SEZ (Special Economic Zones)

Wind of Change…

Introduction • Special Economic Zone (SEZ) is defined as "a specifically delineated duty free

enclave and shall be deemed to be foreign territory for the purposes of trade

operations and duties and tariffs".

• SEZs

an engine for economic growth

supported by quality infrastructure

complemented by an attractive fiscal package

with the minimum possible regulations.

• Government of India have notified Special Economic Zones (SEZs) Act 2005 and

notified Special Economic Zone Rules 2006 with a view to augmenting infrastructure

facilities for export.

Export Processing Zone (EPZ)

policy 1965.

1st EPZ was set up in Kandla

(Gujarat)

In 1990s, as a part of

reforms, powers

delegated to zone

authorities.

New Policy in April 2000

Special Economic

Zones Act MAY 2005.

Full law and rules effected

February 2006.

Chronology of SEZ framework

SEZ Categories

» Free Trade Zones (FTZ)

» Export Processing Zones (EPZ)

» Free Zones (FZ)

» Industrial Estates (IE)

» Free Ports

» Urban Enterprise Zones

History of SEZ’s in India • During the past four decades many developing countries have been

creating special zones to promote their exports and earn foreign exchange.

• The term Export Processing Zone (EPZ) was first coined to identify the Shannon zone set up in Ireland in 1958.

• India established its first EPZ in 1965 in Kandla (Gujarat)

• In 1984 EPZs were established in Cochin (Kerala), Falta (Calcutta,now Kolkata), Madras (now Chennai) and NOIDA (Uttar Pradesh).

• The Visakhapatnam EPZ (Andhra Pradesh) was established in 1989 and the Surat EPZ (Gujarat) in 1997.

SEZ Act, 2005 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 a view to attract larger foreign investments in India,

the Special Economic Zones (SEZs) Policy was announced in April 2006.

• 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

Status Of State SEZ Act/Policies States where SEZ Act has been enacted & is in force

States where SEZ Policy has been enacted & is in force

Economic Benefits SEZ policy has directly benefited economy in following ways: 1. Employment Generation : SEZs generate direct employment for skilled and unskilled labour ; indirect employment and employment for women workers. 2. Skill Formation: Formation of SEZs and new job requirements increase firm level activity whereby the labour force acquires skills from within the firm through training and learning. 3. Attract investors:: SEZs offer a highly conducive investment scenario for developers. No tax during development and operational stage. At profit stage 100% income tax exemption for Ist 5 yrs, 50% for next 5 yrs. 4. Technology Upgrading: SEZs attract export-oriented FDI and promote other forms of collaboration between local firms and MNCs. 5. Exports: EPZ exports registered an impressive growth rate over the period 1966 to 2002. EPZ exports increased in India from less than Rs.1 million in 1966 to over Rs. 97727 million in 2002. 6. Manufacturing Sector: Share of manufacturing industry in the exports grew from negligible percentage in 1970 to above 6 % in 2005.

(Sources: Ministry of Commerce, Economic Survey)

SEZs as vehicle for Job Creation Reaping the demographic dividend

India’s demographic profile is a boon for creating productive jobs for rising work force with higher savings and eventually investments for economic growth.

India’s median age is just under 25 years with over 500 million people below 25 years of age. Two-thirds of these are supported by the agricultural sector which contributes just 21 percent to the GDP.

These people have rising aspirations and must find jobs in manufacturing and services sectors, failing which there would be serious social and economic implications for the country.

SEZs are job creators - it is estimated that close to 15,00,000 jobs by end of 2010 would be created by SEZs.

SEZs Typology • SEZs can be categorized on basis of sector, function or location

and required to have processing as well as non-processing area.

SEZ

Sector – Specific SEZ

Multi – Product SEZ

SEZ in a port or airport

Manufacture multiple goods in one sector or across multiple sectors. Trading and warehousing included

Manufacture goods or render services in a particular sector.

SEZ in an existing port or airport for manufacture of goods falling in two or more sectors . Trading and warehousing included

SEZ LAYOUT

Processing Area Non- Processing Area

•Processing area is the demarcated area in SEZ where units can be located for manufacture of goods or rendering of services •Minimum processing area has been uniformly fixed at 50% for Multiproduct SEZs Upto 90 % for product specific SEZs

Non-processing area is intended to provide support facilities to SEZ processing area and may include: • Educational institutions • Hospitals • Hotels • Recreation and entertainment facilities • Residential and business complexes

Land Use Distribution (%) Multi Product ( Min. 1000 Ha)

Sector Specific ( Min. 100 Ha)

IT/ITES ( Min. 10 Ha)

Residential 35 50 50

Public Utility 15 10 10

Recreational 10 15

Transport & Communication 15 15

Green Belt 10

Area Allocation in terms of use.

Sector specific SEZs

• Pharma

• IT/ITES

• Gems & Jwellery

• Bio Technology

• Chemicals

• Consumer appliances

• Medical equipments

• Engineering Based

• Apparel & Readymade

• Automotive components

• Telecom Equipments

• R& D

• Processed food & Bio eqp.

• Entertainment & Recreation

Development Norms for Non Processing Areas in SEZs.

Permissible FAR and land area is based on the following assumptions

• The area permissible for the non processing use is Max 50%

• The norms are based on 100 FAR on total area under non processing zone

• Min area for Sector Specific SEZ – 100 ha

• Min area for IT/ITES, Biotechnology, Gems and Jewellery SEZ- 10 ha

• Min area for Multi Product SEZ – 1000 ha.

Development Norms for Non Processing Areas in SEZs. Development guidelines – Multi Product SEZ FAR – 100 Total Floor Space – 50,00,000 sqmts Floor Space utilization Activity Percentage of floor

space

Area in Sqmt

Residential – All types of housing typologies like villas, plotted housing

apartments, condominiums etc as per the demand and need

50 250000

Commercial – This includes retail commercial, hotels, service apartments,

multiplex etc

25 125000

Facilities – This includes schools college, social cultural institutes,

hospitals, medical centers etc

25 125000

Land Utilization Activity Percentage of land

Area

Land in Ha

Residential, commercial and facilities 55 27.5 (ground coverage 30%)

Open spaces 20 100

Circulation 25 125

Note: The overall ceiling in each category will be revised upwards in proportion with the available FAR and area.

Development Norms for Non Processing Areas in SEZs. Development guidelines – Sector Specific SEZ Maximum area permissible for Non Processing Zone 50 Ha. FAR – 100 Total Floor Space – 5,00,000 sqmts Activity Percentage of floor

space

Area in Sqmt

Residential – All types of housing typologies like villas, plotted housing

apartments, condominiums etc as per the demand and need

50 250000

Commercial – This includes retail commercial, hotels, service apartments,

multiplex etc

25 125000

Facilities – This includes schools college, social cultural institutes,

hospitals, medical centers etc

25 125000

Land Utilization Activity Percentage of land

Area

Land in Ha

Residential, commercial and facilities 55 27.5 (ground coverage

30%)

Open spaces 20 10

Circulation 25 12.5

Note: The overall ceiling in each category will be revised upwards in proportion with the available FAR and area.

Development Norms for Non Processing Areas in SEZs. Development guidelines – IT/ITES, Biotechnology, Gems and Jewellery SEZ Maximum area permissible for Non Processing Zone 5 ha. FAR – 100 Total Floor Space – 50,000 sqmts Activity Percentage of floor

space

Area in Sqmt

Residential – apartments, condominiums etc as per the demand and need 60 30000

Commercial – this includes retail commercial, hotels, service apartments,

multiplex etc

15 7500

Facilities – This includes schools social cultural institutes, medical

facilities such as dispensary nursing home etc

25 12500

Land Utilization Activity Percentage of land

area

Land in Ha

Residential, commercial and Facilities 75 3.75 (ground coverage 30%)

Open spaces 10 0.5

Circulation 15 0.75

Note: The overall ceiling in each category will be revised upwards in proportion with the available FAR and area.

Area Requirements

Entities in SEZ

SEZs in India At present there are Eight functional SEZs located at:

• SantaCruz (Maharashtra),

• Cochin (Kerala),

• Kandla and Surat (Gujarat),

• Chennai (Tamil Nadu),

• Visakhapatnam (Andhra Pradesh),

• Falta (West Bengal) &

• Nodia (Uttar Pradesh)

Further a SEZ at Indore (Madhya Pradesh ) is now ready for operation.

Sector Allocation FORMAL IN PRINCIPAL

Source: SEZ India *(As on 29.08.2007)

Sectoral Focus

As many as 439 SEZs have been approved in principle, out of which 198 have been notified till 8 March, 2008.

SEZ’S India vs China

• By the end of the 1990s, it was found that India’s EPZs were not performing as well as China’s SEZs.

• Major reasons behind poor Indian SEZ’s performance w.r.t China.

Limited scale and overcrowding.

Inadequate logistic supports.

Poor infrastructure.

Governments indifference and red tapism in matters of foreign direct investment.

Lack of clarity in incentive packages.

Poor coordination between state and municipal governments with central government, in the design, set up, and functioning of the zones.

SEZ’S India vs China Issue China India

Size Typically in hundreds of

hectares.

Even 10 hectares will do

Location located only on coasts. Anywhere. No restriction

Labour laws Relaxed Flexibility is totally absent

Policy regime Experimentation of liberal

policies in the specified areas

Based on fiscal sops

Investors Basically foreigners who are

wooed with sops and promise of

stability in policy.

Basically locals. Not foreign investor

driven

Commencement In 1979 In 1969 with the export processing zone

concept, but it failed

Number Only six: Shenzhen, Zhuhai,

Shantou, Xiamen, Hainan and

Pudong

So far 28 operational. About 200

received approvals

Tax holidays Present Longer and steeper than in China

Falta SEZ • Set up by the Government of India in the year 1984.

• Subsequently, two other SEZs were set up. They were MANIKANCHAN SEZ for gems and jewellery and WIPRO SEZ for IT and ITES, located at Salt Lake, Sector-V, Kolkata.

– It is about 55 kilometres from Calcutta city and 45 kilometres from the southern suburbs.

– It is well connected by a developed network of roads including a State highway, two ports at Calcutta and Haldia and International airport at Dumdum.

• Infrastructural Facilities available at FALTA SEZ

Gross area 280 acres (acquired 87acres and transferred from CPT 193acres).

Location - Panchayat area.

Area Developed- 253 acres (full infrastructural facilities)

Area under development 27acres

Built - up space - SDF-15570 sq.m.(2nos.) - fully allotted.

Industrial shed- 15350sq.mtr.(7 nos) - fully allotted.

1 million liters per day water supply with drainage facilities.

Electric sub-station for dedicated power supply for all categories, supplemented by local sub-stations.

Total Valid Approvals – 182 Units in operation – 101 Units under implementation -30 Investment by Govt. of India - Rs 60.50 Crores (cumulative). Revenue Expenditure - Rs 02.27 Crores. (FY 2005 - 06) Revenue Earned - Rs 4.19 Crores (FY 2005 - 06).

Investment Units - Rs. 317.45 Crores NRI - Rs. 8.89 Crores. Foreign - Rs. 13.71 Crores.

Falta SEZ

STRENGTHS Effective investment host for the industry in the traditional manufacturing sector. Foreign trade profile consistent with local factor endowments. High rate of growth and rising share of this sector in the overall exports from the states of

W. B. as well as the Country. Low cost of operation. Ease of entry and lower cost of operation for commodity / volume driven products. ease of operation for niche products. Resource efficient scheme for export enhancement. Strong linkage with industrial capacity in the command and catchment area.

Falta SEZ Social and Economic Infrastructure

• Telecommunication services, Post office including Courier Services.

• Residential accommodation for Staff

• Container Handling Jetty - Capacity 5 containers per hour.

• Community Polytechnic for skill development and training.

• Inland Container Depot (ICD).

Infrastructural Facilities

• Developed land & Built-up area at affordable and attractive rates.

• Quality and Stable Power Supply

• Efficient road network

• Container Handling Jetty

Indore SEZ

Indore SEZ was notified prior to the enactment of the SEZ Act 2005 and became operational W.e.f. 15.08.2003.

This SEZ is the only Green Field multi product SEZ of India as on date and is spread over an area of more than 1100 hectares of land in Phase I & II

Industries of various sectors such as Plastic, Engineering, Pharmaceutical, Metal, Textile & Food processing etc. are located in the Zone.

Indore SEZ

Location Adjacent to the Pithampur/Kheda industrial growth central complex which is one of the leading growth centers of India and is situated near Indore the most advanced and developed industrial town of M.P

Indore provides all the social infrastructure, civic facilities and other benefits to the growing centers.

Connectivity of Indore to all major parts of the country is also a boon to the industries.

Indore SEZ Salient features

Land is allotted on lease. The lease is renewable. Allotment is done by MPAKVN Indore Ltd.

The power is made available by the developer. MPAKVN (I) Ltd. has a direct power purchase agreement with NTPC. The provisional tariff is presently Rs. 2.70 per unit, plus Rs. 124 per KVA as fixed charges.

ISEZ has a Customs wing, so that on-site Customs clearances etc. are available. Formalities for Customs clearances for imports & exports are completed within the zone.

Indore SEZ

Conclusion • SEZ policy has no doubt given a boost to the Indian Economy but comparison of implementation

with other countries brings out lacunas in India’s SEZ Policy.

• The reasons for disparities can be attributed to many reasons as listed below. Improper SEZ policy Irresponsible planning while locating SEZ Ineffective Land Acquisition Policies Improper Rehabilitation Policy

• Key challenges in the SEZs programme will be

• Due exercise of control while approving and locating SEZ’s.

• Compensation for acquisition shall be on the basis of market prices .

• Give share of acquired land in the developed area to the owners.

• Provision of employment for Landless labourers .

• Provision of revenue for ULBs on sharing basis to compensate their withdrawal once the area is notified as SEZ.

• Development of SEZs needs to be integrated with existing Master Plans and Regional Plans.

• There is need to develop regional/sub regional plan around the SEZ areas.