (RHSL) on Friday returned 1,383.68
acres of land in Gurgaon acquired from HSIIDC for setting up SEZs due to revision of strategic
priorities," the company said in a statement here.
RHSL is a joint venture between Reliance Ventures Ltd (RVL), RIL's wholly-owned subsidiary,
and Government of Haryana through HSIIDC. The JV was established for development of
SEZs/Model Economic Township (MET) project and other infrastructure facilities in Haryana.
HSIIDC has also exited the JV and the project, it said. The Model Economic Township project
will continue to be developed in the Industrial Model Township framework on the directlypurchased land. The development work has been started over 290 acres as an Industrial Colony.
Companies such as Panasonic and Denso have established their manufacturing units in the MET
Project, the statement said.
3.3 Navi Mumbai SEZ Private Limited (NMSEZ)

Government of India (GoI) had accorded approval to the proposal of City & Industrial
Development Corporation of Maharashtra Limited (CIDCO) to set up a Special Economic Zone
in Navi Mumbai. Government of Maharashtra (GoM) directed CIDCO to implement the Navi
Mumbai SEZ project through a Joint Venture and that the Strategic Partner/Investor be selected
through a competitive bidding process. CIDCO through a global bidding process selected a
Preferred Bidder/Strategic Investor Consortium.
A Special Purpose Company (SPC) in the year 2004 named Navi Mumbai SEZ Private Limited
(NMSEZ) (formerly known as Navi Mumbai SEZ Development Company Private Limited) has
the right to plan, design, construct, market, operate & maintain, administer & manage the SEZ,
which is being set up covering a land area of 2140 hectares in Navi Mumbai.
Navi Mumbai SEZ Private Limited has achieved financial closure for 2,140 hectares (5286
Acres) and is currently developing the site. Our Company is the lead consortium member for
Navi Mumbai SEZ Private Limited, with balance equity held by Reliance Group Investment and
Holding Private Limited.(MukeshDhirubhaiAmbani Group)
The NMSEZ has been Master planned by world class master planners viz: Jurong Town
Coporation, a Govt of Singapore entity and AECOM one of the worlds largest infrastructure
Page | 25

planners. The SEZ has also obtained all the clearances from Environmental, Planning, Utilities
and the Ministry of Commerce for the development of the SEZ.
Basic infrastructures like sewage, water lines, contiguity and commercial building construction
at many a nodes including Dronagiri Node is already underway.
NMSEZ stands appointed as the Special Planning Authority for the notified areas in of
Dronagiri, Kalamboli, Ulwe (Waterfront) and Ulwe (Airport) Nodes of Navi Mumbai, under the
provisions of Maharashtra Regional and Town Planning Act, 1966.
3.4 The Best Positioned SEZ in India
Navi Mumbai SEZ, located in close proximity to Mumbai, the commercial and financial capital
of India, is being developed within the growing Navi Mumbai region in the State of Maharashtra
and is well-positioned with respect to connectivity, trade, commerce and resources.

Proximity to Mumbai thereby having access to:

Finance - Navi Mumbai SEZ's proximity to Mumbai, the commercial centre and financial
capital of India, will provide easy and unlimited access to capital, for the units located in Navi
Mumbai SEZ
Trading centres for many products like diamonds, gems, jewellery and apparels
Skilled manpower from reputed national and international educational institutes including
engineering and technical colleges, management institutes, etc
Huge urban markets of Mumbai, Navi Mumbai and Pune, with a population base of
approximately 20 million which are within the catchment area of the Navi Mumbai SEZ.
Proximity to international and domestic transportation infrastructure:-

Located at the door steps of the Jawaharlal Nehru Port, the premium container handling port of
the country, which celebrated its silver jubilee on 27th May 2014.
The entire 2,140 hectares of land required for the Navi Mumbai SEZ has been acquired by
CIDCO and is being progressively allotted to NMSEZ. Lease Deeds have been executed in
respect of each of the four Nodes and the land in possession of the company have already been
notified as under.
Proximity
Seaports

to

international

and

domestic

transportation

infrastructure

Located very close to one of India's largest and most modern seaports - Jawaharlal Nehru
Port, providing cargo linkages to all the international markets;
Page | 26

Proximity to Mumbai Port, a major port in India;

Proposed Rewas Port, being developed in close proximity to Navi Mumbai SEZ, will also
provide additional port gateway services to the Navi Mumbai SEZ.
Airport

ChhatrapatiShivaji International Airport at Sahar, is at a distance of around 45 km from

Navi Mumbai SEZ;
Second Mumbai International Airport, planned to be set up by the year 2016, in Ulwe, is
adjacent to Ulwe (Airport) Node of the Navi Mumbai SEZ and will be accessible within 10
minutes from Dronagiri and Kalamboli Nodes.
Road and Rail linkages

National Highways (NH4, NH4B, NH4B Extn., NH3& NH17) and State Highways
SH54, SH88 & SH81 link the Navi Mumbai SEZ area to the rest of the country. Mumbai Pune
Expressway skirts the Kalamboli Node;
The Sion-Panvel Highway providing efficient road connectivity with Mumbai is being
widened to a 10 lane highway;
Mumbai Trans Harbour Link planned as a six-lane dual carriageway road bridge
connecting Sewri on Mumbai side to Nhava on Navi Mumbai side;
Rail infrastructure Proximity to Central Railway Link, Konkan Railway, Suburban
Harbour Link Nerul Uran suburban link and proposed Rail Link projects.
Water Transport -

Proposed Water transport, linking south Mumbai to Navi Mumbai SEZ is expected to
boost accessibility to the area. With convenient rail, sea, road and air linkages, Navi Mumbai
SEZ is well placed to create a vibrant industrial and commercial hub in Navi Mumbai.
NMSEZ as Special Planning Authority
Navi Mumbai SEZ Private Limited has been appointed as the Special Planning Authority (SPA)
under the Maharashtra Regional & Town Planning Act, 1966, for the notified areas in Dronagiri,
Kalamboli, Ulwe (Airport) and Ulwe (Waterfront) Nodes of Navi Mumbai.
As a Special Planning Authority, NMSEZ has the roles and responsibilities to (i) Formulate
Development Control Regulations and Norms; (ii) Control and monitor development /
Implementation and enforcement of the Master Plan; (iii) Grant / refuse development permission
at plot-level and revocation / modification etc.; (iv) Grant / refuse Occupancy Certificate for
constructed premises; and (v) such other roles and responsibilities as enumerated in the
Maharashtra Regional and Town Planning Act, 1966.
3.5 NMSEZ NODE
Page | 27

Dronagiri
The Dronagiri Node of Navi Mumbai SEZ is on the southern tip of Navi Mumbai and is spread
over a total area of 1250 ha. The SEZ site in Dronagiri Node is surrounded by long waterfront
and water bodies.
The site has excellent connectivity by rail, road, air, and sea. The site also skirts the boundary of
Jawaharlal Nehru Port, one of Indias largest and most modern seaports. Mumbai harbour region
is on one side of the site and the Karanja creek lies on the other.
The long waterfront and water bodies available to the site, would be effectively utilized to
develop world class residential facilities within the Navi Mumbai SEZ. Proposed industrial
facilities in the Node would cater the port based industries, including Light Engineering, Apparel
and Logistics and Warehousing. This Node would also comprise Multi Services Sector, including
IT/ITES, commercial and trade facilities, thereby augmenting the development of this Node as a
self contained integrated township. The design of the Node would bring to reality the "walk-towork" philosophy, with residential facilities being developed adjacent to the office spaces.

Kalamboli SEZ
The Kalamboli Node of Navi Mumbai SEZ spreads over an area of about 310ha and lies on the
eastern tip of Navi Mumbai adjoining the Taloja Industrial Estate of Maharashtra Industrial
Development Corporation (MIDC). Mumbai Pune Expressway skirts the Kalamboli SEZ and is
a crucial link for developing this SEZ as Multi Services, including IT / ITES and service hub of
Western India.
This Node is located near the fully developed residential Nodes of Navi Mumbai such as
Kharghar, CBD Belapur, Panvel etc. These have excellent social infrastructure facilities, and
availability of skilled manpower for IT/ITeS can be ensured from these Nodes. The Kharghar
Node, which is 5 minutes from the Kalamboli SEZ area, is being developed as one of the most
prominent Nodes of Navi Mumbai, with ample facilities for education, rest, recreation &
entertainment facilities etc., in addition to residential facilities.

Ulwe (Waterfront) SEZ

The Ulwe (Waterfront) Node of Navi Mumbai SEZ covering an area of about 80ha is located
equidistant from the Dronagiri and Kalamboli Nodes of Navi Mumbai SEZ. This Node lies on
the waterfront of the creek at Harbour Bay facing north-west across the water.
This Node also lies immediately to the north of the bridgehead of the proposed MTHL (six-lane
dual carriageway road bridge connecting Sewri on Mumbai side to Nhava on Navi Mumbai
side), potentially served by both road and proposed metro rail. To the east is the site of the
proposed Navi Mumbai International Airport and the Ulwe (Airport) SEZ.
Page | 28

The MTHL Bridge, the Proposed International airport and SEZ, and the potential Metro Rail all
contribute to accentuate the economic potential of the Ulwe (Waterfront) SEZ as a premium
IT/ITES and financial hub comparable to Bandra-Kurla Complex in Mumbai.

Ulwe (East)-Airport
The Ulwe (Airport) Node of Navi Mumbai SEZ would cover approximately 500ha and is located
equidistant from the Dronagiri and Kalamboli Nodes of Navi Mumbai SEZ. CIDCO has
executed lease deed for 162 ha of land.
The Ulwe (Airport) Node lies immediately to the south of proposed Navi Mumbai International
Airport, potentially served by both road and proposed Metro Rail. To the west lies the site for the
proposed MTHL landing (six-lane dual carriageway Road Bridge connecting Sewri on Mumbai
side to Nhava on Navi Mumbai side) and Ulwe West (Waterfront) SEZ. The site is very well
connected to both the National and State Highways and can be accessed through Amra Marg, the
principal arterial road, connecting Navi Mumbai CBD to the proposed Navi Mumbai
International Airport and Jawaharlal Nehru Port.
The MTHL Bridge, the proposed International Airport SEZ and the potential Metro Rail all
contribute to enhance the premium commercial nature of the Ulwe (Airport) SEZ as MICE
(Meetings Incentives Conferencing Events) and institutional hub. This Node would also cater to
the Gems and Jewellery industry, keeping with the international standard practice of developing
diamond hubs, like those in Antwerp (Belgium) and Dubai. In addition to this, the Node would
have Multi Services Sector, including IT/ITES, commercial and trade facilities.

Page | 29

CHAPTER4
Objective&Scope

4.1 Objective of Corporate Finance

Page | 30

Corporate finance includes planning, raising, investing and monitoring of finance in

order to achieve the financial objectives of the company.

The followings are included in corporate finance.

1. Planning the finance : The finance manager plans the finance of the company. He takes
decisions on questions like:1. How much finance is required by the company?
2. What are the sources of finance?
3. How to use the finance profitably?
2. Raising the finance : The finance manager raise (collects) finance for the company.
Finance can be collected from many sources, viz., shares, debentures, banks, financial
institutions, creditors, etc.
3. Investing the finance : The finance manager uses the finance to achieve the objectives of
the company. There are two types of corporate finance, viz., fixed capital and working
capital. Fixed capital is used to purchase fixed assets like land, buildings, machinery, etc.
While working capital is used to purchase raw materials. It is also used to pay the day-today expenses like salaries, rent, taxes, electricity bills, etc.
4. Monitoring the finance : The finance manager monitors (i.e. controls and manages) the
finance of the company. He has to minimise the cost of finance. He has to minimise the
wastage and misuse of finance. He has to minimise the risk of investment of finance. He
also has to get maximum return on the finance. Monitoring the finance is an art and
science. It is a very complex job. There are new tools & techniques for monitoring funds.

Page | 31

4.2 Characteristics of Corporate Finance:

1. Financial Activity : Corporate finance is a financial activity. It includes planning,

raising, investing and monitoring the finance of the company. In short, it includes all the
financial aspects of the company. This work is done by the financial department headed
by the finance manager.
2. Raising the finance : Corporate finance includes raising (collecting) finance for the
company. Finance can be collected through shares, debentures, bank loans, etc. It is very
difficult for new companies to collect finance because the investors do not have
confidence in new companies. However, it is very easy for reputed companies to collect
finance due to their well-established goodwill in the market.
3. Investing the finance : Corporate finance also includes investing (using) the finance.
The finance is used to achieve the objectives of the company. It is used to purchase fixed
assets. It is also used for running the company. The finance must be used profitably.
4. Objective oriented : Corporate finance is objective oriented. That is, it is used to achieve
the objectives of the company. The main objectives are, viz., (i) To earn maximum
profits, (ii) To give a proper dividend to the shareholders, and (iii) To create a proper
reserve for future growth and expansion, etc.

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5. Types of finance : There are two types of corporate Finance, viz., fixed capital and
working capital. Fixed capital is also called long-term finance. It is used to meet the longterm needs of the company. It is used to purchase fixed assets. Working capital is also
called short-term finance. It is used to meet the short-term needs of the company. It is
used to pay the day-to-day expenses of the company. Medium term finance is also used to
meet the medium term needs of the company.
6. Relationship with other departments : Corporate finance has a close relationship with
all other departments in the company, i.e. Production Department, Marketing
Department, etc. This is because all departments need finance continuously.
7. Dynamic in nature : Corporate finance is dynamic in nature. It goes on changing
according to the changes in environment, circumstances, times, etc. So, the finance
manager must use new and innovative ideas for collecting and investing money. He must
use creativity while doing his job.
8. Requires proper planning and control : Corporate finance requires proper planning and
control. Planning is required to collect finance from the investors. It is also required for
investing the finance. Control is required to find out whether the finance is invested
properly or not. If the finance is not invested properly, then corrective measures must be
taken.
9. Managing finance is an art and science : Managing finance is an Art because it requires
human skills and judgement. It is a Science because it follows a systematic approach.
10. Legal requirements : There are many legal requirements for corporate finance. The
company has to take permission, from the Controller of Capital Issues, for collecting
finance from the public. The company also has to follow all the rules of SEBI. A Sole
Trader and Partnership Firm need not follow these rules.
11. Important part of business management : Corporate finance is an important part of
business finance. "Finance is the life blood of business." Finance is required for all
business activities. It is required for promoting business. It is required for conducting the
business smoothly. It is required for expansion, diversification, modernization,
replacement of assets, etc. Finance is also required for paying taxes, dividend, interest
and for meeting contingencies.
4.3 Importance & Need of Corporate Finance:

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1. Research and Development : Corporate Finance is needed for Research and

Development. Today, a company cannot survive without continuous research and

development. The company has to go on making changes in its old products. It must also
invent new products. If not, it will be get automatically thrown out of the market.
2. Motivating Employees : Manager and employees must be continuously motivated to
improve their performance. They must be given financial incentives, such as bonus,
higher salaries, etc. They must also be given non-financial incentives such as transport
facilities, canteen facilities (eatery), etc. All this requires finance.
3. Promoting a Company : Finance is needed for promoting (starting) a company. It is

needed for preparing Project Report, Memorandum of Association, Articles of

Association, Prospectus, etc. It is needed for purchasing Land and Buildings, Plant and
Machinery and other fixed assets. It is needed to purchase raw materials. It is also needed
to pay wages, salaries and other expenses. In short, we cannot start a company without
finance.
4. Smooth Conduct of Business : Finance is needed for conducting the business smoothly.

It is needed as working capital. It is needed for paying day-to-day expenses. It is needed

for advertising, sales promotion, distribution, etc. A company cannot run smoothly
without finance.
5. Expansion and Diversification : Expansion means to increase the size of the company.

Diversification means to produce and sell new products. Modern machines and modern
techniques are needed for expansion and diversification. Finance is needed for purchasing
modern machines and modem technology. So, finance becomes mandatory for expansion
and diversification of a company.
6. Meeting Contingencies : The company has to meet many contingencies. For e.g. Sudden

fall in sales, loss due to natural calamity, loss due to court case, loss due to strikes, etc.
The company needs finance to meet these contingencies.
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7. Government Agencies : There are many government agencies such as Income Tax

authorities, Sales Tax authorities, Registrar of Companies, Excise authorities, etc. The
company has to pay taxes and duties to these agencies. Finance is needed for paying these
taxes and duties.
8. Divident and Interest : The company has to pay dividends to the shareholders. It has to

pay interest to the debenture holders, banks, etc. It also has to repay the loans. Finance is
needed to pay dividends and interest.
9. Replacement of Assets : Plant and Machinery are the main assets of the company. They

are used for producing goods and services. However, after some years, these assets
become old and outdated. They have to be replaced by new assets. Finance is needed for
replacement of old assets. That is, finance is needed to buy new assets.

CHAPTER5
Page | 35

Observation&
Analysis

5.1 Introduction
Twenty five years later, Indias politicians have woken up and suddenly discovered the concept
of SEZs. Parliament passed the bill in July, 2005. The India was late to the game. But fact here
says that there is nothing to be worried more. China has five SEZs, according to Indias Ministry
of Commerce; there are now more than five SEZs in India. But thats just the beginning.
According to Bloombergs Andy Mukherjee, As many as 267 zones have already been cleared
in principle by the government; out of these, 150 proposals have won final approval. But
theres a down side to having so many SEZs: Critics are angry, saying that Indian peasants are
getting robbed, losing their farmland to the industrial zones. Farmer activists have gone to the
Supreme Court to stop things. Congress Partys Sonia Gandhi has weighed in too. India, unlike
China, isnt a dictatorship. Indias leaders cant just railroad through policies the way Chinas
communists do. But it does seem to be a shame that India, with a desperate need to generate
more jobs for people from poor rural areas left out of the IT services boom, cant figure out a
way to get SEZs right.
Page | 36

Experience with Export Processing Zones (EPZs)

Starting with Kandla in 1965; SEEPZ in 1972, Based on reviews of working, Cochin, Falta,
Madras (Chennai) and NOIDA in 1984 and Vizag in 1989
o Very limited impact
o Less than 40% of approvals fructified - Rest cancelled or lapsed
o Employed only 0.01% of labor force
o FDI was less than 20% of total investment
o Accounted for less than 4% of exports. Net export much lower as imports were over 60% of
exports
The reasons of failure were:
(i) Very Small Size of EPZs
(ii) Inadequate infrastructure
(iii) Restrictive policies
(iv) Lengthy procedures No Single Window
(v) Location disadvantages
(vi) Stringent labor laws

5.2 SEZ Policy of 2000:

New Policy in April 2000. SEZs permitted to be set up in the public, private, joint sector
or by the State Governments

Minimum size of 1000 hectares (4 sq. miles)

Simplified procedures and more incentives

Main measures were:

o
o
o
o

Conditions for automatic approval relaxed considerably

Customs procedures simplified
Units could produce items reserved for SSI units in domestic market
100% FDI investment for manufacturing
Page | 37

Profits could be repatriated fully

Freedom for sub-contracting
100% I.T. exemption for five years
Exemption from Central Excise Duty on capital goods, raw materials, consumable
spares from domestic market
o Reimbursement of CST paid on domestic purchases
o
o
o
o

5.3 SEZs success saga:

India, the government has been proactive in the development of SEZs. They have formulated
policies, reviewed them occasionally and also ensured that ample facilities are provided to the
SEZ developers as well as the companies setting up units in SEZs. These favorable conditions
resulted in the biggest ever corporate rush for the development of SEZs in India. Over 234
companies received formal approval, 162 companies received in-principle approval and 100
companies received notification to set up SEZs. The Indian government is expecting an
investment to the tune of Rs.53,561 crores (USD 13274 million) and an additional job creation
for 15,75,452 individuals in SEZs by December 2009. Despite all the efforts, SEZ development
has become the most controversial issue for India today. It is very important to understand all
aspects of SEZs such as basic concepts, its various models and the life cycle of its business
before initiating any policy or investments for these projects. Despite the fact that the existing
SEZ Act and FDI Policies for SEZs are very lucrative; the rationale behind the rapid economic
and industrial growth the Indian SEZ policy is being questioned.
Indias Foreign Direct investment is mostly restricted to the field of services. This is evident
from the fact that most of Indias FDI of USD 5.3 billion was in services. In contrast, China
attracted FDI of around USD 27 billion in manufacturing alone. However, Indian exports of
manufactured products were only 10% of that of China. This is, in spite of India having lower
laboring costs. What is holding the industry back then?
The Global Competitiveness Report 2005 identified poor infrastructural facility as the main
reason for the bad performance. Where China stood at a healthy rank of 62 with respect to
infrastructural facility, India was at the 76th position. Global competitiveness also received a
setback as a result of the high cost of doing business according to World Bank reports. Thus, to
solve this problem the government has come up with the policy of Special Economic Zones and
around 150 proposals of such zones have already been put into force. With respect to the same,
The Special Economic Zone Act, 2005 has been passed; which promises to reduce red tapes and
lower the cost of business. SEZs provide for tax exemptions which cut down the manufacturing
cost to a large extent.
Self certification of exim cargo also reduces transportation delays thus resulting in a boost of
investments in the fields of automobiles, engineering, etc. Since 2005, India has attracted Rs.
2000 crores as investment and generated around 1.25 lac jobs. The IT and ITES units have also
Page | 38

provided an impetus to the real estate industry by giving them access to the non- processing
areas. According to the laws, there have to be residential complexes, malls, recreation centres,
etc. to cater to the needs of the workforce. The Special Economic Zones are expected to attract
investment worth USD 30 billion and provide employment to around 2 million people.

5.4 Drawbacks of SEZs:

SEZs will displace and uproot lakhs of farmers and send land prices skyrocketing.
The SEZs make the government forgo revenue it can ill-afford to lose, they also offer firms an
incentive to shift existing production to the new zones at substantial cost to society.
In the name of free trade and inviting global investors, we are going to experience the meagre
benefits rather than mega profits to our nation, as SEZs are meant to create incentives for exports
through huge tax-breaks.
SEZs are duty-free enclaves and considered "foreign territories" for the purpose of trade
operations and tariffs.
Units located in SEZs can import goods without licence or duties.
They have unrestricted access to domestic markets and permit 100 percent foreign direct
investment in manufacturing.
Profits can be repatriated freely.
SEZ tax concessions are handsome, a 100 percent tax holiday for exporters for five years, a 50
percent tax-break for five more years, and a further five-year tax-break on production based on
reinvested profits. Besides, SEZ developers will enjoy
a tax holiday for 10 years.

Page | 39

5.1 Sectoral performance of SEZs in India (1990 & 2002)

5.2 Zone-wise composition of exports from SEZs in 2004-05

5.3EmploymentAnalysis

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Interpretation:
From the above chart we can see that SEZs in India is growing at a rapid rate, in 2005-06 it
employed 134704 people and as per 2013-14 employment reached to 1288809 i.e., approx.
28.2% annual growth, hence we can see that it is generating employment for lot of people and
helping in overcoming the poverty situation of the country.
Source:
www.SEZindia.com

5.4 PROGRESS ANALYSIS IN INDIA

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Interpretation:
SEZs in India has shown a growth rate of 21 times in 9 years, which helped in increase in GDP,
decreasing current account deficit, Cost of production will reduce as the production increases,
helped in development of Domestic Industries.

Source:
www.SEZindia.com

5.5 INVESTMENT ANALYSIS OF SEZS IN INDIA

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Interpretation:
As we can see that investment in SEZs have grown at a huge rate, this investment shows
increase in FDI percentage in various sectors which attracts foreign investors as government
provides tax benefits against investment made in SEZs., this investment helped in increasing
Employment, increasing production capacity, Increase in the domestic Income of the country.
Source:
www.SEZindia.com

Page | 43

CHAPTER6
Conclusion

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SEZ is a very firing topic in the midst of economic progress. Basically, govt. sets up SEZs to
promote FDI (Foreign Direct Investment) and to promote exports from the country. We came to
know that SEZs are set up both by public players as well as by private players. After some
arrangements, they develop some kind of PPP (Public Private Partnership), after which, the
public sector starts providing some level of support in order to enable the private sectors to carry
out their operations successfully. The concept of SEZ started by the govt. in April 2000 is
bringing a whole lot of boom in the Indian Economy, as it fetches foreign currency for the Indian
pockets, thereby promoting trade between the nations. Also the SEZs are characterized by duty
free imports. They have laws which are more lenient than the laws prevalent in the country.
Because of these characteristics, the businesses of SEZs are touching great heights. As there is
no restriction regarding the imports and the exports, so particularly the MNCs (Multi-National
Corporations) and the International Businesses find little or no difficulty in setting up their
manufacturing units in SEZs and carrying out their activities there. They generally have to incur
low costs in setting up the units in India, and shell- out huge amounts of profits from the public.
The form of governance present in these zones is enabling the investments to be made easier.
Also it is seen that because these zones have received 100% income tax exemption for a block of
five years, and an additional 50% tax exemption for two years, so this has also made their work
easier. Also, they are exempted from the central sales tax and the service tax. It means that
basically an Indian who has got the freedom to set up its production unit in these zones, does not
have to pay any taxes for any kinds of imports that he will make regarding the set up.
It will indirectly help in the free flow of goods and services as there are no rules and restrictions
regarding the same. Also, with the help of these kinds of exemptions from the govt.s side, the
economy flourishes and grows by leaps and bounds. The UPA Govt. is also in the favour of
SEZs. It says that in order to reduce poverty from the nation, we have to increase the income,
and in order to increase the income, we have to set up certain areas where free flow of trade can
take place, where there is minimum intervention from the side of the govt., where we do not have
to pay huge taxes every time we carry-out an activity. Because the general perception and the
general phenomena from the side of the public is that though it is true that the govt. collects taxes
from the public basically to spend it on the public only through various forms which otherwise
vest in publics welfare, but as the taxes are collected in huge forms, so all that is collected is not
utilized for the welfare of the public. A lot goes into the govt.s pockets, which is obviously spent
in large borrowings which the govt. takes from the outsiders. So, they feel that if they are
exempted from the tax and the strict rules and regulations of the law, the business can be carriedout more successfully and in the interest of the general public. So, the presence of SEZs in the
country will no doubt add to the GDP (Gross Domestic Product) of the country. As more and
more FDI will come into the Indian pockets, it will indirectly lead to a positive turn in the GDP
figures of the nation.
Also, another aspect of the concept is that it will generate more and more employment in the
economy. More and more people will get jobs, as the company which sets up its production unit
there will demand people to help it carry-out its operations. It will thereby help in reducing
unemployment from the economy and will also reduce poverty from the nation. Though it is not
completely possible to eradicate poverty from our nation, but we could otherwise make efforts in
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reducing it by these kinds of activities. Also, the presence of different kinds of zones in the
economy will boost-up the infrastructure level of the economy. It will also add to increasing the
face value of the country. And also because of this, more and more people outside India will
make-up their minds to invest in India. So, if we see these SEZs from the profitability side, then
it is no doubt one of the seemingly feasible options to increase the goodwill of the country, to
eradicate poverty from the country, to generate employment, and also will help in turning on lots
of options discussed above.

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CHAPTER7
Bibliography&
Reference

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Text Books:
Managerial Economics, Fourth Edition
-Craig H. Petersen
-W. Cris Lewis
-Sudhir K. Jain
Managerial Economics
-Samuelson
Laws Relating to Special Economic Zones
-Taxman
Web Links:

www.sezindia.com

www.nmsez.com

http://www.coolavenues.com/forums/showthread.php?t=10173

http://www.managementparadise.com/forums/export-import-procedures/9714-pptproject-sez.html

http://www.thaindian.com/newsportal/business/mukesh-ambanis-sez-project-introuble_100201399.html

http://www.indiahousing.com/sez-special-economic-zones-india.html

http://cplash.com/post/Scrap-all-SEZs-and-let-the-tribals-become-rich-and-prosperousso-that-they-shun-Maoists248.html

http://punekar.in/site/2009/08/28/chief-minister-scraps-videocon-sez-project-at-wagholi/

http://newsx.com/story/65527

http://www.destinationmadhyapradesh.com/mp07/state-profile/project-reports/newprojects/Multi-product_SEZ.pdf

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