Research methodology project M.com project

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PROJECT REPORT ON
“Role of SEZ policy in Development of India”
Submitted to
University of Mumbai
In Partial Fulfillment of the Requirement
For
M.Com (Accountancy) Semester IV
In the subject
Research Methodology
By
Name of the student : - Vivek ShriramMahajan
Roll No. : - 15 -9672
Name and address of the college
K. V. Pendharkar College
Of Arts, Science & Commerce
Dombivli (E), 421203
March 2016

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DECLARATION
I VIVEK SHRIRAM MAHAJAN Roll No. 15 – 9672, the student of
M.Com (Accountancy) Semester IV (2016), K. V. Pendharkar College,
Dombivli, Affiliated to University of Mumbai, hereby declare that the
project for the subject Research Methodology of Project report on “Role of
SEZ policy in Development of India” submitted by me to University of
Mumbai, for semester IV examination is based on actual work carried by
me.
I further state that this work is original and not submitted anywhere else for
any examination.
Place:Dombivli
Date:
Signature of the Student
Name: - Vivek Shriram Mahajan
Roll No: - 15 -9672

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ACKNOWLEDGEMENT
It is a pleasure to thank all those who made this project work
possible.
I Thank the Almighty God for his blessings in completing this task.
The successful completion of this project is possible only due to
support and cooperation of my teachers, relatives, friends and well-
wishers. I would like to extend my sincere gratitude to all of them.
I am highly indebted to Principal A.K.Ranade, Co-ordinater
P.V.Limaye, and my subject teacher Mr. Prashant Naik for their
encouragement, guidance and support.
I also take this opportunity to express sense of gratitude to my
parents for their support and co-operation in completing this
project.
Finally I would express my gratitude to all those who directly and
indirectly helped me in completing this project.
Name of the student
Vivek Shriram Mahajan

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Table of Contents:
CHAPTER No Topic Page no
CHAPTER 1 Introduction
Introduction to Subject………………………..
SEZ introduction ………...…………………
5
7
CHAPTER 2 Literature Review
India & SEZ......................
India’s Economic Potential and SEZs.......................
The Global Debate on SEZs................................
9
11
12
CHAPTER 3 Objectives & RegulatoryFramework
Objectives of Special Economic Zones in India……
Regulatory Framework.......................................
Approval mechanism & Administrative set up of
SEZs....................
14
16
18
CHAPTER 4 Benefit of SEZ in India
SEZs in India…………………….
Effective solution for infrastructure bottlenecks in
India.............…………………..
Performance of SEZs in India
19
20
23
CHAPTER 5 Conclusion
Conclusion………………………………….. 28
Webiliography………………………………. 29

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CHAPTER 1: Introduction
Introduction to Subject
SEZs- An Overview
A SEZ is a demarcated area of land that provides impetus to manufacturing and services,
with the primary objective of boosting exports. SEZs typically feature liberal tax laws
and economic policies. Units situated in SEZs are deemed to be outside the customs
territory of India. Therefore, goods and services coming into SEZs from the domestic
tariff area (DTA) are treated as exports from India, while goods and services rendered
from the SEZ to the DTA are treated as imports into India.
SEZs have generated interest in developing countries with regards to boosting
international trade and encouraging economic activity in the country’s domestic market.
China experimented with SEZs in 1979-80 with the objective of opening its hitherto
closed economy and thereby promote trade and investment. Following China’s lead, the
countries of the Soviet bloc experimented with the SEZ model, mainly with an aim to
boost FDI and solve their unemployment problem. However, China’s experiment with
SEZ turned out to be the most successful. Successful SEZs create new jobs for citizens,
provide laboratories for governments to run controlled trade policy experiments, attract
FDI, strengthen industries, and help countries avoid potentially defective domestic laws
and institutions that act as a barrier to growth.
Around the world, units set up in SEZs, enjoy key fiscal incentives / tax concessions.
Some of the major ones are:
 Production inputs, raw materials and intermediate goods may be imported duty
free
 Corporate income tax benefits
 Foreign funded enterprises / joint ventures may be taxed at lower enterprise tax
rates as compared to the national rate
 Tax holidays may be available depending upon the degree of export activity
 Exemption from import duty on imported items used for investment in the unit,
and inputs for exported items
 Cheap land made available to SEZ projects.

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A Special Economic Zone (“SEZ”) is a specified, delineated and duty-free geographical
region that has different economic laws from those of the country in which it is situated.
In some countries, such a region is even treated as a deemed foreign territory. An SEZ is
a trade capacity development tool, with the goal to promote rapid economic growth by
using tax and business incentives to attract foreign investment and technology. Today,
there are approximately 3,000 SEZs operating in 120 countries, which account for over
US$ 600 billion in exports and about 50 million jobs. By offering privileged terms, SEZs
attract investment and foreign exchange, spur employment and boost the development of
improved technologies and infrastructure.
Moreover SEZ’s provide a medium wherein it not only attracts foreign companies
looking for cheaper and efficient location to setup their offshore business, but it also
allows the local industries to improve their export through a proper channel and with the
help of the new foreign partners to the outside world at a very competitive price. SEZ’s
offer relaxed tax and tariff policies which is different from the other economic areas in
the country. Duty free import of raw materials for production is one example. Moreover
the Free trade zones attract big players who want to setup business without any license
hassles and the long process involved in it. Most of the allotment is done through a single
window system and which is highly transparent system. The bottom-line therefore is
increased export and FDI (Foreign Direct Investments) enabling increased Public-private
partnership and ultimately resulting in a development of world class infrastructure, boost
economic growth, exports and employment.
As of April 27, 2006, there were 13 functional SEZs and about 61 SEZs, which have
been approved and are under the process of establishment in India. The list of the
functional SEZs and SEZs approved but under establishment in India is enclosed in
Annexure A. The total value of the exports from some of the key SEZs in India during
the financial year 2003-04 was US$ 3.08 billion, which increased to US$ 4.07 billion in
2004-05. Recently, after the enactment of the Special Economic Zones Act, 2005 (“SEZ
Act”), which made several facilities and benefits available, several industrial houses have
shown keen interest in setting up SEZs and SEZ Units. In the last six months, over 100
approvals have been granted for setting up SEZs spread over 15 States and 2 Union
territories, taking the current tally to 117 SEZs.

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SEZ Introduction
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. The idea was to
promote exports from the country and realising the need that level playing field must be
made available to the domestic enterprises and manufacturers to be competitive globally.
A legislation has been passed permitting SEZs to offer tax breaks to foreign investors.
Over half a decade has passed since its inception, but the SEZ Bill has certain drawbacks
due to the omission of key provisions that would have relaxed rigid labour rules. This has
lessened India's chance of emulating the success of the Chinese SEZ model, through
foreign direct investment (FDI) in export-oriented manufacturing.
The policy relating to SEZs, so far contained in the foreign trade policy, was originally
implemented through piecemeal and ad hoc amendments to different laws, besides
executive orders. In order to avoid these pitfalls and to give a long-term and stable policy
framework with minimum regulation, the SEZ Act, '05, was enacted. The Act provides
the umbrella legal framework, covering all important legal and regulatory aspects of SEZ
development as well as for units operating in SEZs.
Since the rules will take care of many issues, the Special Economic Zone Act is likely to
take some more time and the government is unlikely to notify them before September 1.
The commerce and industry ministry is examining the domestic industry's comments on
draft SEZ rules. A meeting of development commissioners of all SEZs will be convened
soon to discuss the changes that need to be incorporated before they are notified to be
placed before the parliament for final approval.
The objective of the SEZ Act was to create a hassle-free regime and the rules would be
formulated keeping this in mind. The ministry is also holding talks with state
governments as they have to play an important role in the development of SEZs.
The SEZ’s are important in today’s context for the third world countries which have been
in the race for rapid economic growth. There are many positives which emerge out of
establishing an SEZ. Let us have a look on these factors.
For undertaking any kind of massive development program the government requires huge
amount of funds. So it looks out for potential partners to help the government carry out
the program. Now say for setting up an SEZ, the government may tie up with a private
partner whose willing to invest in that area, thus a win-win situation for both. As in the
government gets the capital needed to establish the required infrastructure and also the
expertise.

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The private player on the other hand gets the right to market and use the SEZ’s with
relaxed tax laws, thereby increasing its revenue generating capacity and also carrying out
the economic growth of the company in a more efficient way with the better tax policies.
Actually SEZ’s with relaxed import tariffs help the Import dependent and export driven
industries to flourish by helping them develop manufactured goods at competitive prices.
SEZ’s create immense employment opportunities. The setting up of SEZ’s creates lot of
indirect employment in terms of labour required. Then after the completion it enables
employment in the relevant industries operating in the SEZ. Then there are lots of
indirect employments generated wherein people start investing around SEZ. For example
SEZ’s are townships of their own; thereby there are shopping malls, restaurants,
amusement parks setup around to attract people, thus resulting in more economic
development in that area.
Moreover SEZ’s improve the country’s foreign export. Because of the increased FDI and
Private Equity presence, the local manufacturers get to tie up with these big names and
export their products which now carry a better brand value, therefore helping in creating
a greater demand for the goods of local manufacturers. Moreover the massive capital
required for expansion is brought in form of FDI resulting in increased economic activity.
The increased exports from the country bring in more revenue for the country which
improves the economic growth.
SEZ’s help in creating a balanced economic growth in a country if they are properly
located and implemented leading to tapping of local talent and contributing to increased
economic activity in the area.

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CHAPTER 2: Literature Review
India and SEZ
The SEZ policy was first introduced in India in April 2000, as a part of the Export-Import
(“EXIM”) policy of India. Considering the need to enhance foreign investment and
promote exports from the country and realizing the need that level playing field must be
made available to the domestic enterprises and manufacturers to be competitive globally,
the Government of India in April 2000 announced the introduction of Special Economic
Zones policy in the country deemed to be foreign territory for the purposes of trade
operations, duties and tariffs. To provide an internationally competitive and hassle free
environment for exports, units were allowed be set up in SEZ for manufacture of goods
and rendering of services. All the import/export operations of the SEZ units are on self
certification basis. The units in the Zone are required to be a net foreign exchange earner
but they would not be subjected to any pre-determined value addition or minimum export
performance requirements. Sales in the Domestic Tariff Area by SEZ units are subject to
payment of full Custom Duty and as per import policy in force. Further Offshore banking
units are being allowed to be set up in the SEZs.
India is one of the first countries in Asia to recognize the effectiveness of the Export
Processing Zone (EPZ) model in promoting exports. Asia’s first EPZ was set up in
Kandla in 1965. With a view to create an environment for achieving rapid growth in
exports, a Special Economic Zone policy was announced in the Export and Import
(EXIM) Policy 2000. Under this policy, one of the main features is that the designated
duty free enclave to be treated as foreign territory only for trade operations and duties and
tariffs. No license required for import. The manufacturing, trading or service activities
are allowed. While EPZs are industrial estates, SEZs are virtually industrial townships
that provide supportive infrastructure such as housing, roads, ports and
telecommunication. The scope of activities that can be undertaken in the SEZs is much
wider and their linkages with the domestic economy are stronger. Resultantly they have a
diversified industrial base. Their role is not transient like the EPZs, as they are intended
to be instruments of regional development as well as export promotion. As such, SEZs
can have tremendous impact on exports, inflow of foreign investment and employment
generation.
SEZ Act 2005: To provide a stable economic environment for the promotion of Export-
import of goods in a quick, efficient and hassle-free manner, Government of India
enacted the SEZ Act, which received the assent of the President of India on June 23,
2005. The SEZ Act and the SEZ Rules, 2006 (“SEZ Rules”) were notified on February
10, 2006. The SEZ Act is expected to give a big thrust to exports and consequently to the
foreign direct investment (“FDI”) inflows into India, and is considered to be one of the
finest pieces of legislation that may well represent the future of the industrial
development strategy in India.

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The new law is aimed at encouraging public-private partnership to develop world-class
infrastructure and attract private investment (domestic and foreign), boosting economic
growth, exports and employment.
The SEZs Rules, inter-alia, provide for drastic simplification of procedures and for single
window clearance on matters relating to central as well as state governments. Investment
of the order of Rs.100,000 crores over the next 3 years with an employment potential of
over 5 lakh is expected from the new SEZs apart from indirect employment during the
construction period of the SEZs. Heavy investments are expected in sectors like IT,
Pharma, Bio-technology, Textiles, Petro-chemicals, Auto-components, etc. The SEZ
Rules provides the simplification of procedures for development, operation, and
maintenance of the Special Economic Zones and for setting up and conducting business
in SEZs. This includes simplified compliance procedures and documentation with an
emphasis on self-certification; single window clearance for setting up of an SEZ, setting
up a unit in SEZs and clearance on matters relating to Central as well as State
Governments; no requirement for providing bank guarantees; contract manufacturing for
foreign principals with option to obtain sub-contracting permission at the initial approval
stage; and Import-Export of all items through personal baggage.
With a view to augmenting infrastructure facilities for export production it has been
decided to permit the setting up of Special Economic Zones (SEZs) in the public, private,
joint sector or by the State Governments. The minimum size of the Special Economic
Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not
be applicable to product specific and port/airport based SEZ. This measure is expected to
promote self-contained areas supported by world-class infrastructure oriented towards
export production. Any private/public/joint sector or State Government or its agencies
can set up Special Economic Zone (SEZ).
India is predicted to become one of the world’s leading economic powers. This poses
new challenges for international firms and others willing to take advantage of India’s
development. It also increases the need for proper knowledge about India’s corporate
environment – its strengths, constraints and the implications for Sweden, Europe and the
rest of the industrialized world.
India’s share of the world’s population is 17 percent, but it accounts for less than two
percent of the global GDP and only one percent of world trade. It lags behind China and
other emerging East Asian economies in key indicators such as per capita income, adult
literacy rates, quality of infrastructure endowment and volume of foreign trade and
investment.

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However, it must be noted that India’s economy predominantly continues to concentrate
on absorption of existing technology rather than development of new R&D or innovation
at the global knowledge frontier. The country has much to gain from increased absorption
of existing knowledge by promoting economy wide transfer and diffusion of local and
internationally available technology. There is considerable scope for more effective
absorption of existing knowledge by expansion of foreign investments and trade, building
effective capacity among Indian corporations, public education and research institutions
coupled with various forms of collaboration between Indian and foreign partners.
The Indian economy is expected to grow at a rapid rate of 6–10 percent between 2007
and 2012 and beyond. By the year 2032, China will have the world’s largest economy,
followed by the U.S. and India. In terms of purchasing power parity (PPP), even today
India’s GDP is already the third largest in the world after the U.S. and China. While
much of the country is likely to remain poor and industrially backward, other parts have
the potential to grow as fast as China or other East Asian economies.
Note on Special Economic Zones
Special Economic Zones (SEZs) Scheme in India was conceived by the Commerce and
Industries Minister Murosoli Maran during a visit to Special Economic Zones in China in
1999. The scheme was announced at the time of annual review of EXIM Policy effective
from 1.4.2000. The basic idea is to establish the zones as areas where export production
could take place free from all roles and regulations governing imports and exports and to
give them operational flexibility. Special Economic Zone (SEZ) is a specifically
delineated duty free enclave, which shall be deemed to be a foreign territory for the
purposes of trade operations and duties and tariffs.
India’s Economic Potential and SEZs
With a population of 1.1 billion and a GDP per capita of US$3,400, India is a rising
power that no international company can afford to ignore. In 2005, the International
Monetary Fund (IMF) reported India’s GDP to be US$3.63 trillion in terms of purchasing
power parity, ranking fourth in the world. By some definitions, India’s middle class
consists of 300 million people and its expansion will raise consumption and make
economic growth faster and more sustainable. As is well-known, India has developed a
world-class information technology and business process outsourcing (“BPO”) sector that
exports its services globally. Yet for all of India’s achievements, the country is still
wrestling with high poverty and unemployment rates. India may have excelled in BPO,
but when it comes to export manufacturing, India is the poorer cousin of China. Hence,
there is great interest within India to promote the export-oriented manufacturing sector
through Special Economic Zones or SEZs.

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THE GLOBAL DEBATE ON SEZs
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. A long-held view of development economics is that investment, in particular
foreign investment, in enclaves such as SEZ, pushes forward the process of industrial
development by creating horizontal and vertical spillovers. Horizontal spillovers are
technology leakages and management know-how from multinational firms to local
industry competitors. Vertical spillovers are also known as forward and backward
linkages. Horizontal spillovers emerge from incentives for a corporation to develop the
supply chain through technology transfers to suppliers of the MNC as well as those to
whom these MNCs are suppliers. Such transfers include management knowhow, staff
training, and improved production efficiency. However, global evidence reveals that
horizontal spillovers are insignificant as MNCs are not willing to set up business where
technology leakages benefits competitors. On the other hand there is evidence from
developing countries like Indonesia and China that shows the significant positive
spillovers of vertical linkages. In particular the MNCs try developing local supply chains
that in turn help develop local industries in other areas.
Worldwide, the first known instance of an SEZ seems to have been an industrial park set
up in Puerto Rico in 1947 to attract investment from the US mainland. In the 1960s,
Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain global
currency with its largest SEZ being the metropolis of Shenzhen. From 1965 onwards,
India experimented with the concept of Export Processing Zones (EPZ). These did not
quite deliver as much as was expected, however. Thus, in 2000, the new Export and
Import Policy allowed for SEZs to be set up in the public, private or joint sector or by
state governments. Eight EPZs were converted into SEZs. Altogether, a total of 19 SEZs
were established prior to the promulgation of the SEZ Act, which were later – in 2005 –
legally deemed as SEZs under the new Act. More than 300 SEZs have obtained either
formal or “in principle” approval over the years. SEZs have been enabled with a view to
providing an internationally competitive and hassle-free environment for exports. Units
may be set up in SEZs for manufacturing goods and rendering services. All the
import/export operations of the SEZ units are on a self-certification basis. Sales by SEZ
units in the domestic tariff area are subject to payment of full custom duty and to the
import policy in force. Furthermore, offshore banking units may be set up in the SEZs.

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Thirty years ago, 80 special economic zones (SEZs) in 30 countries generated barely US
$6 billion in exports and employed about 1 million people. Today, 3,000 SEZs operate in
120 countries and account for US $600+ billion in exports and 50 million direct jobs.
After the success of the first SEZ when it appeared in Taiwan’s Kaohsiung harbor 40
years ago, some economists thought that greater trade liberalization around the world
would soon make these zones obsolete. That was especially true after 1995, when the
founding of the WTO promised to bring trade barriers crashing down and usher in a new
golden age of globalization. Such “special” zones were to be expanded to entire
countries, regions and ultimately, the world. Instead, zones have had an enduring
appeal—even in mostly open economies such as Taiwan’s. In fact, their numbers are
booming: In 1995, there were 500 in 73 countries; by 2002, there were 3,000 in 120
countries. A large number of them are operating in developing countries.
What do SEZs Produce?
SEZs are the markers of government's strategy to create an "export-oriented" economy.
Vast majorities of developing world have invested in servicing the needs of the European
and the American consumers. Developing countries aim for export economies for
garnering foreign exchange.

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CHAPTER 3: Objectives & RegulatoryFramework
Objectives & Advantages
The main Advantages of SEZ Units in India can be summarized as promotion of
industrialization and economic growth through sustainable development. The main policy
statement of the first Special Economic Zone policy statement states that these SEZ units
of India shall be offered tax rebates, fiscal incentives and lands at subsidized rates and
these are the primary Advantages of SEZ Units in India. The implementation of the first
drafted Special Economic Zone policy took place from the end of the year 2000.The first
policy statement for the development of Special Economic Zones in India was drafted as
a five-year project, starting from 1.11.2000 to 09.02.2006. Further, the first policy
statement of the Indian Special Economic Zones were amended to accommodate and
compliment the growth attained.
Objectives of Special Economic Zones in India
 Generation of additional economic activity
 Promotion of exports of goods and services
 Promotion of investment from domestic and foreign sources
 Creation of employment
 Development of infrastructure facilities
 Simplified procedures for development, operation, and maintenance of the Special
Economic Zones and for setting up units and conducting business
 Single window clearance for setting up of a SEZ and an unit in SEZ
 Single window clearance on matters relating to Central as well as State
Governments
 Easy and simplified compliance procedures and documentations with stress on
self certification
Key Advantages of SEZ Units in India
 10-year tax holiday in a block of the first 20 years
 Exemption from duties on all imports for project development
 Exemption from excise / VAT on domestic sourcing of capital goods for project
development
 No foreign ownership restrictions in developing zone infrastructure and no
restrictions on repatriation
 Freedom to develop township in to the SEZ with residential areas, markets, play
grounds, clubs and recreation centers without any restrictions on foreign
ownership
 Income tax holidays on business income

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 Exemption from import duty, VAT and other Taxes
 10% FDI allowed through the automatic route for all manufacturing activities
 Procedural ease and efficiency for speedy approvals, clearances and customs
procedures and dispute resolution
 Simplification of procedures and self-certification in the labor acts
 Artificial harbor and handling bulk containers made operational through out the
year
 Houses both domestic and international air terminals to facilitate transit, to and
fro from major domestic and international destinations
 Has host of Public and Private Bank chains to offer financial assistance for
business houses
 A vibrant industrial city with abundant supply of skilled manpower, covering the
entire spectrum of industrial and business expertise
 Well connected with network of public transport, local railways and cabs
 Pollution free environment with proper drainage and sewage system
 In-house Customs clearance facilities
 Easy access to airport and local Railway Station
 Full authority to provide services such as water, electricity, security, restaurants
and recreational facilities within the zone on purely commercial basis
 Abundant supply of technically skilled manpower
 Abundant supply of semi-skilled labor across all industry sectors

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Regulatory Framework – Setting up of an SEZ and an SEZ unit
The Ministry of Commerce and Industry lays down the regulations that govern the setting
up and administering of the SEZs. The Central Government is involved in notifying SEZs
and in overseeing their functioning, while the State Governments play a significant lead
role in the development of SEZs in their respective States by stipulating the conditions to
be adhered to by an SEZ and granting the necessary approvals. The policy framework for
SEZs has been enacted in the SEZ Act and the supporting procedures are laid down in
SEZ Rules.
The provisions under the SEZ Act and the SEZ Rules, inter alia, cover the following
aspects:
(i) Constitution of authorities and bodies for regulating the SEZs and SEZ Units
(ii) Permissible services and manufacturing activities in SEZs
(iii) Criteria and procedure for setting up of SEZs and SEZ Units
(iv) Obligations on the part of SEZs and SEZ Units
(v) Dispute Resolution
(vi) Facilities and Incentives to the Developer of SEZs and to SEZ Units
(I) Constitution of Administrative Authorities and Bodies for Regulating the SEZ
and SEZ units
The SEZ Act provides for the constitution of the following authorities and bodies to
regulate the SEZs and SEZ Units:
1. Board of Approval (“Board”)
2. Development Commissioner
3. Approval Committee
4. SEZ Authority

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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. Its constitution is as
follows:
(1 ) Secretary, Department of Commerce Chairman
(2 ) Mem ber, CBEC Mem ber
(3 ) Mem ber, IT, CBDT Mem ber
(4 ) Joint Secretary (BankingDivision), Department of Economic Affairs, Ministry of Finance
(5 ) Joint Secretary (SEZ), Department of Commerce Mem ber
(6 ) Joint Secretary, DIPP Mem ber
(7 ) Joint Secretary, Ministry of Science and Technology Mem ber
(8) Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries Mem ber
(9 ) Joint Secretary, Ministry of Home Affairs Mem ber
(10) Joint Secretary, Ministry of Defence Mem ber
(11) Joint Secretary, Ministry of Environment and Forests Mem ber
(12) Joint Secretary, Ministry of Law and Justice Mem ber
(13) Joint Secretary, Ministry of Overseas Indian Affairs Mem ber
(14) Joint Secretary, Ministry of Urban Development Mem ber
(15) A nominee of the State Government concerned Mem ber
(16) Director General of Foreign Trade or his nominee Mem ber
(17) Dev elopment Commissioner concerned Mem ber
(18) A professor in the Indian Institute of Management or the IndianInstitute of Foreign Trade Mem ber
(19) Director or Deputy Sectary, Ministry of Commerce and Industry, Department of Commerce Mem ber Secretary

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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 performances 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.

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CHAPTER 4: Benefit of SEZ in India
SEZs IN INDIA
Asia’s first Export Promotion Zone (EPZ) was set up in Kandla in 1965. Seven more
zones were set up thereafter. However, according to the Department of Commerce,
Government of India (GoI), these zones were unable to do much for export promotion on
account of the multiplicity of controls and clearances, the absence of world-class
infrastructure and an unstable fiscal regime.
While correcting the shortcomings of the EPZ model, some new features were
incorporated in the SEZ Policy announced in April 2000. This was followed by the SEZ
Act 2005, supported by SEZ Rules, which 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 SEZ Rules provide for
different minimum land requirements for different classes of SEZs.
Manufacturing sector’s growth spurt
Tax benefits offered by SEZ are:
 Duty free import/domestic procurement of goods for development, operation and
maintenance of SEZ units.
 100 per cent income tax exemption on export income for SEZ units for first five
years, 50 per cent for next five years thereafter and 50 per cent of the ploughed
back export profit for next five years.
 Exemption from Minimum Alternate Tax (MAT).
 External Commercial Borrowing (ECB) by SEZ units up to USD500 million per
year without any maturity restriction through recognised 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.

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Effective solution for infrastructure bottlenecks in India
Better infrastructure is one of the most important benefits offered by SEZs to
manufacturing units. Infrastructure facilities in SEZs can be commonly used by members,
thereby reducing the requirement of setting up individual facilities.
Infrastructure related to SEZs is of two types:
1. Facilitating internal functioning of SEZs (power generation plants and distribution
network, internal water supply, sanitation and sewerage, and internal roads) with direct
implications on productivity; and
2. Linking SEZs with non-SEZs through a supply chain (railway tracks, roads and
bridges, airport facilities, telephone lines and telecom network).
SEZs, apart from offering better connectivity in the form of multi-lane roads that comply
with global safety and quality standards, provide the following infrastructure facilities.
 Customised support infrastructure
 Adequate warehousing and cold storage facilities
 Inland container depots
 Captive airstrip/helipad
 Dedicated jetty for cargo movements
 Captive power plants of SEZs to support state electricity
 Safety and security measures
SEZs can be particularly helpful for small and mid-sized entities that cannot afford to set
up captive infrastructure facilities; for example, large Indian companies, along with small
and mid-sized firms, aim to set up units in SEZs with state-of-the-art infrastructure
facilities and share the costs. Better infrastructure facilities in SEZs have enabled hassle-
free manufacturing, as evident from an increase in exports.

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Foreign Trade Zones / Free Trade Zones
The Government of India has established several foreign trade zone schemes to
encourage export-oriented production. These provide a means to bypass many of the
domestic economy's fiscal and infrastructural obstacles that otherwise make Indian goods
and services less competitive in international markets. The most recent of the schemes is
the Special economic Zone (SEZ), a duty-free enclave with separately developed
industrial infrastructure. Other schemes include the Export Processing Zone (EPZ) and
the Software Technology Park (STP), both of which are designated areas for export-
oriented activities. In addition, India allows an individual firm to be designated an Export
Oriented Unit (EOU). All of these schemes are governed by separate rules and granted
different benefits.
In May 2005, the Government of India passed new legislation called the “Special
Economic Zones (SEZ) Bill 2005” endorsing its commitment to a long-term and stable
policy for the SEZ structure which had previous been only an administrative construct. In
addition to tax breaks, the law provides a one-stop clearance and approval mechanism for
setting up SEZ units. SEZs are regarded as foreign territory for the purpose of duties and
taxes, and operate outside the domain of the custom authorities. SEZ units are allowed to
retain 100 percent of their foreign exchange earnings in special Export earners Foreign
Currency Exchange accounts. They are free to sell goods in the domestic tariff area
(DTA) on payment of applicable duties. Sales from DTA firms to SEZ units are on par
with regular trade transactions and hence eligible to benefit from all export incentive and
foreign currency exemption schemes. In addition, many state governments have granted a
sales-tax exemption for DTA-SEZ sales. SEZ units are also exempt from the central
government's service and excise tax regimes. SEZ businesses are expected to be a
positive foreign exchange earner within five years from the commencement of
production.
None of the FDI equity caps are applicable to units in SEZs, including those
sectors reserved for small-scale industries. SEZs are exempted from the requirements of
industrial licensing. The new law increased the tax holiday period (phased out over time)
from 10 years to 15-years for both SEZ developers and SEZ production units. The SEZ
legislation also provides for the establishment of an International financial Services
Centre to facilitate financial services for SEZ units. Offshore banking units (OBUs) will
be permitted to operate in SEZs, virtually like a foreign branch of a bank, to make
available financing at international rates. The OBUs will enjoy exemption from certain
Reserve bank of India requirements.

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The set up of large scale SEZ’s in India is designed to serve both domestic and export
markets. They are envisaged to have world-class infrastructure with integrated real estate,
power and transportation facilities, single window clearance approval and administrative
processes, flexibility, internationally-competitive labor laws and transparency/clarity of
governance.
EPZ and SEZ differences
Conceptually, EPZs and SEZs are different – the former is an industrial estate whilst the
latter is an industrial township. Despite criticisms that India’s attempt to convert its
Export Processing Zones (EPZs) into SEZs is an insurmountable task, India has gone full
steam ahead.
The SEZ and EOU/EPZ schemes have a common philosophy and common objectives.
Therefore, by and large the procedures are the same. The one critical difference is that
whereas the EOUs are ‘stand alone’ units the units in the SEZ/EPZ are in a well defined
enclave. However, a perusal of the supporting customs and central excise duty exemption
notifications and procedures reveals a confusing scenario. This is since there are an
unduly large number of notifications (over 50) and circulars and instructions (over 300)
in existence. It can well be contemplated that both the tax administrators and the units
themselves would have a lot of doubts in view of the sheer volume of relevant material. It
is also quite possible that cases of misuse of the scheme, which are on the rise in recent
years, are on account of the absence of codification of the law and procedures in respect
of the said schemes.
Objectives of SEZs
The objective behind an SEZ is to enhance foreign investment, increase exports, create
jobs and promote regional development. To put in the government’s own words, the main
objectives of the SEZs are:
(a) Generation of additional economic activity;
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities;
(e) Development of infrastructure facilities.

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PERFORMANCE OF SEZs IN INDIA
In India, SEZs have played an important role in facilitating exports, thereby enabling the
country to be a part of globalisation. During FY06-FY12, exports from SEZs increased at
a CAGR of 59 per cent to USD78.6 billion; annual growth for FY12 was 15 per cent. Of
this, 61.7 per cent share belonged to the manufacturing sector. This sector contributed
92.4 per cent of the total exports from central government SEZs in FY11. For state
government or private SEZs established prior to the SEZ Act (2005) and SEZs notified
under the SEZ Act (2005), manufacturing contributed 47.2 per cent and 58.3 per cent,
respectively, to the total exports.
Although, as depicted in the graph below, manufacturing significantly dominates India’s
SEZ exports, only 30 per cent of the operational SEZs are engaged into manufacturing.
However in the recent past, export oriented units in various subsectors of manufacturing
are moving into SEZs – specially light and heavy engineering industries, electronics
industries and auto and auto-components industries. Besides these, industries which are
being impacted by reducing tax breaks too are now moving towards SEZs. The gems and
jewellery sector also has benefited as a lot of such units have relocated to SEZs to avail
the tax incentives.

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Foreign investments in manufacturing SEZs
Over the years, the increasing attractiveness of the Indian market has lured investors from
across the world. Consequently, the country is among the top five preferred destinations
for FDI from Asian, European and North American investors.
At a more micro level, FDI inflows into key sub-sectors of manufacturing have also
posted strong growth. The exhibits below highlight cumulative FDI inflows into key
sectors of the Indian economy and their shares in overall inflows.

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Substantial amount of FDI has already been made in SEZs. According to the Indian
government, FDI amounting to USD2.4 billion5 were invested between FY07 and FY09.
Some SEZs with major FDI component of investment are:
 Apache SEZ Development India Private Limited, Andhra Pradesh (Footwear
SEZ)
 Nokia Special Economic Zone in Tamil Nadu (Telecom equipments SEZ).
 Mahindra City SEZ, Tamil Nadu (Apparels and fashion accessories; IT/hardware;
auto ancillary).
 Mundra Port and Special Economic Zone, Gujarat (Multi product SEZ).
 Moser Baer SEZ, Noida, Uttar Pradesh (SEZ for Non-conventional energy
including solar energy equipment).
 Divvy's Laboratories Limited, Andhra Pradesh (Pharma SEZ).
 Flextronics SEZ in Tamil Nadu (Electronic Hardware SEZ).
 Biocon Limited, Karnataka (Biotech SEZ).
 Serum Bio-Pharma Park, Maharashtra (Pharma SEZ).
 Hyderabad Gems Limited, Hyderabad (Gems and Jewellery SEZ).
 Maharashtra Airport Development Corporation Limited, Maharashtra (Multi
product SEZ).
 Reliance Jamnagar Infrastructure Ltd. (Multi Product).
 Suzlon Infrastructure Ltd. (Hi-tech Engineering Products & related services).
According to a study conducted by the Institute of South Asian Studies (SAS) in 2011,
units and developers in SEZs enjoy a fiscal largesse. This has played an important role in
attracting export oriented foreign investment in areas such as hardware, apparel and
shoes, which would have normally headed for other Asian destinations in its absence.
The incentives for developers of SEZs include
 Exemption from duties on import/procurement of goods for the development,
operation and maintenance of SEZs.
 Income tax exemption for a block of 10 years in 15 years.
 Exemption from Service Tax
 FDI to develop townships within SEZs with residential, educational, health care
and recreational facilities permitted on a case-by-case basis.

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Potentialof SEZs in Increasing India’s Manufacturing Output
61.7 per cent of the SEZs’ total exports comprised of manufactured goods and given that
exports from SEZ’s have increased exponentially in the last five years, it can be inferred
that SEZs have played a vital role in boosting the country’s manufacturing output.
Further, the Indian government expects SEZ exports to reach approximately USD75
billion, higher than USD68.4 billion in FY11.
The government recently approved the National Manufacturing Policy – 2011
(unveiled on 25th October 2011), which aims to increase the share of manufacturing
sector in total GDP to 25 per cent by 2022. Currently, the sector accounts for a share of
about 16 per cent in GDP. It aims to create mega industrial zones across the country with
world-class infrastructure facilities and creating 100 million jobs by 2022. The new
policy proposes developing National Investment and Manufacturing Zones or mega
industrial parks that will reduce compliance burden on the industry. Under the policy a
special company will be established that will be a one-stop shop for all clearances for
businesses interested in setting up operations in the industry parks. Special incentive will
be given to small and medium companies in the form of tax breaks to operate in the park.
The proposed NMIZs, promise three major benefits for SEZs:
 Easier access to land.
 Flexible labour policies
 Getting regulatory clearances easily.
According to DIPP, the primary difference between a NMIZ and SEZ is the scale of
operation. They will tend to significantly outsize SEZs since the rationale behind setting
up of NMIZs is to drastically increase manufacturing. According to the policy, SEZs
located in NMIZs will continue to enjoy the incentives provided under the SEZ Act.
SUCCESS STORIES OF INDIAN SEZs
 Nokia Special Economic Zone (Telecom Equipment SEZ)
 Physical Exports of USD2.2 billion6 in four years i.e from FY07 to FY10.
 Investment of USD0.6 billion has already been made in this SEZ, out of which
FDI is USD 0.2 billion.
 Projected investment of USD0.6 billion and projected direct employment of
20,000 persons.

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 Mahindra City SEZ (Apparel and fashion accessories; IT/Hardware; Auto-
ancillary)
 Physical Exports worth USD0.5 billion in four years i.e from FY07 to FY10.
 Direct employment provided to 16,257 persons.
 Investment of USD0.4 billion has already been made in this SEZ, out of which
FDI is USD41.5 million.
 Projected investment of USD0.5 billion and projected direct employment of
57,236 persons.
 Apache SEZ Development India Private Limited (Footwear SEZ)
 Physical Exports worth USD31.3 million in four years i.e from FY07 to FY10.
 Investment of USD115.4 million has already been made in this SEZ, out of which
FDI is USD89.2 million.
 Projected direct employment of 20,000 persons.
 Reliance Jamnagar Infrastructure Limited (Multi-product SEZ)
 Physical Exports worth USD15.7 billion in two years i.e from FY09 to FY10.
 Investment of USD8.1 billion has already been invested in this SEZ, out of which
FDI is USD15.2 million.
 Projected investment of USD7.6 billion.

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CHAPTER 5: CONCLUSION
The first EPZ was set up in India in 1965. However, as the government’s EPZ strategy
did not generate meaningful results, it was replaced by SEZs. This move led to a
significant improvement in economic activity in the country—most importantly rendering
exports competitive—as evident by the increase in India’s share of manufacturing exports
across the globe vis-à-vis a decade ago. The sector has reported strong growth, outpacing
overall growth in GDP, over the past few years. With regard to exports, India has a
presence in key industries such as engineering goods and chemicals.
Considering the country’s SEZ exports are dominated by the export of manufactured
goods, it is encouraging to know that most of the upcoming SEZs are related to the same.
The share of manufacturing goods in total SEZ exports is estimated to increase, going
forward.
Given the success of SEZs, the government plans to set up NMIZs, particularly focussing
on manufacturing. Units in NMIZs will be offered special incentives and concessions for
value addition; also, infrastructure facilities, which are not available elsewhere, are
expected to be provided in NMIZs. Capital for funding NMIZs is also likely to be
cheaper.

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Webilography
 http://business.mapsofindia.com
 http://www.sezindia.nic.in
 https://en.wikipedia.org
 www.ibef.org