SEZ

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 procedures and for single
window clearance on matters relating to central as well as state governments. The main
objectives of the SEZ Act are:

 generation of additional economic activity

 promotion of exports of goods and services
 promotion of investment from domestic and foreign sources
 creation of employment opportunities
 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

1
 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;
 Single Window clearance on matters relating to Central as well as State Governments;
 Simplified compliance procedures and documentation with an emphasis on self
certification

Approval mechanism and Administrative set up of SEZs

Approval 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.

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.

2
What is a SEZ?
Special economic zone or SEZ refers to a totally commercial area specially established for the
promotion foreign trade. A Special Economic Zone (SEZ) is a geographical region that has
economic laws more liberal than a country's typical economic laws. Usually the goal is
flourishment in foreign investment.[1] In other words SEZs are specifically delineated enclaves
treated as foreign territory for the purpose of industrial, service and trade operations, with
relaxation in customs duties and a more liberal regime in respect of other levies, foreign
investments and other transactions.[2] These regions exists in many countries of the world and
China perhaps the oldest to give reality to this concept. Although they exist in several countries,
their attributes vary. Typically they are regions designated for economic development oriented
toward inward FDI and exports fostered by special policy incentives.[3] The SEZs in India are
the outcome of the present government’s industrial policy which emphasizes deregulation of
Indian industry and to allow the industries to flexibly respond to the market forces. All
undertakings other than the small scale industrial undertakings engaged in the manufacture of
items reserved for manufacture in the small scale sector are required to obtain an industrial
license and undertake an export obligation of 50% of the annual production. This condition of
licensing is, however, not applicable to those undertakings operating under 100% Export
Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic
Zone Schemes (SEZs).[4]

Background of SEZ India.

During late 1990s the then Union Commerce Minister Murasoli Maran visited the high tech
SEZs in China and got impressed by their contribution to the rapid growth of GDP of the
country. He then thought about taking measures to do the same in India. However by that time
India was already introduced with the first export processing zone in Kandala. But the main
difference that it was not SEZ but EPZ. India was not deemed to be very happy with the EPZs
because they were falling short due to various reasons. As a result the expectation rose high
and the SEZs were conceived to be far efficient, calculated and modernized than the EPZs. In
the light of the experiences drawn from international level it is evident these centers have added
tremendously in the growth of employment and foreign direct investment or FDI. Their role has
been evaluated as very significant in the growth of the economy of the host country.[7] In New
Delhi the International Convention on Special Economic Zone was arranged on March 21, 2002.
The main guest was undoubtedly Mr. Maran, the Honorable Minister for Commerce and Industry
on that time. In his speech he pointed out that for a long period of time foreign trade in India has
been viewed as suspicion rather an optimum potential to charge a high growth rate of the
economy. The time has come when the country is moving towards export fatalism to export
apathy. This change of notion would definitely lead to an incentive to the economic progress of
the country and for this the need of SEZ is inevitable. The SEZs would act as vehicles of
production and the FDI increase swiftly. As a result India will attain a considerable place in its
contribution to the world economy.[8]

3
Dream becomes Policy and Policy becomes Law.
The government of India announced SEZ policy in March 2000 under the export-import policy
for the augmentation of export production[9]. At that time Mr. Murasoli Maran was the union
minister for Commerce and Industries. However he could not fetch his plans far as the existing
government was defeated in the general election of 2004. But this defeat perhaps did not create
any disappointment in the minds of Mr. Maran because the new government took sufficient
measures to give the SEZ policy a form of binding law. We all know that a policy may not be
enforced but a law can be. The new government came out with Special Economic Zones Act in
the year 2005 which attained the assent of the president on 23rd June. This Act provided for the
establishment, development and management of the Special Economic Zones for the promotion
of exports and for the matters connected therewith.[10]

Some Important Provisions of the Act[11]

1. SEZs can be established mainly for manufacturing of the goods, for providing specified
circumstances and as a free trade and warehousing zone.
2. SEZs will include three types mainly. They are multi-product SEZ, sector specific SEZ, port or
airport based SEZ and free trade and warehousing zone.
3. They will have their own adjudicating, enforcing and administering agencies. Therefore
absolute non interference by the state.
4. There will be 100% tax exemption and relaxation from strict labour laws.
5. They will not have any burden to comply with any sort of minimum obligation to export.
6. Except for certain kind of offences the no investigation or inspection can be carried out in any
of the SEZs without prior approval from the development commissioner.
7. The Development Commissioner will be entrusted to the overall administration and
supervision of the SEZ and exercise all necessary controls and co operations to foster speedy
and effective development of the SEZ concerned. The development commissioner shall be
appointed by the central government.

How will be the Special Economic Zones?

The main underlying purpose behind the creation of SEZs is to create a hassle-free
environment for the promotion of exports. These zones are regarded as duty free enclaves and
for the purpose of trade operations they are deemed to be foreign territories. The SEZ policy
offers various fiscal and regulatory incentives to the developers within the zone along the
incentives available with central SEZ policy. They are to emerge as zones of excellence.[12]
The basic presumption behind SEZs is that they will bring large scale investment of global funds
into the manufacturing and service sectors and pump the economy to its top. As a result the
infrastructure conceived is world class. There will be easily available marketing initiatives and
from them Indian industry is expected to gain benefit. The setting up of the SEZs will allure
investment from within India and abroad. This will also lead to the development of the
concerned area, ensuring better quality of goods and services, large scale employment and
many other elements highly expected to boom the already growing market economy of India.
According to the government if all these are totaled then it will lead a total forwarding of Indian

4
economy.[13]
To develop SEZs there has to be someone who needs to improve the basic infrastructure. Upon
that infrastructure the superstructure of SEZs will function. The infrastructure will play one of the
key roles behind the success of each and every SEZ. For example if production is huge and
ready to reach the port but due to bad transportation goods can not be reached there n time
then order is cancelled. It implies no fault in the superstructure but in the infrastructure. If such
thing takes place then the manufacturer will soon loose the motivation and the success will be at
stake. Therefore by our common sense we can understand the importance of infrastructure.

The government is also in the same footing of common sense with that of an ordinary prudent
person and after a cautious observation of the main objectives of the SEZ policy it has came to
this opinion that there shall be no lack of efforts in the infrastructural development of the SEZs.
As a result the role of developer has been conceived with due care and attention.

Developer means a company that develops the infrastructure and other facilities on land
earmarked as SEZs[14]. The incentives under this policy given to the developers are:
# Items imported for setting up, operation and maintenance of SEZs will be exempted from
customs duty.
# Exemption from excise duty for the goods required for abovementioned purposes.
# Income tax exemption for a period of 10 years in the first 15 years operation.
# Exemption from central sales tax for the goods used for development and maintenance of
SEZs.
# Exemption from service tax with reference to the services required in connection to the
development and maintenance of the SEZs.
# Drawbacks and any other benefits are admissible from time to time.
Apart from the developers it also preserves certain incentives for the enterprises also. Let’s
have a look on them.[15]
# 100% income tax exemption for a considerable period of time.
# 100% FDI permitted to the manufacturing sectors except for some specified.
# External maturity borrowings through recognized banks with any hard regulation.
# Requirements of no import license.
# Exemption from licensing regulations for the items reserved under SSI sector.
# No routine examinations by Customs for export and import cargo.
# Exemption from Central Sales Tax and Service Tax.
# Exemption from customs duties, Central Excise duties and the like.

The term ‘exemption’ is very commonly used here. But there has been no proper justification in
order to boom up the economy whether the loss of public revenue is an inevitable requirement
or not.

To attain the goals management is a very important factor in any business entity. This concept
is also applicable with respect to SEZs. The public sector units in India in their long term of
functioning received the stigma that interpose by the govt. in the management of the business
units proved to be an utter failure because it is alleged to be inefficient and not compatible with

5
the changing situations of corporate world. As a result govt. has lost interest in running business
units and privatization has been preferred. This is also true with regard to the coming SEZs.
According to section 11 of SEZ Act there will be a development commissioner appointed by the
central govt. and that person will be the overall in charge of the zones. He is also entitled to
exercise all the necessary administrative powers to ensure proper functioning of the SEZ
concerned.

Why the Present Unrest?

The above discussion clicks in our mind that the govt. has deliberated the SEZ policy with all
due care in order to enhance the economic growth of India. Since policy can be changed with
the change of government therefore to give it a binding nature, government has enacted SEZ
Act for enforce the development envisioned by it. In a broader aspect SEZs will create
employment, quality goods and services and India will be able to bag a good position in the
international economic scenario. Therefore for the sake of argument it can be presumed that
SEZ policy is a welfare policy and all shackles to be removed from its way of calculated
success. But people from various parts of our country are vehemently protesting against the
coming up of SEZs. The question is ‘why’? Let’s take a drive to address this question by taking
into account the various concerns related inevitably to SEZs.

Land Acquisition:
Industry can not be framed in air. It needs land and by virtue of being seventh in the world as far
as territory is concerned India still has ample quantity of land. However the quantity of land is
neither adequate to support the growing need for shelters to bulk of the people nor it is of very
high productivity to meet the growing demand for additional food grains. Irrespective of this fact
we call India to be self sufficient in the food grains but the productivity of Indian farmlands as
compared in hectors with the other countries like china is very less. Land is required for
agriculture, land is required for shelter and land is required for the economic development of the
country. It is the right of the farmer to grow crops in his land, it is the right of all human beings to
seek lands for shelter and it is the right of the government to foster economic growth of the
country in order to sustain the same in the international competition and to make a good image
of it in the family of nations. But if a question comes as to which amongst the three rights is
most competent then all will be the unanimous answer. But as state is vested with a huge
amount of resources it has got the power to decide which right is given foremost importance in
the given circumstances. The decision of the state may not be matching with that of the
individuals.

Our present discussion does not take into account the right to have shelter because the lands
being pointed out for the development of SEZs are non-agricultural or so called semi-agricultural
or barren lands. Therefore the present conflict is between right to livelihood and right to
economic development. The government has employed total of its force and justification to
sustain the latter. The ministry of commerce and industry has discussed that the SEZs will be
coming only on barren lands and single crop lands. But in practice it has not been so. The policy

6
of SEZ has already acquired the stigma of land grabbing policy or a new model of real estates
business by giant developers and the like. People have already expressed their negative views
over SEZs saying destroying valuable agricultural plots seems especially ill-conceived, as
farmers are not likely to make an easy transition to the jobs on offer at these SEZs. For getting
industrial development sacrifice of agricultural land is non-permissible. The history shows that
most of the land acquired by the Government at minimum rates have been commercialized and
sold at market rate by manipulations. It is a scandal and will end up in a mess. Already more
than 10 farmers are committing suicides every day.[16]

The growing issue of SEZ also leads to the growth of resistance from the rural people. Govt.
and the developers are claiming that the resistance is unreasonable. Since the meaning of
‘reasonableness’ has not been defined anywhere therefore a live example may workout. In
some area in the outskirts of Mumbai the farmers have been handed over land acquisition
notices by the authority and the developers. The local officials’ claim that the land earmarked is
unproductive but by a drive through the villages one can really eyewitness as to how
unproductive is the lands. Further there is a difference of opinion amongst the officials also.
According to an official from Maharashtra the policy clearly talks about non acquisition of
irrigated and double-cropping land. But this is also true that some organization named Posco-
India has acquired multiple cropping lands in Orissa. The officials from the Karnataka Industrial
Areas Development Board have said that under the given guidelines 10% of the required can be
double-cropped. The Baikampady SEZ has been disputed as a result of the statement made by
the Union Minister for Commerce and Industry saying that 10% of the lands can be double
cropped.[17]

Environmental Issue:
Whenever we talk about industries, environment comes very usually as one of the important
concerns. Industry uses natural resources at a huge scale. Proper utilization of natural
resources is expected at all levels but simultaneously over utilization, reckless operation etc.
adversely affects the ecological balance. Therefore to protect the environment from the whims
and fancies of the selfish industrialists it has become necessary to frame and implement rigid
laws in order to prevent any kind of harm to environment and also to undertake a subsequent
survey to find out the necessary implications left out on the environment by the industry. SEZs
also therefore should not be exempted from the environment regulations. In other words
environment can not be sacrificed on the excuse of economic development of the country.
There should be no compromise in this regard.
However the SEZ units are exempted from Environmental Impact Analysis under the provision
of the Environment (Protection) Act. Further, the development commissioner will be empowered
to issue consent and no objection letters in consultation with the officers of the state pollution
control board. The units, which are classified as non-polluting industries, do not require a
consent letter. The development commissioner can give clearance without consulting the
pollution control board. The units are permitted to submit a compliance report for maintaining
prescribed pollution standards. Although the development commissioner has powers for a

7
random check, the units within the SEZ are free to follow their own methods to maintain
environmental standards. It has also been expected that the conflict between development and
environment needs to be resolved properly and the environmental regulations must be proactive
in nature and not to be barrier on the path of country’s economic development. If the nature of
the environmental norms remains prohibitive in nature then it will be difficult for the private
entrepreneurs to participate in the issues concerning environment.[18] Thus it can very easily be
inferred that SEZ developers as well as the entrepreneurs are in the want of more and more
relaxation in the environmental norms which the govt. is in the way of granting.

Issue of Labor Welfare: Apart from the issues deliberated above, there are other aspects also
which are required to be taken into consideration. The issue of labor is very important. The
parliament since the time of independence has enacted a number of legislations concerning
welfare of the labors. The main object behind this was to promote the interests of the labor class
and to protect them from the exploitation of the industrialists. But a reading of the SEZ Act
leaves us under the apprehension that it hardly gives any space for the welfare of the labors. A
member of the Rajya Sabha raised a very pertinent doubt regarding this. He said there is an ILO
recommendation about the Grievance Redressal Authority and the Development Commissioner.
The ILO recommendation is that these two persons should be different persons, but here, the
Development Commissioner has been given the authority to look after the task of grievance
redressal. This should not be done.[19] It is further apprehended that all the rights concerned
the labor class have been tactfully withdrawn by both the central as well as the state govt. The
rights of the labor class have been attacked in this Act under Section 49(1) which categorically
says Provided that nothing contained in this section shall apply to any modifications of any
Central Act or any rules or regulations made there under or any notification or order issued or
direction given or scheme made there under so far as such modification, rule, regulation,
notification, order or direction or scheme relates to the matters relating to trade unions, industrial
and labour disputes, welfare of labour including conditions of work, provident funds, employers’
liability, workmen’s compensation, invalidity and old age pension and maternity benefits
applicable in any Special Economic Zones. Similarly, the right of the State Government for
granting exemption from the labour rights has also been deleted. The original draft was The
State Governments may, for the purpose of giving effect to the provisions of this Act, notify
policies for Developers and Units and take suitable steps for enactment of any law:- …….. (b)
directing that any of the provisions of any State Act relating to Trade Unions, industrial and
labour disputes, welfare of labour including conditions of work, provident funds, employers’
liability, workmen’s compensation, invalidity and old age pensions and maternity benefits or any
other activity relating to the Special Economic Zones-(i) shall not apply to a Special Economic
Zone or a class of Special Economic Zones or all Special Economic Zones; or (ii) shall apply to
a Special Economic Zone or a class of Special Economic Zones or all Special Economic Zones
only with such exception, modifications and adaptations, as may be specified in the notification;.
Existence of bold portion would also invite competition among the states in withdrawing the
rights and facilities of the workers. So the entire bold portion has been withdrawn from the Bill
before its adoption. Section 3 (4) of the draft gave right to set up and notify a Special Economic
Zone without referring the proposal to the State Government. That also has been amended.[20]
It is also alleged that SEZs are centers of immense exploitation. The zones are declared to be

8
public utility services and that in effect bans trade unionism and application of labor laws.
Minimum wages are not implemented; employees are forced to work overtime without any extra
payment; safety equipments are not provided adequately; crèches are not provided; instances
of sexual harassment are very common.[21]

Legal Recourse to Oppose SEZ.

To counter the mechanism of SEZ people have not only started protesting vehemently but have
also knocked the doors of the judiciary to strike down the policy as well as the Act. Several writ
petitions and public interest litigations have been filed in various High Courts as well as the in
the Supreme Court of India. An advocate Manohar Lal Sharma filed a PIL in the Supreme Court
seeking a CBI probe into the alleged land scandal. He contended that vast track of fertile lands
have been acquired illegally in Delhi, Kolkata and Mumbai. He has also submitted graphic
details and alleged that there is an unholy nexus between the industrialists and the politicians.
He also brought in to the notice of the Court that in those places police has used its force to
humiliate and assault the people in order to receive the possession of the lands concerned. He
prayed before the Court to grant interim stay and to direct the lands to be given back to the real
owners.[22] In another instance the petitioner contended that in some places the lands were
acquired without the consent of the farmers. The Acts under challenge are Centre's Special
Economic Zones Act 2005, National Capital Region Planning Board Act 1985 and Haryana's
SEZ, 2005. The petitioner has particularly prayed for nullifying the colourable exercise of power
which is both malafide in law and malafide in fact in respect of Reliance which has been given
about 1700 acres of land for Garhi Harsaru SEZ site in Haryana. In response to that petition the
Supreme Court issued notice to the centre, states concerned and the developer to examine the
conflict arisen.[23] In another writ petition the petitioner sought to quash the MOU signed
between govt. of Punjab and Reliance Industries limited for setting up of SEZ on the alleged
ground of blatant violation of land allotment policy.[24] In another writ petition the adequacy of
the compensation given to the farmers was challenged before the Court. The Court granted
liberty to the farmers to challenge the adequacy of the compensation provided.[25] In Allahabad
High Court a writ petition was filed to restrain the government from finalizing the setting up of a
SEZ in Noida on the alleged ground that the lands were acquired at the pittance of the farmers
and it is in violation of Article 14 and 300(a) of the Constitution.[26] In another petition the entire
SEZ policy of the govt. was challenged on the ground that it will create a huge financial loss and
the economy may collapse. But the Court refused to entertain the petition on the ground that it
was purely a policy matter but left a remark that the Court can interfere in the policy matter in
the individual cases when the party concerned is personally affected.[27]

Expert’s Opinion
Opinions given by experts find a very specific reference under the Indian Evidence Act
1872[28]. The jurisprudence behind providing a clause for expert’s opinion is to substantiate the
evidence submitted before the Court with the help of a person who has undertaken a through
study or research in that particular subject matter which is being used as evidence. But the
scope of using expert’s opinion is not only limited to the Court cases but in any other place

9
where some views is expressed and the author tries to justify them. In the present article also
there is ample opportunity to use opinion of the persons having sound political background as
the matter of SEZ has already obtained political colour.

According to Mr.V.P.Singh, SEZs are models for the development of the country. These models
should be inclusive as to every one has a share in the cause. But the present model is so
designed that some people pay the price and suffer. If in a market economy the buyers and
sellers have no choice to exercise then it is not market economy in its true form. In a democracy
everyone dictates its term over the government but the farmers can not. It is injustice. Vast
tacks of prime agricultural lands have been taken over by the govt. of UP and other states. If
this goes on then activities of the landless laborers will come to an end. In this way the country
will advance to a major socio economic crisis.[29] The farmers have been given the price of Rs
150 per square yard in Dadri. The same land without any development has been valued at Rs
5,700 per square yard by Reliance and it is demanding a loan from the bank on the basis of this
assessment. The thesis is that the rate at which the company has valued the land for the bank
appraisal should be the real value of the land. If it is not, then the bank is being cheated. And if it
is the real value, then the farmers are being cheated.[30]

Recent Developments
The first and second world wars taught a great lesson to the people of the world. After these two
disasters democracy has been seen as a global entitlement. People started abhorring
totalitarianism and dictatorship as those two have already proved their status. Presently
democracy is the best alternative available. Since democracy is a government by the people, of
the people and for the people therefore public opinion plays a crucial role. A true democracy is
the rule by the majority and willingness of the minority to accept the rule. The role of minority is
very important because it brings into the notice to the public about various flaws in the present
government and suggests for the reform. If the present govt. does not acknowledge and
address the flaws pointed out by the opposition then there is a reasonable apprehension that in
the next election people will not give them a chance to rule. Therefore the majority can not
blatantly deny the role of opposition. This has also been true with reference to our present
Indian government as far as the SEZ policy is concerned. Keeping in view the growing
opposition and grievance amongst the people the govt. had to give a fresh thought to the SEZ
policy and some necessary amendments were brought in.

The measures taken are:

1. The policy of SEZ has already become a political football that worries the present govt. of
inviting popular backlash. The controversy has already become a major election issue.
Therefore the govt. decided not to grant permission for new SEZs until and unless the
rehabilitation policy put into place properly. This is due to the political cost involved in the issue
being measured too high to bear.[31]

2. The new National Rehabilitation and Resettlement (NPR) 2006 policy suggests that first
priority should be to provide land for land. People whose lands are acquired should get jobs in
the new industries established on their land. The compensation package includes allotting a free

10
house site to the affected family, allotting cultivable land and a rehabilitation grant equivalent to
750 days minimum agricultural wages, giving fishing rights where dams are made.[32]

3. The govt. has further decided to make the final version of the policy (NPR) legally
enforceable. This kind of policy will have no meaning unless it is enforceable in a court of law’’
said Raghuvansh Prasad Singh, Minister, Rural Development. This policy introduces the
concept of Social Impact Assessment (SIA) along with the current norm of Environmental
Impact Assessment. The SIA would also involve public hearings on displacement-related
issues, loss of livelihood, compensation, effects on family. Sources said there is also a proposal
to set up a statutory National Rehabilitation Commission to ensure independence of the
monitoring mechanism.[33]

4. New ceiling has been imposed on the size of SEZs. Minimum processing area has been
raised from 35% to 50%. This new norm has already upset some of the developers of multi-
product SEZs which had to cut down certain plans chocked out earlier.[34]

5. Speaking at a FICCI meeting, the PM said issues such as land acquisition and displacement
of people and their rehabilitation and resettlement should be transparently addressed. Urging
the Indian industry to be sensitive to the need to empower the weaker sections of society, Mr.
Singh said industrial development is not a zero-sum game.[35] According to the PM the policy of
SEZ is irreversible but since it is exposed to certain problems which can not be dismissed. It is
the strength of our democracy. A mechanism is to be set up to address those gaps in the policy.
There will be a comprehensive review of Empowered Group of Ministers (EGoM) with reference
to the pending approvals. He said I do believe that we should address these concerns if we
want the policy to succeed in the long run.[36]

6. The other developments include i) Area of an SEZ capped at 5000 hectares; states can fix
lower ceiling, ii) state govts are barred from acquiring land, developers will have to do it of their
own, iii) at least one job per family of those displaced, iv) developers to devote at least 50%
area for core activities like manufacturing v) list of non-processing activities may be reviewed.
[37]

7. One more step has been taken to make special economic zones more acceptable to critics.
State governments have decided not to give any tax exemption to non-processing[38] areas in
SEZs. As a result of this decision states levies on building material and fuel are now expected to
be applicable with reference to non-processing activities in SEZs.[39]

Some Safeguards
When the govt. undertakes a project or policy in a democratic country then the people have
reasonable expectation to be benefited without any kind of detriment to any section of the
society. SEZ policy is also not out of this test. After all the underlying philosophy behind is to
generate more employment and advance to the cause of equitable development. To fulfill the
above objective it is necessary to take the following safety measures into consideration.

11
Corporate Social Responsibility:

Corporate social responsibility (CSR) is a concept that suggests that commercial corporations
have a duty of care to all of their stakeholders in all aspects of their business operations. CSR
argues that enterprises should be obliged to make decisions based not only on
financial/economic factors (e.g. Profits, Return on Investment, dividend payments etc.) but also
on the social, environmental and other consequences of their activities.[40] In the context of
SEZs the concept of corporate social uprightness is very important. The main justification
behind putting the SEZs in the scanner of CSR is ‘doctrine of enlightened self-interest’.
According to this doctrine, the motive and interest for companies engaging in social
responsibilities is to enhance their reputation and image both locally and internationally.
Corporate social responsibility must be taken into consideration to respect environmental
concerns; to not to deprive the indigenous people from their long time entitlements; to ensure
social security measures to the people working and the like in those de-regulated zones.[41]

Cost-Benefit Analysis: The concept of cost benefit analysis is very popular in Economics. Cost
benefit analysis refers to analysis of the cost and benefits involved in a project undertaken. Here
the terms ‘cost’ and ‘benefit’ are understood in context of the society and calculated in terms of
money. If the social cost is less than or equal to the benefits derived then the project is
undertaken. The concept of cost-benefit analysis is very pertinent with respect to the coming
SEZs.

According to Mr. R. Venkatesan For the Government, profit alone cannot be the motive as it has
an obligation to ensure that such projects do not adversely impact the people. To gauge the
likely impact of a project on a State's economy, a Social-Cost Benefit Analysis (SCB Analysis) is
often commissioned. Computation of social profits at the economic hurdle rate is a key step in
assessing whether the project is in the national interest and for computing the kind of
concessions that can be provided by the Central/State governments, such as tax concessions
or waivers, or giving it SEZ (special Economic Zone) status. Such an approach allows the
assessment of the impact of a project on the national economy, unlike financial analysis which
has a narrow perspective — of profit accruing to the project, and to the stake-holders.[42] The
SEZs in India have got momentum from that of China. But we should remember that there are
differences between the two models. The lacunae inherent must be addressed properly. The
fiscal policy in promoting SEZs should be such that a zone generates more revenue than an
industry would. The factors like employment and personal income tax must be considered
thoroughly well[43]. It should be ensured that proportion of employment in the SEZs is higher
than that of the displacements caused due to setting up of the SEZs. Keeping in view the
guidelines referred under section 5(1) of the Act vis-à-vis the amount of direct and indirect tax
exemptions, the cost benefit analysis has to be worked out and a set parameter be fixed based
on which performance of each SEZ has to be assessed. The enormous revenue loss of Rs.
97,000 crore reportedly estimated by the National Institute of Public Finance and Policy, has to
be counter balanced by earning for an objective assessment of the success of the SEZs as
otherwise the common man have to bear the brunt of additional taxes.[44]

Sustainable Development: The coming up of SEZs must be put under the scanner of
sustainable development as it is being emphasized world wide that development be it social,
economic or political must bear substantial value. While putting in the context of Indian SEZs
three aspects of sustainable development must be taken into consideration. These three
aspects are economy, environment and society. A summation of the three aspects tell us that
SEZs must be so formulated that they can ensure production of goods and services in a
continuous basis, avoidance of sectoral imbalances, restraint from over exploitation of natural

12
resources, maintenance of biodiversity, atmospheric stability, achievement of distributional
equity, adequate provision of social services and the like. If these aspects are taken care of with
comprehensive and proper deliberation then SEZs can generate sustainable value. SEZs
should be envisaged as a self-sustaining value creation proposition. In other words they should
benefit the society in tremendous quantum.[45]

Social Justice: The constitution of India embraces social justice in its preamble. The directive
principles of state policy are embodied in the constitution to fulfill the noble objective of social
justice. It is thus expected that whatever policy or measure being taken by the state must
ensure advancement of the cause of social justice. The policy of SEZ is also comes under the
same footing.

Dr. Bhimrao Ambedkar, one of the main visionaries of the constitution of India, advocated
democracy in every field: social, economic and political. For him social Justice means maximum
happiness to the maximum number of people, upliftment of the poor, backward and
downtrodden.[46] The present trend to set up SEZs shows lands (sometimes even agricultural)
are being taken up for establishing industry. This phenomenon resembles with the situation that
emerged in Soviet Russia under the dictatorship of Stalin. In that regime state sponsored land-
grab mechanism reached its peak. Millions of peasants were deported, the protests were
suppressed in bloodily manner, and country sank into starvation. The object behind doing so
was to accrue the increasing number of peasants to industry. The immediate effect was
reduction of Soviet agriculture to a stage of decline from which it has not yet recovered. The
destruction of the Soviet peasantry, who formed three quarters of the population, was not only
an economic but a moral disaster for the entire country.[47] As a result of this present motion of
SEZs there comes a web of complex land laws restricting the freedom of enterprises to acquire
land and the freedom of individuals to sell land in the name of a dubious cause called Social
Justice. There is no Social Justice in the State playing facilitator to get around a web of laws
that owed their existence in the first place to the State. The current approach to SEZ Land
Acquisition with the State at its heart fails the tests of Social Justice. There is no Social Justice
in the State playing an active role in Land Acquisition for private enterprises.[48] Therefore it
should be taken care of.

The development process in India presently exposed to two fold challenges. On the one hand,
how do we make our agriculture more productive so that we maintain our food security? On the
other hand, how do we increase the manufacturing base to absorb a large army of unemployed
and underemployed labour in industry? India is an aspiring nation of young people, and unless
these challenges are addressed with appropriate policies, the country is at serious risk of social
and economic Balkanization.[49] The protests being organized in the various parts of the
country, the views being expressed continuously through the media clearly shows that there is
something genuinely wrong. In such a circumstance it would be unfair to blindfold the eyes and
drive the dream by bulldozing the expectation of millions of people. When a country comes up to
be economically developed then one should not be under the impression that it is the industry
which only contributes. If economy is conceived to be a hanging bridge then agriculture and
industry are the two pillars of it. If one is sacrificed at the benefit of the other then it does not
remain bridge at all. We should try to give equal importance to both of them rather than getting
mad over any of them. Development should to gather at one pocket, let it spread throughout the
country in all aspects, all factors. This is true development. A man gains belly because all the
food gathers in a particular place, had it been spreading all over the body then he would look
slim and feel comfortable. The train of development travels over the two tracks made
simultaneously by agriculture and industry. If one track is absent then it is impossible to drive
the train.

13
 Economics for Everyone: Special Economic Zones (SEZ)
Prof. M. Guruprasad, IIFL | Mumbai | July 13, 2015 14:03 IST

Special Economic Zone (SEZ) is a special geographical region which has different laws when
compared to other regions. SEZs are projected as duty free area for the purpose of trade,
operations, duty and tariffs. SEZ units are self-contained and integrated having their own
infrastructure and support services.

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and

shall be deemed to be foreign territory for the purposes of trade operations and
duties and tariffs. In order words, SEZ is a geographical region that has economic
laws different from a country's typical economic laws. Usually the goal is to
increase foreign investments. SEZs have been established in several countries,
including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia.

Any private/public/joint sector or state government or its agencies can set up an

SEZ, a foreign agency can set up SEZs in India. Special Economic Zones (SEZ) are
growth engines that can boost manufacturing, augment exports and generate
employment. Business units that set up establishments in an SEZ would be entitled
for a package of incentives and a simplified operating environment.

Special Economic Zone (SEZ) is a special geographical region which has different
laws when compared to other regions. SEZs are projected as duty free area for the
purpose of trade, operations, duty and tariffs. SEZ units are self-contained and
integrated having their own infrastructure and support services.

SEZ’s enjoys tax breaks, simplified procedures, less regulations and restrictions,
exemption from customs and duties, all of which is done to
 Generate additional Economic activity
 Promote exports of goods and services
 Promote Investment from domestic and foreign sources
 Create employment opportunities
 Develop Infrastructure facilities

The world first known instance of SEZ have been found in an industrial park set up
in Puerto Rico in 1947. In the 1960s, Ireland and Taiwan followed suit, but in the
1980s China made the SEZs gain global acceptance with its largest SEZ being the
metropolis of Shenzhen.

14
India-Background
For long time, India experimented with the concept of such units in the form of
Export Processing Zones (EPZ). In 2000, the policy makers incorporated the SEZs
into the EXIM Policy of India. Five year later, SEZ Act (2005) was also introduced
and in 2006 SEZ Rules were formulated. Thus the Special Economic Zone (SEZ)
policy in India first came into inception on April 1, 2000. The prime objective was
to enhance foreign investment and provide an internationally competitive and hassle
free environment for exports. SEZs play a key role in rapid economic development
of a country. In the early 1990s, it helped China and the policy makers in India
thought of similar export-processing zones could offer similar benefits – with
appropriate incentives.

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.

Economic effects of SEZ

According to economists
SEZs can be broadly defined as—

“Demarcated geographic areas contained within a country’s national boundaries

where the rules of business are different from those that prevail in the national
territory. These differential rules principally deal with investment conditions,
international trade and customs, taxation, and the regulatory environment; whereby
the zone is given a business environment that is intended to be more liberal from a
policy perspective and more effective from an administrative perspective than that
of the national territory.”

Now, let us see the kind of economic impact which operates under the SEZ and
makes it as a powerful force for driving growth.

Various studies focus on the economic effects and roles of SEZ (and similarly on
Export Processing Zone (EPZ)) across countries. Several studies attempt to provide
a theoretical framework to analyze these economic effects, i.e., its benefits and
costs, based on the standard “2 x 2 x 2” Heck-Ohlin trade model for small countries.
Others present a general theory of Economic Zones or they discuss their structural
and spatial evolution. In general, Economic Zones can be defined as export
enclaves, where a national (or local) government provides foreign industries an
international accessibility (e.g. harbor, airport, etc.), gives up repressive national
regulations (e.g. ban of trade unions) and offers economic incentives (financial and
tax). The main advantage for the enterprises in these zones is the low wages for the

15
 unskilled labor force. However, unless a country succeeds in establishing some sort
of higher, i.e. more qualified forms of industrial production; its economy is
threatened by other low wage countries.

SEZ do attract the firms in sectors whose basis of competition is highly dependent
on the available supply of low-wage, flexible, and unskilled or semiskilled workers,
a set of requirements. Special Economic Zones create the following advantages
such as (1) minimize costs (through fiscal incentives and administrative
efficiencies); (2) provide access to serviced land and more reliable infrastructure;
and (3) reduce the investment requirement, lowering risk and providing operational
and strategic flexibility.

 Some economists provide the following conceptual framework. According to

them some of the key success factors of SEZ are
 By combining private property rights protection, tax break and preferential long-
term land use fee, attract foreign direct investment;
 In the absence of any significant crowding out effect, do not reduce domestically
owned capital formation;
 If bringing more advanced FDI, will boost technology progress, i.e. total factor
productivity growth.
 This is because the law of SEZs explicitly provides the following policy packages
for foreign investors:
Private Property Rights Protection

Tax incentives:
 Land use policy

Liberal economic and labor laws:

16
Concept of Clusters
According to some experts, Shenzhen (China), SEZ is a combination of a SEZ and a
collection of Clusters. It was one of the earliest and the most successful Chinese
SEZ during last 30 years. During this period, many clusters appeared and
disappeared within the zone, from traditional service clusters to modern service
clusters, from manufacturing clusters to high-tech clusters, etc. Today, Shenzhen’s
four foundation clusters—logistical cluster, financial cluster, real estate cluster and
high-tech cluster—have contributed more than half Shenzhen’s GDP. Also, if we
take the point of view of an individual foreign investor angle, we find the SEZ
satisfies the basic requirements for building clusters. That are: SEZ has good
location where has potential market demand, low logistic costs, low labour cost and
etc; and a SEZ easily gets local skilled labour; and a SEZ usually has its own city
plan—which clusters are set where. By such plan, foreign investors have quick
access to information spillover.

It is important at this point of time to understand the concept of Clusters and how
they are similar and or different from Special Economic Zones.

Special Economic Zones (SEZ) are limited geographic regions where the authorities
offer some preferential policies for pushing local economy development. A cluster,
on the other hand, is market economy phenomenon, in which several firms locate
themselves in some certain geographical areas for the purpose of reducing costs
and, raising profits on the basis of external economies between the firms ( for
example Silicon Valley(U.S), IT industry in Bangalore (India), SME cluster,
Footwear and Garment clusters in India and many more.

Theory of SEZ tells us that a SEZ is a special place where is set for developing
local economy and where enjoys some certain preferential economy policy. The
theory of Clusters says that a cluster is also a special economy agglomeration.
Porter (1998) describes clusters as geographic concentrations of interconnected
companies and institutions in a particular field, encompassing linked industries and
other entities important for competition. The term business cluster, also known as
an industry cluster, competitive cluster, or Porterian cluster, was introduced and
popularized by Michael Porter in The Competitive Advantage of Nations (1990).

India – Policy outlook towards of SEZ

As per law, SEZ units are deemed to be outside the customs territory of India.
Goods and services coming into SEZs from the Domestic Tariff Area (DTA) are
treated as exports from India and goods and services rendered from the SEZ to the
DTA are treated as imports into India. In all SEZs the statutory functions are
controlled by the government. Government also controls the operation and

17
maintenance function in the seven central government controlled SEZs. The rest of
the operations and maintenance are privatised. State governments have a very
important role to play in the establishment of SEZs. Representative of the state
government, who is a member of the inter-ministerial committee on private SEZ, is
consulted while considering the proposal. Before recommending any proposals to
the ministry of commerce and industry (department of commerce), the states must
satisfy themselves that they are in a position to supply basic inputs like water,
electricity, etc. The state governments have been requested to simplify the
procedures/returns and for introduction of a single window clearance mechanism by
delegating appropriate powers to development commissioners of SEZs.

India- Process and Administrative set up of SEZ

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 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.

The performance of the SEZ units are monitored by a unit approval committee
consisting of development commissioner, custom and representative of state
government on an annual basis. It is compulsory for every SEZ units in India to
achieve positive net foreign exchange earnings as per the formula given in the
Handbook of Procedures. For this particular purpose, a legal undertaking is required
which has to be executed by a separate unit of the Development Commissioner.

Thus the stages of a SEZ are

 Anybody who wishes to develop a SEZ submits a proposal to the Board of
Approval (BoA). A Single Window approval mechanism has been provided
through a members inter ministerial Board of Approval (BoA), headed by the
Secretary, Department of Commerce.
 The BoA then grants an ‘in-principle’ or a ‘formal’ approval.

18
 The Central Government issues a notification when the developer proves the
possession, contiguity and irrevocable rights on Land. These are called ‘Notified
SEZs’
 BoA allows the Developer for authorised operation. The SEZs that start
operations are called ‘Operational SEZs’
 Developer/Units are allowed various Tax Concessions/exemptions for effecting
Exports
India’s SEZ Act 2005 further amended the country’s foreign investment policy and
converted its EPZs to SEZs, with notable zones including Noida, Chennai, Cochin,
and Falta. Since the act’s promulgation, the Indian government has also been
accepting proposals for additional, far smaller SEZs, which must be proposed by
developers to the Indian Board of Approval.

Incentives for SEZ

 The advantages of setting up a sourcing or manufacturing platform within a SEZ
are numerous and include:
 Duty free domestic procurement of goods for the development and maintenance
of your company;
 100% income tax exemption on export income for first five years, 50% for five
years following;
 Exemption from Minimum Alternate Tax, Central Sales Tax, Service Tax, State
Sales Tax, and a number of other taxes usually levied by local governments;
 External commercial borrowing allowed up to US $500 million a year without
restriction;
 Permission to manufacture products directly, as long as the goods you are
producing fall within a sector which allows 100% FDI
Present Scenario: Trends and Progress:

The Top 10 states in terms of SEZ approvals are

19
Total employment in SEZs in terms of number of people (As on
30th September, 2014)

20
Challenges:
Special Economic Zones (SEZs) are likely to be central to realising Prime Minister
Mr. Narendra Modi’s ambitious Make in India agenda. But according to some
experts the withdrawal of tax incentives in the recent past has made SEZs an
unattractive proposition, say industry experts. Under the original scheme,
businesses in SEZs were exempted from the minimum alternate tax (MAT) on book
profits and developers were exempted from payment of the dividend distribution tax
(DDT). But with indications that companies were misusing the policy for real estate
arbitrage and other tax benefits, these exemptions were withdrawn.

From 2011-12, MAT exemptions for SEZ units and developers were withdrawn
and DDT exemptions for developers were terminated. MAT was levied on book
profits at the rate of 20 per cent, while DDT was levied at 20 per cent on dividends
distributed to shareholders.

According to a study on analysing the cost benefit analysis of the SEZ policy, says
the imposition of MAT has made SEZs unattractive and adversely impacted
investor sentiment. Thus the withdrawal of direct tax benefits has been a setback for
the SEZ program and has affected its future prospects”. India has signed a number
of free trade agreements (FTAs), with countries such as Sri Lanka, Japan and the
Association of Southeast Asian Nations (Asean), under which import duties have
been slashed to zero for several product lines. This impacts local sales of SEZ units,
which are taxed at higher rates. Experts propose that “manufacturers in India should
have the ‘most favoured nation’ status that implies lowest tariff under the FTAs”.

21
According to them, “such reductions should be extended to all manufacturers, not
simply the ones in SEZs”.

But according to some experts,

taxation issues are not the only ones
impeding SEZs. According to them,
“Despite offering many incentives
and schemes for promotion of
manufacturing at the Centre and
state levels, manufacturing growth
has not risen substantially.
Therefore, incentives need to be
carefully evaluated and studied.
Incentives should not be the only
reason for units to be located in
SEZs. Success depends on the
business facilitation measures
adopted. Location, infrastructure,
logistics and professional zone
management are four key factors
determining success of SEZs.”A
major reason for the success of SEZs
in China was the creation of
complementary infrastructure, power, roads and ports; these are lacking in India.
According to experts, in order to get SEZs and manufacturing going in India, the
focus should be on creating the necessary infrastructure which will require a more
holistic approach.
Deficiencies in the availability and quality of power are an equally important
constraint.”

22