SPECIAL ECONOMIC ZONE (SEZ), All Details about SEZs, What is Special Economic Zone ?

The revamp of Special Economic Zone (SEZs) through the Development of Enterprise and Service Hubs (DESH) Bill will come a fiscal package. These packages include a possible freeze on direct taxes at 15% for units and hubs 2032.

What is a Special Economic Zone (SEZ)?

A Special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country.

The SEZ economic regulations tend to be conducive to-and-attract-foreign direct investment (FDI). FDI refers to any investment made by a firm or individual in one country into business interest located in another country.

The objective is to facilitate rapid economic growth by leveraging tax incentive to attract foreign investment and spark technological advancement.

The first SEZs appeared in the late 1950 in industrialized countries. They were designed to attract foreign investment from multinational corporations.

Special Economic Zone in India

India was among the first countries in Asia to recognise the effectiveness of the SEZ model in promoting export.

The first EPZ was established in Kandla, Gujrat in 1965.

Currently, 262 SEZs are operational in India, employing as many as 2.36 million people.

To tackle the challenges of absence of world-class infrastructure and to attract larger foreign investments, the Special Economic Zone Policy was announced in April 2000.

The SEZ act 2005 and SEZ rules come into effect from February 2006.

Major Objectives of SEZ Act, 2005

1 Generation of additional economic activity,

2 Promotion of exports of goods and services,

3 Promotion of investment from domestic and foreign sources,

4 Creation of employment opportunities,

5 Development of infrastructure facilities.

Who sets up SEZs?

In India, most of the SEZs are set up through a collaboration between the state and central governments.

However, any private, public or joint sector agency can also set up SEZs.

State governments have a very important role to play in the establishment of these economic zones. The proposals have to be approved by the local authorities initially. These local authorities should give their consent for providing basic infrastructure facilities to the delineated area, such as water, electricity, transportation, etc.

Also, the statutory functions of maintaining these SEZs rests with the government.

A unit approval committee is formed to monitor the performance of SEZs.

The committee consists of a development commissioner, customs officer and state government representative.

Need for amending the SEZ act, 2005

India’s target of becoming a USD 5 trillion economy by FY 2026, with a contribution of USD 3 trillion and over USD 1 trillion from the services and manufacturing sector respectively, requires accelerated investments.

While India’s service sector continues to show appreciable growth, the manufacturing sector has been lagging, necessitating urgent interventions.

The 2005 SEZ act was brought in with the hope of making India a manufacturing powerhouse of the world. However, it had very limited positive effects.

The 262 operational units and account for less than 20 per cent of the country’s exports.

Therefore, the Central Government constituted the Baba Kalyani Committee to suggest changes to India’s SEZz policy based on inputs from various stakeholders.

Based on the recommendations of this committee, the Central government is bringing out new legislation to replace the existing SEZ act, 2005

The new regulation is known as the development of Enterprise and Service Hubs (DESH) Bill.

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