ECONOMIC ENVIRONMENT & POLICY

PROJECT

ON SPECIAL ECONOMIC ZONES

Problems, Promises and Prospects

Submitted to- Dr. Prabhat Kr. Pankaj

Submitted by-

Sourav Mukherjee [FT -09-862]

ACKNOWLEDGEMENT

We take this opportunity to convey our sincere thanks and gratitude to all

those who have directly or indirectly helped and contributed towards the

completion of this project.

First and foremost, we would like to thank Dr. Prabhat Kr. Pankaj for his

constant guidance and support throughout this project. During the project, we

realized that the degree of relevance of the learning being imparted in the class

is very high. The learning enabled us to get a better understanding of the nitty-

gritty of the subject which we studied.

We would also like to thank our batch mates for the discussions that we had

with them. All these have resulted in the enrichment of our knowledge and their

inputs have helped us to incorporate relevant issues into our project.

Last but not the least we would like to thank God and our parents for their

cooperation and help.

Sourav Mukherjee

Executive Summary Choosing a project was not an easy

task considering the fact that there

are presently many socioeconomic

factors whose impact is immense in

the Indian Economic and Financial

Growth. After visualizing the various

aspects, we decided to move forward

with Special Economic Zone (SEZ),

also, currently, the growth rate at

which it is growing provides lots of

hope towards boosting Indian Economy.

India over the past decade has

progressively opened up its economy

to effectively face new challenges

and opportunities of the 21st

Century. To compete in the global

market, the Government of India

(GoI) has liberalized export policies &

licensing of technology and

implemented tax reforms providing

various incentives. As a result, in

2004-2005 exports rose to

Rs.356,069 crores, a 123.8%

increase since 1999-2000. FDI

inflows increased to nearly Rs.

17,267 crores in the calendar year

2004, a 48.6% increase over the

previous calendar year.

Traditionally, SEZs are created as

open markets within an economy

that is dominated by distortionary

trade, macro and exchange

regulation and other regulatory

governmental controls. SEZs are

believed to create a conducive

environment to promote investment

and exports. And hence, many

developing countries are developing

the SEZs with the expectation that

they will provide the engines of

growth for their economies to

achieve industrialization.

To achieve its three-fold objectives

of attracting FDI, increasing exports

and accelerating the country's

economic growth, the Government of

India announced the introduction of

SEZs in its Export-Import Policy of

March 2000. Special Economic

Zones (SEZs) were established in

many countries as testing grounds

for implementation of liberal market

economy principles. SEZs are viewed

as instruments enhancing the

acceptability and credibility of

transformation policies, attracting

domestic and foreign investment and

also for the opening up of the

economy. SEZs in India seek to

promote the value addition

component in exports, generate

employment as well as mobilize

foreign exchange. Globally, many

countries initiated Free Trade

Agreements (FTAs) which eventually

led to a spurt in investments in

infrastructure developments for Free

Trade Zones (FTZs) and SEZs. A

close examination of the evolution of

SEZs in countries with similar

economies as India are China, Iran,

UAE and Jordan, will help us to

understand their success stories

and thereby implement those

factors, in order to curb the SEZ

bottlenecks faced by India today. The

Shenzhen SEZ in China is a perfect

example of a SEZ success story. In

India, the government has been

proactive in the development of

SEZs. They have formulated policies,

reviewed them occasionally and also

ensured that ample facilities are

provided to the SEZ developers as

well as the companies setting up

units in SEZs. These favorable

conditions resulted in the biggest

ever corporate rush for the

development of SEZs in India. Over

234 companies received formal

approval, 162 companies received in-

principle approval and 100 companies

received notification to set up SEZs.

The Indian government is expecting

an investment to the tune of

Rs.53,561 crores (USD 13274

million) and an additional job creation

for 15,75,452 individuals in SEZs by

December2009.

TABLE OF CONTENTS

TOPICS PAGE

Introduction

01

Objectives Of Study and Methodology

06

Observation and Analysis 08

Conclusion

22

Bibliography and References

25

1 | P a g e

Introduction A Special Economic Zone (SEZ) is a

geographical region that has

economic laws that are more liberal

than a country's typical economic

laws. The category 'SEZ' covers a

broad range of more specific zone

types, including Free Trade Zones

(FTZ), Export Processing Zones

(EPZ), Free Zones (FZ), Industrial

Estates (IE), Free Ports, Urban

Enterprise Zones and others. Special

Economic Zone (SEZ) is a duty free

area which is meant for the

purposes of trade operations, duties

and tariffs for investors. SEZs are

specifically demarcated areas within

the country where raw materials and

capital goods can be imported duty

free from abroad or the domestic

market and a special package of tax

holiday and incentives are given with

a view to boost exports from the

country. Manufacturing and Services

operations are allowed in a SEZ.

SEZs are viewed as instruments

enhancing the acceptability and

credibility of transformation policies,

attracting domestic and foreign

investment and also for the opening

upon the economy.

Special Economic Zones have been

established in several countries,

including India, China,

Brazil, Iran, Jordan, Kazakhstan, Paki

stan, the Philippines, Poland,

Republic of Korea,

Russia, Ukraine, and United Arab

Emirates. Currently, Puno, Peru has

been slated to become a "Zona

Economica". The most successful

Special Economic Zone is in China,

Shenzhen that has been developed

from a small village into a city with a

population over 10 million within 20

years. According to World Bank

estimates, as of 2007 there are

more than 3,000 projects taking

place in SEZs in 120 countries

worldwide.

India was one of the first in Asia to

recognize the effectiveness of the

Export Processing Zone (EPZ) model

2 | P a g e

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. 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.

In India, the government has been

proactive in the development of

SEZs. They have formulated policies,

reviewed them occasionally and also

ensured that ample facilities are

provided to the SEZ developers as

well as the companies setting up

units in SEZs. SEZs in India seek to

promote the value addition

component in exports, generate

employment as well as mobilize

foreign exchange. The Foreign Trade

Policy of Government of India

provides for setting up of Special

Economic Zones (SEZ) in the country

with a view to provide an hassle free

environment for exports. Units may

be set up in SEZ for manufacture of

goods and rendering of services. The

3 | P a g e

units in SEZs have to be a net

foreign exchange earner but they are

not subjected to any pre-determined

value addition or minimum export

performance requirements. SEZs

could be set up in public, private,

joint sector or by State

governments. 100% FDI is allowed in

setting up of SEZs. The government

of India has also converted existing

Export Processing Zones into SEZs.

The minimum size of the SEZs shall

be 1000 hectares except in product

specific and port/airport based SEZs.

Approval for setting up of new SEZs

is given by Department of

Commerce, Government of India. For

setting up units in SEZs, all

approvals are given by a Committee

headed by Development

Commissioner of the concerned SEZ.

For setting up a unit in SEZ,

application in prescribed format

should be submitted to the

development Commissioner.

The SEZ Act deals primarily with the

following matters:

Establishment of the SEZ and

the various authorities

constituted in this connection.

Appointment of the Developer,

Co-developers and approval for

units to be located in the

notified area.

Exemptions, drawbacks and

concessions including

exemptions from customs duty

(on goods brought into or

exported from the SEZ),

excise, service tax, securities

transaction tax, sales tax and

income tax.

Offshore Banking Unit &

International Financial Services

Centre. Setting up of offshore

banking units / International

Financial Services Centre in

SEZs.

Notified Offences & Civil Suits.

A single enforcement

agency/officer for certain

notified offences as well as the

designation of courts by the

state governments for such

offences committed in and for

civil suits arising in SEZs.

4 | P a g e

The Special Economic Zones (SEZs)

Act 2005 is the culmination of a

Government Policy, which was

introduced as a vision to impart a

globally conducive platform for a

competitive structure of Indian

exports. According to the policy, the

units to be set up in the zones were

required to be net foreign exchange

earners, although devoid of any

restriction as pre-determined value

addition or minimum export

performance requirements. Payment

of full custom duty and import policy

was mandatory for sales in the

Domestic Tariff Area by these units,

with the provision for setting up of

offshore banking units in those

special economic zones. After

considerable success and much

speculation, the Parliament passed

the Special Economic Zones Bill

2005 in May 2005 and with the

assent of the Honorable President of

India, it became an Act on June

23rd, 2005. The Act has led to

expectations of spectacular inflows

of foreign direct investment (FDI)

into the Country over the next few

years, with generation of a 50%

growth in employment opportunities

in the Zones. The projection of the

present employment status in the

SEZs coupled with the future

projection, promises to raise the

employment status immensely by the

coming year. The potential prospects

to create more jobs through the

export activities in the country raise

favorable grounds for the assurance

of employment generation and

promise to attract investment, both

foreign and domestic. The Special

Economic Zones Act 2005

comprises income tax concessions

for both SEZ units and SEZ

developers.

The SEZ Act, 2005 inserted sub-

section (6) in section 115JB of the

Income-Tax Act, 1961 (the Act),

provides that the SEZ units will be

eligible for 100% tax exemption for 5

years, 50% for the next 5 years, and

50% of the ploughed back export

profits for the next 5 years. SEZ

developers continue to get 100%

income tax exemption for 10 years in

5 | P a g e

a block period of 15 years. Other

than such provisions, the Act seeks

to establish free trade and

warehousing zones to create world

class trade-related infrastructure to

facilitate import and export of goods

aimed at making India a global trading

hub, set up offshore banking units

and units in International Financial

Service Centre in SEZs, including

fiscal regime governing the operation

of such units, establish authority for

each SEZ set up by the Central

Government to impart greater

administrative autonomy; and

designate special courts and single

enforcement agency to ensure

speedy trial and investigation of

notified offences committed in

Special Economic Zones

.

A paper cutting of Dec 04, 2007, showing the SEZ at Mumbai (Reliance) and another at Haryana (DLF) coming to reality

6 | P a g e

Objectives of Study and Methodology

Objectives:-

The objectives of the study in a

nutshell are as follows-

To analyze the basic concept of

SEZ in Indian Economy.

To analyze the impact of SEZ

on Indian Economy, as a whole.

To find the impact of SEZ on

Rural India.

To find the drawbacks, if there,

of implementing SEZ in India.

Methodology:-

We have used the primary as well as

secondary data for conducting the

study and analysis of our project

work. Primary data mainly composed

of the Impact of SEZ on Rural India

part, where we have talked with

persons from different field and

collected their views and information,

which helped us a lot to broaden our

outlook on the topic. The opinion of

poor people who have lost their land

for SEZ has also greatly enhanced

our views.

Secondary data analysis is commonly

known as second-hand analysis. It is

simply the analysis of preexisting

data in a different way or to answer

a different question than originally

intended. In our project we have

taken the help of the following

secondary data:

Text-Books (TAXMAN’S Law

Relating to SEZ)

For the purpose of study we

consulted various:

7 | P a g e

Websites

• Search - Engines

• Encyclopedia

• E - Libraries

Articles (published and non-

published) written by some of

the great research scholars.

Journals

News-Papers/E-news-papers

Magazine

8 | P a g e

Observation and Analysis

SEZs have a tremendous socio-economic

impact on Indian economy. SEZs have

contributed to the growth and development

of the Indian economy in terms of exports,

employment and investments. It is the key

growth driver of nation’s economy and has

made the Country globally competitive.

Further, Indian companies are facing tough

competition from global players due to

increased globalization and liberalization

initiatives. The competition is tough from

low cost manufacturing destinations such

as China, Korea etc. To stay competitive in

the changing global scenario, Indian

companies have to redefine their

capabilities with greater cost control and

improved efficiency. The cluster

configuration would enable the tenants unit

to leverage various advantages of

operational synergies and scale economics.

It would assist small and medium companies

to attain a critical mass necessary for

various operational efficiencies. Further,

access to high-end infrastructure and

common facilities would impart global

competitiveness to these industries.

Analysis of SEZ: As a capitalist tool of Economic Growth and Development Strategies by comparing Chinese and Indian SEZ’s Analysis of both countries will help to

understand how SEZ worked in China

and how it is difference with respect

to Indian context. Finally, It will help to

understand how far is it contributing

and will contribute to economic growth

of mixed economy like India.

The Chinese started their liberalization

and industrialization with the formation

of SEZs in late 70s and early 80s,

unlike, India, where SEZ is being

incorporated 15 years after the start

of liberalization process. China had a

Master Plan and an economic

framework on how to build and precede

with SEZs, most probably inspired by

the success of Asian Trading Hub,

Hong Kong. The Dragons started

9 | P a g e

building massive cities manufacturing and industrialization

under their SEZ framework. Dragons

also rolled out red carpet for foreign

companies to build and operate from

these SEZs. As the ongoing debate

about them (Indian SEZ and Chinese

SEZ) in India, shows, they’re the

latest example of how ideas that

work just great in Communist China

don’t quite translate so well in

Democratic India.

China SEZs Origin and Success

China’s government first set up

some SEZs in the late 1970s in

southeastern China, with an eye on

luring dollars back to the motherland

from compatriots in Hong Kong,

Macao and Taiwan.

The SEZs were vital to the

development of China’s export

machine. The most successful was

Shenzhen, which back then was a

village on the border of Hong Kong’s

New Territories and now is a

booming city that’s home to high

tech leaders like Huawei and ZTE.

Xiamen, along the coast of Fujian

province, is directly across from

Taiwan and people there speak the

same dialect as many native

Taiwanese. Dell is a big investor in

Xiamen, having just doubled the size

of its PC assembly plant in the city.

Not all of the original SEZs turned

out so well: Shantou, about five

hours by car from Hong Kong, is

home to a university funded by Li Ka-

shing (his hometown is nearby) but

not much else.

Zhuhai, across the border from

Macao, won notoriety in the late

1990s for building a gigantic white

elephant of an airport. While China’s

SEZs are less important today, when

cities nationwide are all vying for

investment dollars, it’s hard to

10 | P a g e

imagine China’s economic boom

developing so quickly without them.

Reasons for Success:

• Unique locations – of the five

SEZs, Shenshen, Shantou and

Zhuhai are in Guangdong

Province adjoining Hong Kong.

Fourth, Xiamen, is in Fujian

Province and nearer Taiwan.

• Large size with government

and local authorities providing

improved infrastructure with

foreign collaboration.

• Investment-friendly attitudes

towards Non-Resident Chinese

and Taiwanese!

• Attractive incentive packages

for foreign investment

• Liberal customs procedures

• Flexible Labor Laws providing

for contract appointments for

specified periods

• Powers to Provinces and local

authorities to frame additional

guidelines and in administering

the Zones.

SEZs in India

Twenty five years later, India’s

politicians have woken up and

suddenly discovered the concept of

SEZs. Parliament passed the bill in

July, 2005. The India was late to the

game. But fact here says that there

is nothing to be worried more. China

has five SEZs, according to India’s

Ministry of Commerce; there are

now more than five SEZs in India. But

that’s just the beginning. According

to Bloomberg’s Andy Mukherjee, “As

many as 267 zones have already

been cleared ‘in principle’ by the

government; out of these, 150

proposals have won final approval.”

But there’s a down side to having so

many SEZs: Critics are angry, saying

that Indian peasants are getting

robbed, losing their farmland to the

industrial zones. Farmer activists

have gone to the Supreme Court to

11 | P a g e

stop things. Congress Party’s Sonia

Gandhi has weighed in too. India,

unlike China, isn’t a dictatorship.

India’s leaders can’t just railroad

through policies the way China’s

communists do. But it does seem to

be a shame that India, with a

desperate need to generate more

jobs for people from poor rural areas

left out of the IT services boom,

can’t figure out a way to get SEZs

right.

Experience with Export Processing

Zones (EPZs)

• Starting with Kandla in 1965;

SEEPZ in 1972, Based on

reviews of working, Cochin,

Falta, Madras (Chennai) and

NOIDA in 1984 and Vizag in

1989

• Very limited impact

• Less than 40% of approvals

fructified

- Rest cancelled or lapsed

• Employed only 0.01% of labor

force

• FDI was less than 20% of total

investment

• Accounted for less than 4% of

exports. Net export much

lower as imports were over

60% of exports

The reasons of failure were:

(i) Very Small Size of EPZs

(ii) Inadequate infrastructure

(iii) Restrictive policies

(iv) Lengthy procedures – No

Single Window

(v) Location disadvantages

(vi) Stringent labor laws

12 | P a g e

SEZ Policy of 2000

New Policy in April 2000.

SEZs permitted to be set up in

the public, private, joint sector

or by the State Governments

Minimum size of 1000

hectares (4 sq. miles)

Simplified procedures and more

incentives

Main measures were:

• Conditions for automatic

approval relaxed

considerably

• Customs procedures

simplified

• Units could produce

items reserved for SSI

units in domestic market

• 100% FDI investment

for manufacturing

• Profits could be

repatriated fully

• Freedom for sub-

contracting

• 100% I.T. exemption for

five years

• Exemption from Central

Excise Duty on capital

goods, raw materials,

consumable spares from

domestic market

• Reimbursement of CST

paid on domestic

purchases

The modern day Special Economic

Zone came in to existence because

the economic reforms incorporated

in the early 1990s did not resulted in

the overall growth of the Indian

economy. The SEZ policy of India was

devised to act as a catalyst to

promote the economic growth

attained in the early 1990. The

13 | P a g e

economic reforms incorporated

during the 1990s did not produce

the desired results. The Indian

manufacturing sector witnessed a

sudden dip in the overall growth of

the industry, during the second-half

of 1990s. The History of SEZs in

India suggests that red tape, lengthy

administrative procedures, rigid labor

laws and poor physical

infrastructural facilities were the

main cause of deterioration of

Foreign Direct Investments (FDI)

inflow in to India. Further, the Indian

markets were not mature enough to

facilitate easy entry of Foreign

Institutional Investors (FIIs) in to the

Indian economic system.

Furthermore, the legal framework of

Indian economy was not strong

enough to prevent misuse of Indian

markets by the foreign investors.

Thus, the lack of investor friendly

environment in India prevented

growth of Indian industry, in spite of

implementation of liberal economic

policy by the central government.

This resulted in the formation of a

much larger and more efficient form

of their predecessors with world-

class infrastructural facility.

The History of SEZs in India

suggests that the present day

Special Economic Zone policies of

India are well complimented by the

provisions of the Acts and Rules of

Special Economic Zone. A number of

meetings were held across India for

the formulation of - 'The Special

Economic Zones Act, 2005', which

was subsequently passed by

Parliament in May 2005. The SEZ

Act, 2005 and SEZ Rules became

effective on and from 10th February

2006. The SEZ Act 2005 defines the

key role for the State Governments

in Export Promotion and creation of

infrastructural facilities. A Single

Window SEZ approval mechanism has

been facilitated through a 19

member inter-ministerial SEZ Board

of Approval or BOA. And the decision

of the SEZ Board of Approval is

binding and final.

Some of the important SEZ in India

are as follows -

14 | P a g e

• Karnataka Biotechnology and

Information Technology

Services - SEZ on

biotechnology sector in

Bangalore's Electronics City,

over an area of 43 acres

• Shree Renuka Sugars Limited -

SEZ on sugarcane processing

complex covering 100

hectares, comprising a sugar

plant, power station and

distillery, at Burlatti in

Belgaum district

• Ittina Properties Private

Limited and three other -

SEZs in IT sector, covering

electronics, hardware and

software sectors in Bangalore,

over an area of 15.732

hectares

• Wipro Infotech - SEZ on IT /

ITES at Electronics City,

Sarajpur Bangalore

• Hewlett Packard India

Software Operation Pvt. Ltd. -

SEZ on IT

• Food processing and related

SEZ services in Hassan, over

an area of 157.91 hectares

• SEZs on pharmaceuticals,

biotechnology and chemical

sectors in Hassan, covering of

281.21 hectares

• SEEPZ - Andheri (East),

Mumbai

• Khopata - Multi-product,

Mumbai

• Navi Mumbai - Multi-product,

Mumbai

• Salt Lake Electronic City,

West Bengal.

• Calcutta Leather Complex,

WestBengal

15 | P a g e

SEZ’s success saga India, the government has been

proactive in the development of

SEZs. They have formulated policies,

reviewed them occasionally and also

ensured that ample facilities are

provided to the SEZ developers as

well as the companies setting up

units in SEZs. These favorable

conditions resulted in the biggest

ever corporate rush for the

development of SEZs in India. Over

234 companies received formal

approval, 162 companies received in-

principle approval and 100 companies

received notification to set up SEZs.

The Indian government is expecting

an investment to the tune of

Rs.53,561 crores (USD 13274

million) and an additional job creation

for 15,75,452 individuals in SEZs by

December 2009. Despite all the

efforts, SEZ development has

become the most controversial issue

for India today. It is very important

to understand all aspects of SEZs

such as basic concepts, its various

models and the life cycle of its

business before initiating any policy

or investments for these projects.

Despite the fact that the existing

SEZ Act and FDI Policies for SEZs

are very lucrative; the rationale

behind the rapid economic and

industrial growth the Indian SEZ

policy is being questioned.

India’s Foreign Direct investment is

mostly restricted to the field of

services. This is evident from the

fact that most of India’s FDI of USD

5.3 billion was in services. In

contrast, China attracted FDI of

around USD 27 billion in

manufacturing alone. However, Indian

exports of manufactured products

were only 10% of that of China. This

is, in spite of India having lower

laboring costs. What is holding the

industry back then?

The Global Competitiveness Report

2005 identified poor infrastructural

facility as the main reason for the

bad performance. Where China stood

at a healthy rank of 62 with respect

16 | P a g e

to infrastructural facility, India was

at the 76th position. Global

competitiveness also received a

setback as a result of the high cost

of doing business according to World

Bank reports.

Thus, to solve this problem the

government has come up with the

policy of Special Economic Zones and

around 150 proposals of such zones

have already been put into force.

With respect to the same, The

Special Economic Zone Act, 2005

has been passed; which promises to

reduce red tapes and lower the cost

of business.

SEZs provide for tax exemptions

which cut down the manufacturing

cost to a large extent. Self

certification of exim cargo also

reduces transportation delays thus

resulting in a boost of investments in

the fields of automobiles,

engineering, etc. Since 2005, India

has attracted Rs. 2000 crores as

investment and generated around

1.25 lac jobs. The IT and ITES units

have also provided an impetus to the

real estate industry by giving them

access to the non- processing

areas. According to the laws, there

have to be residential complexes,

malls, recreation centres, etc. to

cater to the needs of the workforce.

The Special Economic Zones are

expected to attract investment

worth USD 30 billion and provide

employment to around 2 million

people.

Drawbacks of SEZ’s

SEZs will displace and uproot

lakhs of farmers and send land

prices skyrocketing.

The SEZs make the government

forgo revenue it can ill-afford to

lose, they also offer firms an

incentive to shift existing

production to the new zones at

substantial cost to society.

17 | P a g e

In the name of free trade and

inviting global investors, we are

going to experience the meagre

benefits rather than mega profits

to our nation, as SEZs are meant

to create incentives for exports

through huge tax-breaks.

SEZs are duty-free enclaves and

considered "foreign territories" for

the purpose of trade operations

and tariffs.

Units located in SEZs can import

goods without licence or duties.

They have unrestricted access to

domestic markets and permit

100 percent foreign direct

investment in manufacturing.

Profits can be repatriated freely.

SEZ tax concessions are

handsome, a 100 percent tax

holiday for exporters for five

years, a 50 percent tax-break for

five more years, and a further

five-year tax-break on production

based on reinvested profits.

Besides, SEZ developers will enjoy

a tax holiday for 10 years.

Large amounts of speculative

capital drawn in by the lure of

quick profits can suddenly leave

the country, causing serious

disruptions in the economy,

including the collapse of financial

markets.

18 | P a g e

This has happened in many countries

history. Still our UPA Government

wants to implement....Who knows

the cut backs in those deals.....!!!As

for the quality of employment, no

labor laws will apply to

SEZs. Workers will enjoy no

freedoms and no rights, including the

fundamental right of association and

peaceful protest. SEZs will be

exempt even from environmental

impact assessment. They will be

under no obligation to employ local

people. Rather, they will have a

largely predatory relationship with

them.

They will deplete groundwater and

other resources. They will be islands

of prosperity amidst deprivation and

acute agrarian distress. Worst of all,

the SEZs are being established

through land acquisition under

special Acts. Unlike earlier laws,

which require that there be a public

purpose behind government takeover

of land, the new Acts mandate

acquisition for private profit and

without land-for-land compensation

or rehabilitation.

The experience of land acquisition

has been extremely negative for

farmers.

SEZs, so eagerly promoted by the

UPA, are turning into a Great Land

Grab, with giant corporations

gobbling up mind-boggling quantities

of agricultural and urban land.

The process has provoked popular

resistance from many states.

SEZs have precipitated tensions

inside the UPA, and rifts in the Union

Cabinet. The United Progressive

Alliance government refuses to learn

from past mistakes -- either India’s

or.other..countries’.

So it would seem, going by its

obsession with pushing through

shop-worn "second-generation" free-

market."reforms".

Based on trickle-down growth, these

include huge corporate tax-breaks,

removal of protection against unfair

labour practices, and cutbacks in

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public.services. The approach will

further increase class and regional

disparities while leaving unaddressed

India’s biggest problems -- namely,

agrarian distress and unemployment.

The land will be acquired in coercive

ways from farmers at low, if not

throwaway, prices, creating great

social discontent and terrible

inequalities

However, the implementation of such

a policy requires scrutiny. What

happened in Nandigram bears

testimony to the fact that this policy

requires careful implementation.

Consequent to this, they have

become a battlefield all over the

country, with farmers opposing the

forcible acquisition of land.

Even the finance ministry is not

pleased with the idea of tax

exemptions which acts as a huge

loss of revenue. It is believed that in

ten years’ time an investment of Rs.

20 | P a g e

1,00,000 crores will result in a

revenue loss of Rs. 1,50,000 crores.

Industrialists such as Rahul Bajaj

have criticised this policy calling it a

“sophisticated land grab”. There is a

high likelihood that developers would

take advantage of the subsided land

rates and make it a real estate play.

This dream project of the

government has indeed borne fruits.

The export trend shows that since

2005 the exports have risen from

Rs. 34787.5 crores to Rs. 67299.6

crores. Other figures have also

shown that there has been a boost

in investment and employment

opportunities.

A planned cyber SEZ at Gurgaon

Thus, in light of the success of this

policy, it is safe to conclude that

SEZs provide industries with an

effective means of development and

growth. In order to ensure the

smooth functioning of this policy, the

government should formulate

rehabilitation and resettlement

schemes so that this process of

industrialization is not hampered by

social and political obstructions.

21 | P a g e

Sectoral performance of SEZs in India (1990 & 2002)

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

22 | P a g e

Conclusion SEZ is a very firing topic in the midst

of economic progress. Basically,

govt. sets up SEZ’s to promote FDI

(Foreign Direct Investment) and to

promote exports from the country.

We came to know that SEZ’s are set

up both by public players as well as

by private players. After some

arrangements, they develop some

kind of PPP (Public Private

Partnership), after which, the public

sector starts providing some level of

support in order to enable the

private sectors to carry out their

operations successfully. The concept

of SEZ started by the govt. in April

2000 is bringing a whole lot of boom

in the Indian Economy, as it fetches

foreign currency for the Indian

pockets, thereby promoting trade

between the nations. Also the SEZ’s

are characterized by duty free

imports. They have laws which are

more lenient than the laws prevalent

in the country.

Because of these characteristics,

the businesses of SEZ’s are

touching great heights. As there is

no restriction regarding the imports

and the exports, so particularly the

MNC’s (Multi-National Corporations)

and the International Businesses find

little or no difficulty in setting up

their manufacturing units in SEZ’s

and carrying out their activities

there. They generally have to incur

low costs in setting up the units in

India, and shell- out huge amounts of

profits from the public. The form of

governance present in these zones is

enabling the investments to be made

easier. Also it is seen that because

these zones have received 100%

income tax exemption for a block of

five years, and an additional 50% tax

exemption for two years, so this has

also made their work easier. Also,

they are exempted from the central

sales tax and the service tax. It

means that basically an Indian who

has got the freedom to set up its

production unit in these zones, does

not have to pay any taxes for any

kinds of imports that he will make

regarding the set up. It will indirectly

help in the free flow of goods and

23 | P a g e

services as there are no rules and

restrictions regarding the same.

Also, with the help of these kinds of

exemptions from the govt.’s side,

the economy flourishes and grows by

leaps and bounds. The UPA Govt. is

also in the favour of SEZ’s. It says

that in order to reduce poverty from

the nation, we have to increase the

income, and in order to increase the

income, we have to set up certain

areas where free flow of trade can

take place, where there is minimum

intervention from the side of the

govt., where we do not have to pay

huge taxes every time we carry-out

an activity. Because the general

perception and the general

phenomena from the side of the

public is that though it is true

that the govt. collects taxes from

the public basically to spend it on the

public only through various forms

which otherwise vest in public’s

welfare, but as the taxes are

collected in huge forms, so all that is

collected is not utilized for the

welfare of the public. A lot goes into

the govt.’s pockets, which is

obviously spent in large borrowings

which the govt. takes from the

outsiders. So, they feel that if they

are exempted from the tax and the

strict rules and regulations of the

law, the business can be carried-out

more successfully and in the interest

of the general public. So, the

presence of SEZ’s in the country will

no doubt add to the GDP (Gross

Domestic Product) of the country.

As more and more FDI will come into

the Indian pockets, it will indirectly

lead to a positive turn in the GDP

figures of the nation.

Also, another aspect of the concept

is that it will generate more and

more employment in the economy.

More and more people will get jobs,

as the company which sets up its

production unit there will demand

people to help it carry-out its

operations. It will thereby help in

reducing unemployment from the

economy and will also reduce poverty

from the nation. Though it is not

completely possible to eradicate

poverty from our nation, but we

24 | P a g e

could otherwise make efforts in

reducing it by these kinds of

activities. Also, the presence of

different kinds of zones in the

economy will boost-up the

infrastructure level of the economy.

It will also add to increasing the face

value of the country. And also

because of this, more and more

people outside India will make-up

their minds to invest in India. So, if

we see these SEZ’s from the

profitability side, then it is no doubt

one of the seemingly feasible options

to increase the goodwill of the

country, to eradicate poverty from

the country, to generate

employment, and also will help in

turning on lots of options discussed

above.

25 | P a g e

Bibliography and References

Text Books: • Managerial Economics, Fourth

Edition -Craig H. Petersen -W. Cris Lewis

-Sudhir K. Jain

• Managerial Economics -Samuelson

• Laws Relating to Special Economic Zones

-Taxman Search Engines:

• www.google.com

• www.yahoo.com

• www.yagoohoogle.com

• www.altavista.com

• www.ask.com

Web Links:

• Accessed on 25 May 2007 Guidelines Financial Support to PPP infrastructure 2007 Secretariat of the Committee on Infrastructure at www.infrastructure.gov.in. Accessed on 15 June 2007.

• SEZ- opportunities and challenges at- http://www.coolavenues.com/for

ums/showthread.php?t=10173

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

http://www.thaindian.com/newsportal/business/mukesh-ambanis-sez-project-in-trouble_100201399.html

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

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

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

http://newsx.com/story/65527

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

http://www.rediff.com/money/2006/mar/24prime.htm

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