sez(special economic zones)

What’s Special About Special Economic Zones

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Introduction to Economic Zones

“Export else perish “ these are the words of first Prime Minister of India Pt.Jawaharlal Nehru. India being a continent like country having 30 states,more than 1000 languages and world second largest man power having

diversified natural conditions right from Rain Forests of Kerala, IceMountains of Himalaya, Runn of Kuch to productive land of Bramahaputra

has great potentials of world class export worthy products from variousindustries like Agriculture, Engineering, Chemicals, Software’s, Gems andJewellry, Pharmaceuticals, Bio technology and many more.

During last fifty years, mostly ours exports have been less than ourimports and the balance of trade been unfavorable. In 1990-1991 Indiahad faced real pressure on the balance of payment. During this period,

exports had stagnated and there was a crisis in foreign reserves whichlead to an emergency situation in India.

Liberalization policy was announced in June 1991. It is the precious gift ofDr Manmohan Singh to the people of India at a time when the country wasin the grip of unprecedented economic crisis and political turmoil. One of

the areas in which this policy focused on was on increasing India’s export.And the trickle down effect of these reforms has lead to the advent of SEZ

In this age of Globalisation, there is a need for every nation in the world

to perform well economically. With the improvements in science andtechnology and the raising standards of living worldwide, ensuring

economic development assumes primary importance in the policies ofevery nation.

While striving for economic development, every nation takes stepsnecessary for the implementation of its ambitious plans. But more oftenthan not, these plans cannot be affected successfully throughout the

nation. There are always shortcomings in these economic plans. Every


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nation wants to give its industries ample facilities for efficient productionof goods and services and in order to make them globally competitive in

terms of price and quality. Some of these facilities can be used by allindustries throughout the nation. But sometimes, some facilities cannot

be given on account of reasons like the geographical extent and thepossibility of misuse.

For Example: If a country wants to give subsidized power to a specificindustry, it cannot do so throughout the nation as keeping a check onwhether the subsidized power is going to the right people or not is a

Herculean task.

Thus, in order to give the industry certain added advantages, thegovernments of various nations come up with special schemes andsubsidies mostly related to customs duties. These schemes provide an

upward thrust to the nation’s products in the global markets on accountof lower prices / better quality. Such schemes, if implemented directly,are not allowed by the WTO. This has resulted in many nations coming up

with such schemes in an indirect manner. One of the most popular onesis to set up a special area demarked for the purpose of industrial growth.

Various facilities can be offered in this area without the fear of thembeing misused and also, no resistance from WTO (or any other tradingpartner / nation) is encountered on account of the scheme not being a

national policy, but only limited to a small area demarked for the purpose.This is where the concept of ‘Economic Zones’ comes in.


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Types of Economic ZonesDepending on the facilities provided, the level of government controlexercised, the type of industries allowed in the zone, and the type ofactivities allowed in the zone, they are classified into many types by

different countries. A few common types are as follows:

Foreign Trade Zone (FTZ) – These are designated sites where

special customs procedures are applicable. These procedures allowdomestic activities involving foreign trade to take place as if it were

outside the nation’s borders, thus relieving them of the Customs ofthe land. For Example: Miami Foreign Trade Zone, Florida (USA)

Export Processing Zone (EPZ) – These are the most common typesof zones. And are similar to the FTZs of USA in many respects.

Established for the purpose of promoting exports, these zonesconcentrate on providing the exporters with all facilities ofproduction in one place and also relax the customs procedures for


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the foreign trade activities of the units in the zones. For Example:Noida Export Processing Zone (NEPZ), Uttar Pradesh (India)

Free Zone (FZ) – These are the zones in countries mainly like the

UAE. Such zones give total exemption from all taxes and dutieslevied on profits to the units existing in them, besides otherfinancial benefits and incentives. For Example: Dubai – Jebel AliFree Zone (JAFZ), Dubai (United Arab Emirates)

Special Economic Zone (SEZ) – These are an extension of the EPZ

scheme with added benefits and fewer bureaucratic hassles. Butthese zones do not restrict themselves to export promotion only.

They provide all facilities and infrastructure necessary for thedevelopment of the industries in the region. They are normallyhuge in size and hence are suitable for mass-production of

commodities, which can be sold domestically, as well asinternationally. For Example: Shenzhen Special Economic Zone

(Shenzhen SEZ), China

The same zones are also referred to as Free Economic Zones (FEZ) in the

Kyrgyz Republic and as Free Trade Zones in many other Asian countries.Essentially, the core concept of all these zones is the same; i.e. to treatthe designated zone as a foreign territory for the purposes of customs

procedures and to also give them certain added incentives andinfrastructure facilities, which are not available to ordinary units operating

within the country.

1.1 A permanent solution for corruption: Special Governance Zone (SGZ)


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In the 9th International Anti-Corruption Conference in South Africa held from 10-15December 1999, Shang Jin Wei, Advisor to the World Bank submitted an action planfor the establishment of a new concept; the concept of SGZs (Special GovernanceZones).

It advocates establishing a special governance zone (SGZ) within a country as anentry point for an eventual nation-wide anti-corruption program. A SGZ is anenclave within which comprehensive reforms can take place. It is geographicallylimited so that any unpredictable negative consequences can be contained.

According to the plan, reform measures can easily be explored and fine-tunedwithin small manageable zones before trying their implementation nationwide. Oncesuccessful, its experience can serve as a model for the rest of the country. TheWorld Bank (and other international institutions) can play an important roleespecially at the initial stage of the program.

The SGZ idea reflects a fundamental belief that the quality of public governance inmany developing and transition economies can be significantly improved andcorruption can be drastically reduced. The proposal is designed to achieve severalobjectives: to start the reform program within an area small enough to containunpredictable consequences, to experiment and fine-tune various components ofthe anti-corruption program in practice, and by the power of example, to buildmomentum to implement a nation-wide governance-improving program.

There are a few basic principles for successfully operating a SGZ. First, wheneverpossible, a fair market mechanism should be used to allocate resources, to produceand/or procure public goods, to cut red tape, and to reduce the need for permitsand licenses. This would limit the opportunities for government officials to takebribes (and to be offered bribes). The reward for civil servants to deliver qualityservice and not to take bribes should be raised. At the same time, the penalty forcivil servants for poor performance and for taking bribes should also be raised andfairly applied.


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Genesis of Chinese Special Economic Zones

Chinese Economic Reforms

Historically, China has adopted an inward-looking strategy to itseconomic development. Successive Chinese governments thought that theeconomy could grow purely through self-reliance. However, there are

always limitations to what a country can do by itself, for examplelimitations in raw materials, natural resources, technology, etc. These can

hold back the growth of an economy and certainly China's economicgrowth lagged far behind much of the rest of the world up to the 1970's.

By contrast, countries like the USA were achieving significant economicgrowth in this period because they were practising foreign trade policies,which facilitated free trade. Any shortages in the domestic economy, forexample oil in the USA or Japan, wheat in the Soviet Union or cars in Indiacould be compensated for by imports. Foreign trade, then, could help to

aid economic growth.

The export trade is also vital. Not only can exports be a means of paying

for imports, but they also help to earn foreign exchange. Since 1979, theChinese government has recognised the importance of exports as ameans of fostering economic growth. Economic policies and special

incentive programmes have been introduced to increase exports.

Establishment of SEZsWhen it decided to reform the national economic setup in 1978, theChinese government embarked on a policy of opening to the outside

world in a planned way and step-by-step. A decision was made in 1978to permit direct foreign investment in several small "special economiczones" along the coast. Shenzhen, Zhuhai and Shantou in Guangdong


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Province and Xiamen in Fujian Province, and the entire province of Hainanwere, under this policy, the first five Special Economic Zones to be

established.

The aims of the establishment of the SEZs were to earn foreign exchange,to enhance employment, to attract foreign investment and to acceleratethe introduction of technology and management expertise. The five SEZs

established were Shenzhen, Zhuhai, Shantou in Guangdong province,Xiamen in Fujian province and Hainan Island. In order to attract foreigninvestors and develop foreign trade, the five SEZs offered similar

packages of favourable incentives to foreign firms. One of the mostattractive points of these packages was that income tax was fixed at the

rate of 15 per cent, lower than that in other parts of China. Otheradvantages given were tax exemptions, land use rights, and banking andfinance privileges, which were available to firms operating outside the

SEZs.

Incentives

China lacked the legal infrastructure and knowledge of internationalpractices to make this prospect attractive for many foreign businesses,

however. In later years steps were taken to expand the number of areasthat could accept foreign investment with a minimum of red tape, andrelated efforts were made to develop the legal and other infrastructures

necessary to make this work well.

Many other non-financial advantages were provided inside the SEZs.

Firms were provided relatively free-market environments with minimalgovernment intervention. This means that private and joint-venture

enterprises were free to hire their own workers. They were also free to setwages to reflect market conditions. Bonuses could be awarded to workersfor outstanding performance.


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The common threads of these reforms are the search for efficiency and anassumption that management of the economy by large governmental

bureaucracies is unlikely to produce this result.

PerformancePrimarily geared to exporting processed goods, the five special economiczones are foreign-oriented areas, which integrate science and industry

with trade, and benefit from preferential policies and special managerialsystems. They have summed up their rich experiences in absorbingforeign investment and developing foreign trade for China to open up to

the international market. In recent years, the special economic zones haveled the country in establishing new systems, upgrading industries and

opening wider to the outside world, serving as national models. In 1999,Shenzhen’s new-and high-tech industry became one with best prospects,and the output value of new-and high-teach products reached 81.98

billion Yuan, making up 40.5 percent of the city’s total industrial outputvalue and coming out in front in the country.

China has so far created 124 export-processing zones. Some 18 millionwere employed in firms with foreign investment alone, and many millions

more in Chinese-owned zone enterprises. Shenzhen has become awindow of the country to the outside world and a platform for reformmeasures, along with Xiamen, Zhuhai and Shantou.

Open Coastal CitiesIn the period between

1984-85, China furtheropened 14 coastal cities

and three coastalregions to foreigninvestment. All of these

2.1 China's '99 Kunming World Horticulturalexpo was opened on April 30. This picture shows

a scene built by Shandong Province.


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places provide tax treatment and other advantages for the foreigninvestor. Laws on contracts, patents, and other matters of concern to

foreign businesses were also passed in an effort to attract internationalcapital to aid China’s development. The largely bureaucratic nature of

China’s economy, however, poses inherent problems for foreign firmsthat want to operate in the Chinese environment, and thus the policies toattract foreign capital have had to evolve continually in the direction of

presenting more incentives for the foreigner to invest in China.Since 1992, the State Council has opened a number of border cities, andin addition, opened all the capital cities of inland provinces and

autonomous regions. In addition, 15 free trade zones, 32 state-leveleconomic and technological development zones, and 53 new- and

high-tech industrial development zones have been established in largeand medium-sized cities. As a result, a multi-level, multi-channel,omni-directional and diversified pattern of opening, integrating coastal

areas with riverine, border and inland areas has been formed in China. Asthese open areas adopt different preferential policies, they play the dualroles of ‘Windows’ (in developing the foreign-oriented economy,

generating foreign exchanges through exporting products and importingadvanced technologies) and of ‘Radiators’ (in accelerating inland

economic development).

All these efforts of the Chinese government were fruitful and resulted in

the success of the concept of Special Economic Zones (SEZs). The mostprominent amongst the Chinese SEZs is the Shenzhen SEZ. The growth ofSEZs in China has been explained with the example of Shenzhen SEZ in

the following Chapter.


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‘Window to the World’ – Shenzhen SEZ

Shenzhen – The VillageOnly twenty years ago, Shenzhen was a small fishing village located in

China's southern province of Guangdong. Today, after two decades ofrapid economic expansion, the city enjoys the highest income per-capitaamong the 35 major Chinese cities at US$ 225 per month. At close to US$

3,000 per year the income per capita is approximately four times thenational average. This coastal city, which shares a border with Hong Kong,

has become one of China's most prosperous cities averaging an economicgrowth rate of 34 percent between 1980 and 1998. Now that China is

2.3 China's Special Economic Zones gear up for WTO, future

In recent years, the Chinese SEZs have been focusing on improving theoverall economic quality and on developing high-tech industries and othereconomies with special features. Compared with other parts of China, the SEZs stillhold an edge in utilizing domestic and overseas resources and markets and inadapting themselves to international common practices to boost economicdevelopment. Experts say that improving overall economic performance is anecessary choice for the SEZs, as China will face fiercer competition after its entryinto the World Trade Organization. It is the only way for them to realizemodernization.

To hit the goal, analysts say, the SEZs should give national treatment to overseasinvestors for more funding while making efforts to open up overseas markets fortheir own companies products. By changing the past practice of offering preferentialpolicies to overseas investors in certain fields, the SEZs have lifted all restrictions forthem. According to officials, the expansion of reform in the SEZs will focuson systematic innovations, including adjustments in the ownership structure, andtransformation of functions of government departments in accordance withinternational common practices.


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being accepted into the World Trade Organization, Shenzhen may be thequintessential model for the central government to follow when taking its

nation, gripped in authoritarian rule, and preparing it to operate in anincreasingly open market environment.

Formation of the SEZThe city of Shenzhen was founded in 1979 and a year later was

established as China's first special economic zone (SEZ) by Chinese leaderDeng Xiaoping. The special economic zones were implemented by theCommunist government as a virtual laboratory for experimentation with a

free market economy. The SEZs operate under an entirely differenteconomic premise than that of the mainland, specifically, with an

emphasis on exporting and creating an attractive environment for foreigndirect investment through favorable tax incentives.

Influence of Hong KongWhen the SEZ was first established, the majority of the new businessesthat settled in Shenzhen were Hong Kong-based enterprises drawn to the

zone to take advantage of, among many other things, the abundance ofcheap labor and the customs-free industrial environment. Since this time,

the economic border between Shenzhen and Hong Kong has grownincreasingly vague. Hong Kong dollars flow freely in Shenzhen and manyresidents of Hong Kong invest in the Shenzhen stock exchange.

The cultural border has eroded over the years as well. With the proximitythat Shenzhen enjoys to Hong Kong, the population is able to pick-up

Hong Kong based radio and television signals. Those in Shenzhen whospeak Cantonese can receive news and other content that is restricted on

the mainland. Residents of Shenzhen are therefore, able to perceive worldevents from a more objective point of view than the one presented by thecommunist government's news outlets. Currently, there are a dozen or

more crossing venues between Hong Kong and Shenzhen either by land


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or by sea. According to the Shenzhen Municipal Foreign InvestmentBureau, at the end of 1998 Hong Kong was engaged in 1,078 projects in

Shenzhen accounting for over 78 percent of the total projects undertaken.Remarkably, Taiwan was the second leading project forum with 119 or

8.5 percent of the total projects.

Troubled Times

Even with its unprecedented track record for growth, things have at timesbeen less than perfect for Shenzhen. In 1980, Shenzhen's appeal as a SEZmade it an attractive area for entrepreneurs and fortune hunters, but by

1992, seventeen hundred special economic zones had been established.Over time Shenzhen was not as unique as it had once been. Fortunately,

in that same year Shenzhen was the first Chinese city to be givenlegislative authority in the way of a Municipal People's Congress. To asmall degree this gave the city a level of control over local policy which

was not seen anywhere else.

Additionally, the few years leading up to the return of Hong Kong to

China can be described as a time of over exuberant expectation. Theextraordinarily hot Shenzhen stock market in 1996 goes a long way in

illustrating this point. The people of Shenzhen were under the impressionthat when Hong Kong rejoined China in the middle of 1997, Hong Kongresidents would spill into the city buying up property as well as goods

and services from companies listed on the Shenzhen stock exchange.Investors, including small individual investors who laid out their modestsavings, began pouring money into the stock exchange. When the time

finally came for Hong Kong to reunite with the mainland, the conclusionwas anticlimactic. Many of the anticipated benefits simply did not occur,

and while some experienced asset appreciation others lost their entiresavings.


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Going Hi-Tech

Technologically, Shenzhen did not mature as fast as some had originallyanticipated. Recently, that trend has changed. The goal of making

Shenzhen one of China's most prevalent high-tech centers is definitelybeing realized. The combination offavorable economic policy, coupled

with a highly educated work force,explains the progress being madein Shenzhen's high technology

industries. In 1998 nearly a third ofall Chinese individuals holding a

doctorate degree resided inShenzhen. Additionally, 10 percentof all residents are estimated to be

college graduates while less thanhalf of one percent of the national population has obtained a collegedegree. In 1998 Shenzhen was responsible for approximately half of

China's information technology output, and the Internet industry is nowbeginning to gain international exposure. Overseas investors, such as IDG

and Pacific Venture Capital Co., are starting to channel money into theShenzhen Internet industry.

According to a release from the Xinhua News Agency in mid-March of thisyear, Shenzhen has 180,000 Internet users in the city and over 40companies offering Internet related services. Furthermore, an estimated

70 percent of these Internet users are said to be using e-commerce tobuy goods. Additionally, an impressive list of multinational IT

corporations that are increasingly being drawn to Shenzhen includingMicrosoft, IBM, Lucent Technologies, Compaq and Intel to name a few.

2.2 An exhibition being heldin Shenzhen SEZ to showcasenew technologies


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Future GrowthTo believe that Shenzhen can maintain this level of sustained growth

forever would be irrational. As the cost of labour grows higher and otherareas of China begin to adopt more market-oriented policies, businesses

will ultimately begin migrating to other parts of this vast nation. Thisassumption is supported by the shear size of China and the magnitude ofnatural, as, well as human resources that have remained untapped for so

many years. The only question remaining is at what speed will the centralgovernment allow this to occur.

The wealth will inevitably begin to spread, but that does not meanShenzhen will fade into China's background. The wealth generated in this

city over the last twenty years has given rise to a burgeoning servicesector and is home to one of China's two stock markets. The city hasbecome a regional financial center. At the end of 1999 there were 100

financial institutions operating in Shenzhen employing an estimated30,000 professionals. According to the Shenzhen Municipal ForeignInvestment Bureau, at the end of 1999 there were 736 projects involving

foreign direct investment in excess of US$ 10 million per project, 109projects involving amounts in excess of US$ 30 million per project and 18

projects currently underway involving over US$ 100 million per project.

Transportation Issues

A major dilemma that China, as well as its trading partners face, is how toeffectively access and deliver goods and services to a large percentage ofthe population that is geographically isolated from the major economic

hubs in China. Shenzhen is very important in this respect. Over the years,the city has developed an advanced infrastructure that is now well poised

to assist in alleviating the burden that this problem presents. The citypossesses 8 harbors and 12 cargo docks and is home to the HuangtianInternational Airport, which is the fourth largest airport in China.

Additionally, both the Beijing-Canton Railway and the Beijing Kowloon


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Railway converge in Shenzhen. Take the fact that Shenzhen already hasthe infrastructure in place to be considered a regional distribution center,

and its continuous advancement in both the financial and technologysectors, one can see that as China enters the WTO and the global

economy, it will look to Shenzhen as a road map for the future.

Achievements

Already, 48 of the world's 500 top enterprises have taken root inShenzhen. Coupled with the rapid development of its export-orientedeconomy, the city achieved an export volume worth US$26.4 billion in

1998, amounting to one-seventh of China's total, topping the list ofChina's big and medium -sized cities for six consecutive years. Output

value of the city's high and new technology products was worth 65.52billion Yuan (US$7.89 billion) in 1998, making up 35.4 per cent of thecity's total industrial output.

The International Architecture Association awarded Shenzhen this year,marking the first urban planning award in China and Asia. Shenzhen's

educational, scientific and cultural undertakings have also achieved onesuccess after another.

Computer hardware, software and phone-related products made up 70per cent of the city's total high-tech exports. Asian markets receive 60

per cent of these goods. North America gets 26 per cent and Europe getsabout 10 per cent. And 31 per cent of Shenzhen's high-tech exports werefrom State-owned enterprises. Wholly foreign-funded enterprises shipped

out 30 per cent, and joint ventures made 28 per cent of the exports.

Shenzhen has become one of the world's most important manufacturingbases for high and new technology, namely electronics. City'sencouragement of local enterprises to update technology and protect


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their intellectual property rights has sharpened Shenzhen's competitiveedge.


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Future of Shenzhen – Next 5 Years

The guideline and goal for the next 5 years is to follow Deng Xiaoping'stheory on building socialism society of Chinese characteristics; take "hold

on to the opportunity, deepen the economic reform, open up further,promote development, and keep stability of the society" as the guideline.

Focus on establishing market economy and mechanism, optimizeeconomic structure, made the city functional better, build new and hightechnology industrial development zone, regional information center,

trading center, distribution center, and turn Shenzhen into a modern,international city.

In more detail, Shenzhen is going to:

1. Expedite the major projects of infrastructure construction.Infrastructure construction is what a city based upon to exist anddevelop. In the coming five years, in order to improve Shenzhen's

investment environment, five networks are to be built: public transitnetwork, water supply network, flood preventive network, powersupply network, telecommunication network.

2. Widen the range of structural adjustment of industry; enhance the

quality of economic growth and economic efficiency. Increase theinput and establish production base to support leading industries.Encourage the merge of production and capital. Adjust

organizational structure; strengthen equity management, qualityassurance, and financial management. Put emphasis on making useof up to date technology. Introduce new agricultural technology,

increase value add and economic efficiency on agricultural products.

3. Develop the service industry vigorously, perfecting the functionalityas an international city. Developed service industry symbolizes a


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modern international city. We are to speed up the development ofthe service industry, and turn Shenzhen into a financial center,

information center, trading center and distribution center.

Construction of the Regional Financial CentreInvite more global banks and financial institutions to open office in

Shenzhen; Develop offshore business of domestic banks; broaden thecoverage and internationalization of our security industry, increase theradiation power of Shenzhen's financial institutions.

Construction of Regional Information Centre

As a hub of domestic and international market, Shenzhen boasts theunique advantage in developing information industry. We are going tostrengthen the corporation with world's leading information service

organizations, exploit information sources in conjunction with theseorganizations to form a wide connecting, highly efficient informationnetwork.

2.3 China's Special Economic Zones gear up for WTO, future

In recent years, the Chinese SEZs have been focusing on improving theoverall economic quality and on developing high-tech industries and othereconomies with special features. Compared with other parts of China, the SEZs stillhold an edge in utilizing domestic and overseas resources and markets and inadapting themselves to international common practices to boost economicdevelopment. Experts say that improving overall economic performance is anecessary choice for the SEZs, as China will face fiercer competition after its entryinto the World Trade Organization. It is the only way for them to realizemodernization.

To hit the goal, analysts say, the SEZs should give national treatment to overseasinvestors for more funding while making efforts to open up overseas markets fortheir own companies products. By changing the past practice of offering preferentialpolicies to overseas investors in certain fields, the SEZs have lifted all restrictions forthem. According to officials, the expansion of reform in the SEZs will focuson systematic innovations, including adjustments in the ownership structure, andtransformation of functions of government departments in accordance withinternational common practices.


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Impact of SEZs on Chinese Economy

The favourable impact of the SEZs on the economy of China is fivefold:

They attract foreign investment

They help the growth of the export industry

They earn foreign exchange

They provide employment opportunities

They help the indigenous economy improve its level of technology

These points are discussed below in detail:

1. Foreign Investment – The preferential treaties of the SEZ's have

attracted foreign investors to invest a huge amount of money in China.For instance, Hainan and Xiamen have attracted investments mostly fromTaiwan. By June 1987, a total foreign investment of $2.12 billion had

been made in the five zones, amounting to one quarter of the totalforeign investment in China during this period. The most marked success

was registered in Shenzhen. By the end of 1986, it accounted for $1.4billion through more than 4000 economic cooperation agreements. Onesignificant factor is that the investment has not been confined to the

export industry, but has permeated other sectors such as infrastructureconstruction, commerce, tourism and real estate.


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2. Growth of Exports – As all five SEZs are coastal cities, they areconvenient for ocean transport routes and help to promote the export

industry. Preferential policies have encouraged foreigners to set upexport- oriented factories in the territories. From 1985 to 1987, an

annual average real growth rate of 83% was recorded for exports from thefive zones. Shenzhen's exports, for example, grew at an average rate of70% during this period. At the same time the proportion of the SEZs'

industrial products that went to export had risen to 53% by 1987.

3. Foreign Exchange – The establishment of the SEZs has opened a

way for China to increase its trade with foreign countries. They not onlyenhance trading activities such as foreign investment and tourism but

also help China to earn foreign exchange through these activities.

4. Employment Opportunities – Since the beginning of the

open-door policy, small-scale private businesses have been allowed tocoexist with state enterprises. This has increased employmentopportunities for local people and raised the level of economic activity.

Also, many state workers sense that going into business on their ownmay provide greater income potential. They generally adopt an attitudecommonly known in China as "I Bu Zho Er Bu Shu", which, loosely

translated, means ‘refusing to work and refusing to relax’. Many prefer towork for joint-venture firms for higher wages. So the average income in

SEZs now ranks as the highest in China.

5. Improvement in Technology – In theory advanced technology and

know-how will also flow into the country as a result of foreign investment.In turn, with increasing exports the force of international competitionmay bring greater pressure on Chinese firms to adopt more efficient work

practices. It is perhaps questionable how much benefit the wider Chineseeconomy has reaped from these investments. The technology, patents

and know-how remain firmly the property of, and are controlled by theparent companies. It may however be the case that in the long run the


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work culture and practices adopted by foreign companies could havesome wash-back effect over wider economic practices in the country.

In conclusion, the establishment of the SEZs has helped to increase theexport trade, which in turn has helped to improve the Chinese economy.Preferential treaties have been offered in the five SEZs to attract foreign

investment. A large amount of foreign investment has occurred not onlyin the export trade, but also in infrastructure construction, commerce andtourism. Foreign companies have been encouraged to set up factories in

the territories and the export industry has grown. Jobs opportunities havebeen provided for locals as factories need labour and the average income

of the people has increased. In addition, advanced foreign technology hasbeen brought in with the inflow of foreign investment. All these factorshave contributed to the growth of the Chinese economy. It remains to be

seen if these quantitative advances, in which the SEZs have played animportant role, are matched by commensurate advances in the quality oflife for the majority of Chinese people.

3.1 Not all roses - Unwanted byproducts of SEZ developments

About 27 million people, 90 per cent of whom are women, work in exportprocessing zones worldwide, often earning low wages in poor working conditions,the International Labour Organisation (ILO) said. The United Nations agency alsosaid that the industrial zones, which import and process materials before exportingthem again, were huge employment generators but often lacked meaningful linkswith the domestic economies around them

Vietnamese example


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The rapid socio-economic development in southern Vietnam’s Dong Nai Provincerecently has been attributed to its successful Industrial Zones (IZs), which haveresulted in impressive job generation and export figures. More than 80,000 jobshave been generated by the IZs over the past five years and more than US$2.7billion in export revenues has been earned by enterprises operating within them.Total revenues for the IZs during that period topped $4.7 billion, contributing $176million to the State budget, nearly $1 billion in export receipts Throughout thecountry most of the projects in the IZs focus on sectors that is expected to providequick returns on capital such as motorbike and electronics assembly and otherindustrial consumer goods. Little attention has been paid by investors, to keyindustrial sectors such as engineering, electronics and chemical production andfood processing. Furthermore, nearly 80 percent of foreign-invested projectsuse obsolete machinery and equipment, resulting in products oflow competitiveness aimed at domestic consumers, Another problem was that theoccupancy rate of the IZs remains low with only some 41 percent of the total landarea let to investors at present.


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Current Scenario

WHILE celebrating the 20th anniversary of China's four earliest SpecialEconomic Zones (SEZs) on August 26, the cities of Shenzhen, Xiamen,

Zhuhai and Shantou, and Hainan Province mapped out developmentblueprints for the new century. Analysts believe that by setting the goals

for modernization, the SEZs are still leading other parts of the country indevelopment as they were 20 years ago.

Two decades ago, local authorities in Shenzhen, encouraged andsupported by senior Chinese leaders including Deng Xiaoping, weredetermined to blaze a trail for China's reform and opening-up drive.

Shenzhen has then become a window of the country to the outside worldand a platform for reform measures, along with Xiamen, Zhuhai and

Shantou.

To ensure successful reform and opening up in the SEZs, China

introduced a wide range of special preferential policies. As theopening-up drive swept other parts of the country, the preferentialpolicies were applied to more regions. The saying that special economic

zones are no longer special prevails in the country. However, the SEZshave not lost their vitality. And observers say that the SEZs still shoulder a

historical mission today.

In recent years, the SEZs have been focusing on improving the overall

economic quality and on developing high-tech industries and othereconomies with special features. Compared with other parts of China, theSEZs still hold an edge in utilizing domestic and overseas resources and

markets and in adapting themselves to international practices to boosteconomic development.

While fully expanding economic co-operation with multinationals,


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Shenzhen is tightening ties with Hong Kong, and Xiamen and Hainan withTaiwan. In Shantou, efforts have been made to attract overseas Chinese,

one of the major channels of overseas investment to the Chinesemainland.

Experts say that improving overall economic performance is a necessarychoice for the SEZs, as China will face fiercer competition after its entry

into the World Trade Organization. It is the only way for them to realizemodernization. To hit the goal, analysts say, the SEZs should give nationaltreatment to overseas investors for more funding while making efforts to

open up overseas markets for their own companies' products.

By changing the past practice of offering preferential policies to overseasinvestors in certain fields, the SEZs have lifted all restrictions for them.According to officials, the expansion of reform in the SEZs will focus on

systematic innovations, including adjustments in the ownership structure,and transformation of functions of government departments inaccordance with international practices.

The government should also simplify procedures to make it easier to get

businesses up and running and give a bigger role to the market, whileimproving services, experts say. At the same time, efforts must be madeto improve the social security system and the financing system, and have

intermediary organs operating according to standards.

The forthcoming 50 years will be an important historical period in China's

drive to realize modernization and make the Chinese nation'slong-cherished dream of building a powerful China come true. Experts

are confident that Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan willset the pace in China's drive toward modernization.


25


26

Beginning of Economic Zones in India

The policies of Liberalisation, privatization and globalisation (LPG) thatwere introduced in 1991 removed the highly complex system of controlsprevailing in post-independent India. Now, in the new market scenario, it

became very important to become competitive in terms of price, but alsoquality, time, service, etc. India has always paid more attention to its

exports, because they earn revenue. To increase them, the idea of ExportPromotion Zones (EPZ) was conceived. These were areas where importsubstitution was not followed and all inputs for any manufacturing

process were allowed to be imported freely. Such zones were establishedto promote trade and to develop a specific industry by providing it withthe entire infrastructure it needs.

Evolving Concept

This initial concept was called EPZ (Export Processing Zone) and wasintroduced first in Kandla, Gujarat. The Indian manufacturer was nowherein terms of international standards of either quality or price. So, to make

him globally competitive, the government had to provide some incentivesto him. Most of these incentives could be used by almost every producereverywhere. But, there were special incentives which, when given, could

result in a very low cost of production for the manufacturer and there wasa risk then that the goods could then end up being sold in the domestic

market instead of being exported. So, the government established specialzones where people could come in, establish their factories, procure (buydomestically or import) whatever they would require for production,

produce locally and then export these goods. For such a situation, thereneeded to be precise control over every importer and all his actions,which could lead to any harm to national interest. To prevent all this, EPZs

were established, which were land-locked areas, under constantsurveillance by the customs authorities and security personnel of the


27

zone. These zones would regulate all the material coming into and goingout of the zone and thus, keep a check on the manufacturers’ actions.

EPZs worldwideThus, EPZs were set up with the aim of boosting export-oriented

investment and for eliminating the constraints imposed by India’s tradeand industrial policies. As a concept, EPZ dates back to 1962. Some of the

first EPZs were founded in Puerto Rico in 1962, Mexico (1964), Kandla(1965), Taiwan (1966), South Korea (1971), Philippines and Malaysia(1972). The EPZ set up in Mauritius is not based on geographical and

locational advantages but is more a functional concept.

Most of these countries have had a good and fulfilling experience by

setting up EPZs. EPZs have helped promote an export-orientedindustrialization strategy with increasing value-additions in domestic

production. Studies have shown that countries where EPZs function havehad excellent performances on the trade front.

Of the 850 EPZs worldwide, a large number of them operate in developingcountries. The world over, it has been observed that processing exportshave outperformed others. In fact, most Asian and Latin American

countries have excelled in trade only due to the processing trade.

The Government of India had established seven EPZs over a period of time.These were:

1. Kandla Free Trade Zone (KAFTZ), Kandla, Gujarat – 1965;2. Santa Cruz Electronic Export Processing Zone (SEEPZ), S. Cruz,Maharashtra – 1974;

3. Cochin Export Processing Zone (CEPZ), Cochin, Kerala;4. Falta Export Processing Zone (FEPZ), Falta, West Bengal – 1984;

5. Madras Export Processing Zone (MEPZ), Madras, Tamil Nadu;


28

6. Noida Export Processing Zone (NEPZ), Noida, Uttar Pradesh – 1985;7. Visakhapatnam Export Processing Zone (VEPZ), Visakhapatnam,

Andhra Pradesh.

Kandla was the only Free Trade Zone in India and was the first zone to beestablished in India.

While the Santa Cruz Electronics Export Processing Zone (SEEPZ) wasmeant exclusively for the exports of electronics and gems and jewellery,all other zones were multi-product zones. 100% foreign equity was

welcome in EOUs and EPZs.


29

Shortcomings & Problems of EPZs

According to an Audit Report conducted on EPZs and FTZs in 1999, SEEPZearned only US$ 1.25 bn. net foreign exchange in the past 8 years.

The reasons for this were attributed to the following causes:

Failure to elicit full commitment from people as they stay far away

from their place of work.

Insufficient comprehensive and well-knitted internal and backupinfrastructure.

High dependence on outside infrastructure created and maintainedby different agencies lacking co-ordination. The result: under

achievement of actual potential.

Limited possibility of improving connecting infrastructure toenhance the performance of existing EPZ/FTZ.


30

For example:On 12th March 1994, a memorandum was submitted to Shri Zafar Saifullah,

Cabinet Secretary, Government of India regarding the problems of EPZsand EOUs. The Development Commissioner, SEEPZ, Santacruz ElectronicsExport Manufacturers’ Association (SEEMA), and the SEEPZ Gems &

Jewellery Manufacturers’ Association, SEEPZ submitted this memorandumin association with the Federation of Indian Export Processing Zones

Industries Association.

The main problems highlighted in this report were:

Inconsistencies in government regulations – The Import Trade

Control and Exchange Control Regulations have changed overtime to benefit EPZ units, but the customs regulations were still

governed by the notification issued at the time of formation ofthe zones. This resulted in a situation wherein certain activities

permitted by the EXIM policy could not be undertaken, as thesame were not permitted by the customs regulations.

Customs working & procedures – The units in the zone were

allowed to work 7 days a week to maximize exports, but theCustoms department worked only 5 days a week, resulting in the

units having to wait for 2 days to get clearance for theiractivities. Also, there was still a lot of red-tapism left whiledealing with issues like returning of export goods, return of

5.1 The above graph shows that the EPZs never really contributed asubstantial amount in the national exports. Also, the share of EPZ unitexports in total exports was more or less at the same ratio over the 3years from 96-97 to 98-99.


31

rejected components, de-bonding of capital equipment, wastedisposal

Modes of transportation – Courier was not recognised as anapproved mode of transportation and hence any goods received

by courier had to be notified and duty had to be paid on them.

Also, there were problems with the formation of Trade Unions,

multiplicity of bonds, fax copies not accepted by customs, hassles insub-contracting, DTA sales regulations, etc. These, and many other suchtrivial matters were barriers in the proper working of the units in the

zones. Over a period of time, some of these hassles were done away with.But there was never a situation when the units in the zones were really

satisfied with the procedures.

The experience of Export Processing Zones (EPZs), which were duty-free

enclaves, has not been up to expectations. Even with flexibility to sell 50per cent of exports in DTA at concessional rates of duties, most EPZ units

have failed. The eight EPZs together contributed barely 3.7 per cent of thecountry’s total exports.

In fact, other than Santacruz Electronic EPZ, the other seven EPZs togethercontributed to only about 1.41 per cent of the country’s exports. There isa very strong view in the revenue department that the dismal performance

of the EPZ units does not justify the revenue sacrifice or revenue leakageinherent in the schemes. In their eyes, the EPZs have failed.

These shortcomings were responsible for the recent makeover of theseEPZs into SEZs. The transition process is covered in the next Chapter.

5.2 Customs probe Bharat Shah's export units for diamond smuggling


32

In January 2001, SEEPZ customs conducted a stock taking of two units from Jan 31,2000. B V Star and B V Jewels (both owned by Bharat Shah) were probed forsuspected diamond smuggling. The following was found:

Diamonds worth 26.29 cr (73730 cts) of B V Jewels were found short,allegedly were smuggled out of SEEPZ. Customs duty demanded, therefore, is Rs12.54 cr

B V Jewels had also suppressed the facts of disposal of capital goods worthRs 58.34 lakh to one SB &T International Ltd, SEEPZ, without permission ofcustoms. The customs duty foregone was Rs 39.31 lakh. That is how the total dutydemanded is Rs 12.94 cr

Suresh Mehta, a partner in both companies, had shown possession of 23diamonds of 27.42 cts, valued at Rs 39.63 lakh, for which he could not show legalimport documents.

B V Jewels exported diamonds worth Rs 27 cr studded in jewellery, between1998 and Feb 2000, but could not show how they had procured these.

Further, another unaccounted lot of diamonds of B V Jewels weighing10631.39 cts and valued at Rs 4.03 cr, were found without correspondingdocuments to show legal possession.

In the case of B V Star, which had no production since 1997, customs duty ofRs 2.57 cr is demanded because of shortage of 8604.5 gms of gold and 844.16 ctsof diamonds revealed in the stock taking.


33

Change to SEZs

EXIM Policy changes

Realising the failures and shortcomings of the EPZ Scheme in India, theCommerce Ministry decided to improve the existing situation. Thechanges and fine-tuning done in the existing EPZs was to no avail and

was not yielding the required results. An Indian delegation headed by thethen Director-General of Foreign Trade, Mr. N.L. Lakhanpal visited UAE

and saw the Jebel Ali Free Zone (JAFZ), Dubai and Fujairah Free Zone (FFZ)there. This was the birth of the idea of having similar zones in India.

Toying with the idea of Free Trade Zones / Free ZonesAfter the delegation came back, it submitted a report on the findings ofthe visit. The report recommended that the Development Commissioners

of each zone (in India) should be vested with all the authority regardingtheir respective zones, thus making them the ultimate local authority on

all issues, as is the case in UAE. Also, like their UAE counterparts, theIndian DCs should be required to prepare a Business Guide. The reportalso stated that the Free Zones in UAE accounted for all duty-free raw

material, ensuring it was used for export. Even in the case of DTA, theywould ensure that it was after payment of full customs duty on the valueof the finished goods. The commerce ministry then decided to convert all

existing EPZs into FTZs with SEEPZ, Noida and Kandla being convertedthat year, and the rest to follow.

Reducing role of CustomsAccording to the proposed policy, the role of customs was to reduce and

the new zones would be exempt from all customs department rules andregulations from July 1, 1999. After the proposed conversion of the unitsto FTZs, the role of the customs department officials was to be confined


34

to working outside the units, giving them total operational flexibility, asproposed in the revised export and import policy (1997-2002). The FTZs

would have been outside the customs ambit with checks only at the entryand exit points by customs officers.

Under the new scheme, FTZs would be permitted to sell 50 per cent oftheir production in the DTA, subject to payment full customs duties. This

means the remaining half alone needed to be exported. But, according toministry officials, for their own survival, the units would have to findmarkets for their entire production, as DTA sale will prove rather

prohibitive.

The Indian labour laws ere to apply to FTZs though the commerceministry's ultimate objective is to make these inapplicable. The practicethe world over is to exempt FTZs from the purview of labour laws.

Arrival of SEZsThe plans for the FTZs got shelved eventually. Mr. Murasoli Maran, the

Minister for Commerce & Industry, suggested the setting up of SpecialEconomic Zones in India, similar to the ones in China. This decision to set

up SEZs was the highlight of the EXIM Policy.

The decision was commendable, but it did not take into account several

things. The initial proposed SEZ Scheme was not a major improvementover the existing EPZ Scheme at that time. Basically, almost all thefeatures of the original SEZ Scheme already existed in the form of

incentives available to EPZ units. The major advantage for SEZ units wasthat they had to now achieve only positive net foreign exchange

earning as a percentage of exports (NFEP), where as EOU/EPZ unitswith investment of less than Rs 5 crore in plant and machinery had toachieve minimum stipulated NFEP.


35

Inadequate extra facilities over EPZsThe relaxation for SEZ units was significant but not sufficient enough to

sway the decision of the entrepreneurs in favour of setting up units in SEZ.The major advantage for EOU/EPZ units was that they could sell upto 50

per cent of their exports in the DTA at half the rates of customs duties,whereas SEZ manufactures could sell in DTA only on payment of fullduties. DTA sale was a very important option for EOU/EPZ/SEZ units, as

the international markets are not always booming or lucrative.

Trading units in SEZ/EPZ were not allowed to sell in DTA. Ideally, so long

as the trading unit paid full import duties on DTA sales, there should havebeen no restrictions.

Unmet expectationsThe commerce minister had announced that the EPZ at SEEPZ, Kandla,

Cochin and Viskhapatnam would be converted to SEZ. The transitionalarrangements for existing EPZ units who did not want to opt for SEZscheme was that they had to convert into EOU or de-bond. In either case,

they had to move out of EPZ, which was difficult for existing units.

The industry felt that the government needed to make SEZs an attractivedestination for entrepreneurs. The most oft-repeated request was thatthe government should treat SEZ as foreign territory for all purposes.

There was also a feeling that the supplies from DTA to SEZ must betreated as physical exports and that all the customs notifications shouldapply to sales from SEZ to DTA as they apply to physical imports.

Amendments

The existing EPZs were converted to SEZs and activated on 1st November2000. Also, proposals for the establishment of new SEZs were cleared.This was followed by some notifications being issued which made the

necessary changes in the SEZ Scheme. The most prominent among them


36

was the declaration of SEZs as foreign territory. The Finance Ministrydeclared the area under the SEZs as `foreign territory' for the purpose of

duties and taxes. This means that goods supplied to the SEZ from theDomestic Tariff Area (DTA) will be treated as `deemed' exports and goods

brought from the SEZ to the DTA will be treated as `imported' goods.Thus, was evolved, the present concept of SEZs in India.

Present SEZ Concept

The facilities available to SEZ units are as follows:

Customs related:

No license required for import.

Exemption from custom duty on import of capital goods, rawmaterials, consumables etc.

Exemption from Central Excise Duty on procurement of capitalgoods, raw materials etc. from the domestic market.Exemption from Custom/Excise duty on import/domestic

procurement of goods for setting up of units in the ZoneSupplies from DTA to SEZ will be treated as deemed exports.Reimbursement of Central Sale Tax (CST) on inter-State purchases.

Reimbursement of duty paid on Furnace oil as per Drawback ratenotified by DGFT.


37

SEZ units have to be a net foreign exchange earner. Nopre-determined foreign exchange earning or minimum

performance requirement.Access to domestic market.

Simplified Custom procedure.Trading activity for exports permitted.Fast track clearance of imports and exports.

Job working/sub-contracting facilities for exports, including forjewellery units.Facility to subcontract part of production abroad

In-house Custom clearance.Ready infrastructure.

Duty free goods to be utilized within the approval period of 5 years.Performance of units to be monitored by a committee consisting ofDevelopment Commissioner and Customs.

No separate documentation required under Customs and EXIMPolicy.Export defective goods etc. without GR waiver

Investment related:

100% FDI permissible for units in SEZs in manufacturing sectorbarring few sectors.No Cap on foreign investment for SSI reserved items.

Exemption from industrial licensing requirement for items reservedfor SSI sector.

Foreign exchange related:

Profits allowed to be repatriated freely without anydividend-balancing requirement.


38

100% of foreign exchange earnings can be retained in EEFC account.External commercial borrowing shall be subject to usual procedure.

Facility to realize and repatriate Export proceeds within 12 months.

Tax related:

Attractive tax holiday upto 2010 as per Section 10A of the Income

Tax Act.

Labour Laws:

The labour laws of the land will apply to all units inside the Zone.However, the respective State Governments may declare units within the

SEZ as public utilities and may delegate the powers of the LabourCommissioner to the Development Commissioner of the SEZ.

Role of State GovernmentsState Governments will have a very important role to play in the

establishment of SEZ. Representative of the State Government, who is amember of the Inter-Ministerial Committee on private SEZ, is consulted

while considering the proposal. Before recommending any proposals tothe Ministry of Commerce & Industry (Department of Commerce), theStates must satisfy themselves that they are in a position to supply basic

inputs like water, electricity, etc.

Terms and Conditions for establishment

Only units approved under SEZ scheme would be permitted to be

located in SEZ.The SEZ units shall abide by local laws, rules, regulations orbye-laws in regard to area planning, sewerage disposal, pollution

control and the like. They shall also comply with industrial andlabour laws as may be locally applicable.


39

The SEZ should have an area preferably of 1000 hectares.Such SEZ shall make security arrangement to fulfill all the

requirements of the laws, rules and procedure applicable to suchSEZ.

Wherever the SEZs are landlocked, an Inland Container Depot (ICD)will be an integral part of SEZs.

The main differences between the EPZ and SEZ Schemes are:

No minimum Export Performance (EP) or Net Foreign Exchange

earnings as Percentage of exports (NFEP) is needed in an SEZ, as forEPZ units.

Monitoring of performance of SEZ units by a Committee headed by

Development Commissioner and consisting of Customs.

Duty to be recovered in case of failure to achieve positive NFEP

under Custom Act in proportion to shortfall unlike in EPZ.

Unlimited DTA sales on full duty. For EPZ, only 50% of exports

No linkage with positive NFEP for domestic sale for SEZ units. In EPZ

sales are subject to achievement of NFEP.

Duty free material to be utilized over five years unlike in EPZ where

it is one year.

Subcontracting facility available to SEZ jewellery units, which is not

available to EPZ units.

All imports on self-certification, unlike in EPZ, where attestation ofDevelopment Commissioner is required for import of Capital Goods.

No routine examinations by Customs of export and import cargo inSEZ.

100% FDI through Automatic Route available to manufacturing SEZ

units. In EPZ, FIPB approval required.

Procedural simplification for operations like record keeping,

inter-unit transfer, subcontracting, disposal of obsolete material,waste and scrap.


40

Other facilities like tax holiday, retention of 70% of export earningsin EEFC Account, etc. are common for both EPZ and SEZ.

Salient features and schemes of an SEZ in India

Units set up in SEZs which will operate under a single purpose bond,can import or procure goods from the DTA duty-free for

manufacture of goods and services, trading, production, processing,assembling etc and exports thereof.

Goods can be sold in the DTA only if the unit achieves the NetForeign exchange Earning as a Percentage of exports (NFEP)

annually and cumulatively as specified in the EXIM Policy. A tradingunit has to achieve a turnover of $1 million in five years. Penalaction can be taken on default.

DTA sales are, however, banned for goods that have been imported

both as scrap as well as for repair. Trading units in the SEZs alsocannot sell goods in the DTA.

SEZ units can import and export through port, airport, landcustoms station, ICD, CFS, courier mode and post parcel. Software

development units can import and export through datacommunication and telecommunication links.

The norms for procurement of goods from domestic sources by SEZ

units will be the same as those laid down for the EPZ units. In

respect of imported and domestically procured cargo, goods will beassessed on the basis of documents provided by the units andthere will be no physical examination. However, customs

authorities may examine such cargo when there is specificinformation regarding clandestine removal.


41

Exports will be permitted on the basis of self-certification by the

units and there will be no routine examination of the consignmentby the SEZ custom authorities. At the gateway port, the SEZ cargo

will be subject to the examination procedure as per instructions inforce.

SEZ units will have to maintain financial year-wise accounts of all

forex inflow by way of exports and other receipts; all forex outflow

on account of payment of dividend, royalty, fees etc and sale in theDTA. Units can also undertake job work for the DTA withoutpayment of duty. Provisions have also been made for temporary

removal of goods into the DTA and to other SEZ, STP, and EOUzones. Inter-unit transfer of goods amongst SEZs will not besubject to customs scrutiny. Duty remission will be available on

destruction of goods within the SEZs. Units have also beenpermitted to dispose obsolete goods on payment of the applicable

customs duties.

In case of imports, the Bill of Entry with specially stamped

endorsement as "SEZ Cargo" is filed with the AssistantCommissioner/Deputy Commissioner of Customs in the SEZ forassessment. For procurement of goods from domestic sources by

SEZ units, CT-3 certificates are issued to the units and against suchCT-3; the goods including capital goods are procured from DTA

without payment of duty. In both cases, i.e. both in respect ofimported and domestically procured cargo, the goods are assessedon the basis of documents furnished by the units. Goods are not

examined physically and ‘out-of-charge’ is given after verifying themarks and numbers on the packages only.


42

When the import consignments are required to be transshipped to aSEZ located at a station away from the place of import, the same is

allowed under normal transit procedure. The unit files the Bill ofEntry with the Assistant Commissioner/ Deputy Commissioner of

Customs in-charge of the SEZ on the basis of the transit document.

In case of exports, the Shipping Bill along with relevant documents

is filed with the Customs authorities in the Zone. As in the case ofimports, the SEZ export cargo is not examined in routine and

export is allowed on the basis of self-certification by the units. Theunits, after self-examination of the consignments, are required tosubmit the shipping bills to the Assistant Commissioner/Deputy

Commissioner of Customs for "let export" order. After obtaining the"let export" endorsement on the shipping bill, the consignment istaken to the gateway port for export. At the gateway port also, the

SEZ export consignment is not examined in routine. However,whether at the Zone or at gateway port or during transit of such

cargo, the Customs authorities can examine the consignmentswhen there is a specific information/intelligence. For this purpose,the orders of the Assistant Commissioner/Deputy Commissioner of

Customs are required to be obtained.

Sub-contracting: The SEZ units are allowed to sub-contract part of

the production process abroad. Approval for sub-contractingabroad is accorded by the Board of Approval. The goods sent for

job-work abroad are to be returned to the unit for finalprocessing/manufacturing before exports. The unit is required toexecute a suitable bond for sub-contracting goods abroad and is

required to account for the goods including waste/rejects in themanner as prescribed by the Commissioner of Customs/ CentralExcise in this behalf.


43

The SEZ units are also allowed to undertake job-work for export onbehalf of DTA units. This is subject to the condition that the

finished goods are exported directly from SEZ units and exportdocuments are made in the name of the DTA unit. On export of

such goods manufactured by SEZ unit on behalf of the DTA unit,the DTA unit is entitled to refund of duty paid on the inputs by wayof brand rate of duty drawback.

The SEZ units are allowed to remove the moulds, jigs, tool, fixtures,tackles, instruments, hangers, patterns and drawings withoutpayment of duty to the premises of the sub-contractors subject to

the condition that such goods are brought back to the unit oncompletion of the job work within the period specified in this behalf.

Gem and Jewellery units in SEZ:Generally speaking, sub-contracting is not allowed to gem and

jewellery units. However, the gem and jewellery units in SEZ areallowed to take out gold/silver/platinum for sub-contracting

subject to the condition that goods, finished or semi-finished,including studded jewellery, containing quantity and purity equal tothe gold/silver/platinum so taken out are brought back to the Zone

within 30 days. It is to be noted that diamonds, precious orsemi-precious stones are not allowed to be taken out forsub-contracting. The gem and jewellery units are also allowed to

receive plain gold/silver/platinum jewellery from DTA in exchangeof gold/silver/platinum of equal quantity and purity. These units

are, however, not eligible for any wastage or manufacturing lossagainst the jewellery received from DTA after processing or againstexchange of gold/silver/platinum. The DTA units undertaking job

work or supplying jewellery against exchange ofgold/silver/platinum are not entitled to deemed export benefits.The gem and jewellery units are also allowed to sub-contract part


44

of the production or production process through other units in thesame SEZ subject to records being maintained by both the

supplying and the receiving units.

Further, the gem and jewellery units in SEZ are allowed certain

other facilities as mentioned below:

(i) Taking out the items of gem and jewellery into DTA temporarilywithout payment of duty for the purpose of display and return

thereafter;

(ii) Personal carriage of gold/silver/platinum jewellery or preciousor semi-precious stones or beads and articles as samples up to US$

1,00,000 for export promotion tours and temporary display or saleabroad subject to the condition that the exporter would bring back

the jewellery or the goods or its sale proceeds within 45 days fromthe date of departure through normal banking channel;

(iii) Export of jewellery including branded jewellery for display and

sale in the permitted shops setup abroad, or in the showroom oftheir distributors or agents provided that items not sold abroadwithin 180 days, shall be re-imported within next 45 days;

(iv) Removal of parts & tools of machine temporarily withoutpayment of duty for the purpose of repair and return thereof.

(v) Taking out gem and jewellery manufactured in the SEZ to theretail outlets or showrooms set up in the departure lounge atinternational airports for sale to a tourist, as defined in the Baggage

Rules, 1998, leaving India.

(vi) Sale of gem and jewellery manufactured in the SEZ to aforeign-bound passenger and transferring the same to the retail

outlets or showrooms set up in the departure lounge or Customs


45

warehouse at international airports for being handed over to thesaid passenger for the purpose of export.

(vii) Removal of moulds, tools, patterns, and drawings into the DTAfor job work without payment of duty and to be returned to the unit

thereafter.

For availing of the above mentioned facilities, prior permission of

Assistant Commissioner / Deputy Commissioner is required.

In case of gem & jewellery units, scrap, dust or sweepings

generated in the unit is allowed to be forwarded to the Government

Mint or Private Mint for conversion into standard gold bars and

return thereof to the Zone subject to the observance of procedure

laid down by the Commissioner of Customs. The said dust, scrap or

sweepings are also allowed clearance into DTA on payment of

applicable customs duty on the gold content in the said scrap, dust

or sweepings. Samples of the sweepings/dust are taken at the time

of clearance and sent to mint for assaying. The assessment is

finalized when the reports are received from the mint.

Inter-Unit Transfer:Inter unit transfer of goods amongst units in a SEZ does not

require any prior permission, but the supplying and receiving unitsare required to maintain proper accounts of the transaction

Duty Remission on Destruction of Goods:A provision has been made in the notifications that duty would not

be levied on capital goods, raw materials, components, waste orscrap etc. if these goods were destroyed in the presence of the


46

Customs authorities. This provision, however, does not apply togold, silver, platinum, diamond, precious stones and semi-precious

stones. The officers supervising destruction are required to ensurethat goods are destroyed fully rendering them unfit for further use

and give certificate to that effect. After destruction of capital goods,raw materials, components, waste or scrap etc., if the remains havescrap value, the unit in DTA on payment of duty applicable to scrap

can clear the same

DTA Sale:

The facility of DTA sale is available to the SEZ units. Under theScheme, finished goods including by-products and services and

waste/scrap/remnants/rejects etc. can be sold in the DTA onpayment of applicable duty and in accordance with theExport-Import Policy in force. However, where such finished goods

(including rejects, waste and scrap materials) are not excisable,duty equal in amount to that leviable on the inputs

imported/indigenously procured under the notifications and usedfor the purpose of manufacture of such finished goods, whichwould have been paid but for the exemption under the said

notifications, is payable at the time of clearance of such finishedgoods. In case of service sector SEZ units, the rendering of servicesin DTA is allowed subject to the condition that the unit has

achieved the positive NFE, cumulatively, as specified in the Policy.This would mean that service units would not be eligible for making

DTA sale if the NFE is not positive cumulatively at any point of time.Further, if any of such services are taxable under provisions ofChapter V of Finance Act, 1994, then rendering of such services in

DTA would require payment of service tax as per the provisions ofFinance Act, 1994.


47

Levy of Central Excise Duty on Goods Produced or Manufactured by

SEZ Units and Cleared into Domestic Tariff Area:

In terms of section 3 of the Central Excise Act, 1944, the exciseduty leviable on goods manufactured in an SEZ unit and cleared

into Domestic Tariff Area is an amount equal to the customs dutyleviable under section 12 of the Customs Act, 1962 or under any

other law for the time being in force on like goods produced ormanufactured outside India, if imported into India. Thus, the duty isworked out exactly in the same manner as applicable to imported

goods.

Maintenance of Accounts:A SEZ unit is required to maintain proper account in the format

convenient to it and financial year-wise, of all foreign exchange

inflow by way of exports and other receipts, all foreign exchange

out flow on account of imports, payment of dividend, royalty, fees

etc., consumption and utilisation of the materials and sale in the

DTA. The units are required to submit regularly quarterly statement

to the Development Commissioner and the Customs in this regard

in the format prescribed at Appendix 16H of the Hand Book of

Procedures.

Monitoring of activities of SEZ units:All activities of the SEZ unit, unless otherwise specified, are through

self-certification procedure and are monitored by a Committeecomprising Development Commissioner and Customs. The

Development Commissioner in charge of the Zone heads theCommittee. The Committee is also required to see that wastage /manufacturing loss on gold/ silver/platinum jewellery and articles


48

are within the overall percentage prescribed in Appendix-41 of theHandbook (Vol-1). In case of higher wastage/manufacturing loss,

the Committee is required to satisfy itself of the reasonableness ofthe same.

Penal action in case of default:

The Customs officials posted in SEZs are not supposed to visit theunits for verification of records or even otherwise in routine.

However, in case of specific information/intelligence which, primafacie, show that there is fraud, collusion, mis-declaration,suppression of information etc having a bearing on the export

performance of the unit or where there is specific informationregarding clandestine/unauthorized removal of goods into DTA etc,

the Customs officials can visit the units for verification of records,goods etc. so as to initiate proceedings under Customs Act, 1962.The Assistant Commissioner/Deputy Commissioner may keep a

watch on the export performance of the units and in the event ofnon-achievement of positive NFE within the stipulated period;

action can be taken against the units for recovery of the duty andinterest. So far as utilization of imported/indigenously procuredgoods is concerned, the same may be utilized within the period of

five years. In case of failure to utilize the imported / indigenouslyprocured goods within the period of five years, the unit is liable topay duty on the said unutilized goods along with the interest at the

rate of 24% per annum from the date of importation orprocurement of the said unutilized goods till the date of payment

of such duty.

SEZ is an evolving Scheme and more features would be added asrequired.

6.1 Structure & Role of Trade Unions in China


49

A study of Chinese trade unions will be interesting. Comparison with Indian labourlaws almost certainly makes it clear that Indian SEZs will not enjoy same level oflabour cooperation that their Chinese counterparts enjoy.

Chinese trade unions are organized on a broad industrial basis. Membership is opento those who rely on wages for the whole or a large part of their income – aqualification that excludes most agricultural workers. In theory, membership is notcompulsory, but in view of the unions' role in the distribution of social benefits; theeconomic pressure to join is considerable. The lowest unit is the Enterprise UnionCommittee. Individual trade unions also operate at the provincial level, and there aretrade union councils that coordinate all union activities within a particular area andoperate at county, municipal, and provincial levels. At the top of the movement isthe All-China Federation of Trade Unions, which discharges its functions through anumber of regional federations.

In theory, the appropriate trade union organizations are consulted on the level ofwages as well as on wage differentials, but in practice their role in these and similarmatters is insignificant. They do not engage in collective bargaining – not at allsurprising, since their principal duties include assisting the party and promotingproduction. In fulfilling these tasks, they have a role in enforcing labour discipline.From the point of view of the membership, the most important activities concern thesocial and welfare services. Thus, it is the unions that look after industrial safety;organize social and cultural activities; provide services such as clinics, rest andholiday homes, hostels, libraries, and clubs; and administer old-age pensions,workers' insurance, disability benefits, and other welfare schemes.


50

SEEPZ SEZ

SEEPZ (Santacruz Electronics Export Processing Zone) was formed in 1974exclusively for electronics. SEEPZ was established on land leased by theGovernment of India (Ministry of Commerce) from MIDC for a period of 99

years. MIDC, in turn had taken this land on lease from the MaharashtraGovernment. MIDC and the Government of India together developed the

basic infrastructure needed for such an EPZ to exist. The Government ofIndia did all the funding and MIDC cleared the land, laid the roads,provided adequate water supply and arranged for an uninterruptible

power supply source. Thus, SEEPZ was finally established basically for theelectronic industry as government had identified it as a strategic sectorand wanted rapid growth in it. In 1988-89, seeing the potential of the

Gem & Jewellery industry, this industry was also made a part of SEEPZ.

Infrastructure Facilities at SEEPZ

The Philosophy while landscaping SEEPZ was to have Mother Nature live in

harmony with industrial manufacturing and technology. All set in asophisticated infrastructure catering to all basic needs of industry.

Inexpensive Factory Space or LandAt SEEPZ, plots are given on lease for a period of 30

years, at rates fixed from time to time. The initial rateswere Rs. 10/- per sq. metre per annum for an SDFplot. Entrepreneurs can construct their own buildings

on these plots. For this purpose the SEEPZadministration will obtain all necessary permissions

and clearances. Also, Standard Design Factories (SDFs)are available on a 5-year renewable lease basis at the rate of Rs. 650 persq. metre per annum plus Municipal Taxes (10%). When an entrepreneur


51

begins production in the very first year of obtaining the SDF shed, he isentitled to a concession of 50% of the lease rent in the first year, 40% in

the second year and 25% in the third year. Again the space allotted to anentrepreneur inside the SDF shed is based on his export projections. All

internal partitions, air conditioning, electrical wiring, etc. are to be carriedout by the entrepreneur.

Uninterrupted PowerThe generating stations of western Maharashtra ensure uninterrupted

supply of power at the rate of Rs. 4.74 per unit. SEEPZ is

exempt from the payment of taxes on the purchase ofpower or on its sale. The units are also allowed to generate

and/or sell their own power without any obligation to paytaxes.

Abundant WaterThe Zone has an assured supply of 4.55 million litresof water a day at the rate of Rs. 21 for every 1000

litres.

Hi-Tech Communication FacilitiesThe most important facility that lures software enterprises to SEEPZ is the

hi-tech 64KB/128KB/256KB line, that enables these

companies to communicate and videoconferenceover the satellite to any of the branches around theworld. A telephone / telex connection is given to

SEEPZ units on priority basis.

Adequate Warehousing and Forwarding FacilitiesA large warehouse called an Inland ContainerDepot (ICD) is situated within SEEPZ for storing at


52

very nominal rates. This is the central warehouse for all the units insideSEEPZ. Also Clearing & Forwarding facilities are available here.

In-Zone Custom Clearances

SEEPZ has its own ports of entry with a fully dedicated customs wingsimilar to that at the Mumbai Port. Since this customs wing is solely forthe clearances within SEEPZ, the procedures for clearing incoming and

outgoing consignments are simpleand very fast. Also, there is no needfor the same to be carried out either

at the airport or the docks. Thisfacility at SEEPZ is provided specially

keeping in mind the delay and troublethat occurs to the exporter whileobtaining clearances. This speedy and

efficient system is available to all the units within SEEPZ at no extra cost.The number of pending cases with this Customs department is also less,as they have to cater only to the EPZ units.

Miscellaneous Facilities

3 Industrial Canteens

Exclusive Restaurant

Gymnasium


53

Convention Centre

Communications Centre

Optical fiber telephone exchange with a capacity of 4000 linesinstalled within the Zone Complex

Foreign Post Office

Crèche for working women’s children

4 Banks – State Bank of India, Bank of India, Punjab National Bank,

Central Bank of India

Nominated agencies like MMTC and banks authorized by RBI for

supply of precious metals

Clearing Agencies – M/s Air freight Pvt. Ltd., M/s Lee and Muirhead,

M/s Tulsidas Khimji Pvt. Ltd


54

SEEPZ & Development

AncillariesThe proximity of available spares, components and raw materials affords

Zone units the advantages of lower freight costs and lower inventorylevels. The feedback necessary for effective quality control on supplies

will be quicker, easier and simpler, as the supplier will be almostnext-door.A Regional Testing Centre of the Department of Electronics (ERTL) located

just outside SEEPZ provides facilities for meeting the evaluation needs ofmanufacturers and designers of electronic products.

TransportDue to the huge workforce in SEEPZ and lack of residential areas nearby,

the employees need to be transported everyday to large distances. Thetransport industry has developed to a huge extent in this area because ofthis need.

Development of the landWith the establishment of SEEPZ, the surrounding area has increased in

land value. There has been an increase in demand for residential housingnear SEEPZ. There have also been a number of ancillary industries

springing up to serve the needs of the SEEPZ Community.Many fast food joints, small shops and industries near MIDC,communication centers, banks, etc. have developed in this previously

underdeveloped area.A residential colony has been constructed for the SEEPZ authority nearSEEPZ. There is access to many more regions due to the presence of a Bus

Stop exactly at the entrance/exit gate of SEEPZ.


55

General Information on SEEPZ

According to the Annual Report of SEEPZ for the year 1999-2000:

The Government of India has so far invested Rs. 47 crores on thedevelopment of SEEPZ.

Employment in SEEPZ in 1999-2000 stands at 42,000 employees,

up from 24,000 in 1995-96.

Number of operational units increased from 156 to 223 during the

same period.

At present, there are 7 Standard Design Factories (SDFs), 3 Gem &

Jewellery Complex Buildings and 14 self-built factories.

Total built-up area is 2,65,151 sq. mtrs.

During 1999-2000, SEEPZ registered 26.34% growth.

Growth of Electronics Industry (India &

SEEPZ): 1990-94

The electronics industry has always

played a significant role in India’sexports. In recognition of the catalytic

role electronics plays in globaldevelopment, the industry has beenaccorded the status of a priority area in

the new industrial policy. A significantmove was made with the establishmentof an Export Processing Zone

exclusively for electronics at SEEPZ(Santacruz Electronics Export

Processing Zone), Mumbai in 1974. 20012001

20012001

2001


56

Growth of Gems & Jewellery Industry (India & SEEPZ): 1990-94

Another industry that hasrecorded a significant growth inrecent years is the gem and

jewellery industry. In fact India hasestablished its place on the world

map along with such centres asAntwerp and Tel Aviv for gem andjewellery processing and exports.

To catalyze growth of this sector,the Government along with theapex trade bodies, has set up a

number of training institutesspecialising in imparting the

requisite skills for gem andjewellery processing andmanufacture. In fact, a special

gem and jewellery complex wasset up in 1987-88 inside SEEPZ,entirely dedicated to exports.

7.1 Comparison of electronics exportsof SEEPZ and India( 2001)

7.2 Comparison of gems &jewellery exports of SEEPZ andIndia (1999-2003)

2002

2000199

2001

2003


57

Latest Happenings at SEEPZ

SEEPZ is full in terms of capacity, when taking FSI into account. But,

the Government of Maharashtra has granted double the existing FSIin respect of space utilized for software activity. Accordingly, an ITTower with a built-up area of 3 lakh sq. ft. is being constructed

besides the lake to accommodate IT units.

Maharashtra Government had earlier agreed in principle to transfer11 hectares of land adjoining SEEPZ for further development of the

Zone. Now, due to the doubling of the FSI, there is no need for theadditional space according to it.

Plans for an expansion through SEEPZ ++ are underway.

Beautification of the Zone was carried out recently in associationwith some of the Zone units.

Facility of 24 Hrs. ATM in SEEPZ Service Centre by VYSYA Bank Ltd.

The newly constructed SDF VII has been bought over by a company

for further leasing.

An ambulance is stationed at SEEPZ for 24 Hrs. Service.

There are proposals to improve the physical and telecommunication

infrastructure.

Administrative Improvements:

Strengthening of computerization with additional Hardware &

Software Packages.

Training and familiarization of staff with the use of computers.

Computerizing basic work in various sections.

Rationalisation of work allocation amongst officers.

Promotional Measures:

SEEPZ web site is being renewed

Preparation of SEEPZ brochure

Visit of Foreign Delegations:

Visited Vietnamese Presidents


58

Chinese Delegation


59

Navi Mumbai -City of the 21st Century

Introduction

Navi Mumbai is a modern township spread over an area of around 350 sq.km., and been planned, designed and developed by CIDCO. CIDCO has

developed high-quality infrastructure facilities in the Navi Mumbai areaincluding housing complexes, industrial infrastructure, business districts,road & railway linkages, educational and recreational facilities, etc.

The township has been developed as a series of nodes with high-quality

housing infrastructure available at most nodes. Further, socialinfrastructure for the township has also been developed in terms ofhospitals (2200 beds capacity), gardens (175 nos.), community centres

(20 nos.) and over 80 playgrounds. Other infrastructure like fire stations,police stations, etc. is also in place.

Navi Mumbai is well connected to Mumbaiboth by wide roads and mass rapid railsystems. Travel time from Mumbai's central

business district at south Mumbai varies from45 minutes (water transport) to 60 minutes

(road/rail transport). India's busiest domesticand international airport Chatrapati ShivajiInternational Airport - is just 90 minute drive

from Navi Mumbai.

The township is also well connected to other parts of the state through

railway and road networks. In terms of rail infrastructure, Navi Mumbaihas six rail corridors and an independent mainline rail terminal

connecting the city directly to other parts of the country. Several nationaland state highways pass through the township. India's first expressway -


60

the Mumbai-Pune Expressway as well as the Konkan Railway, thatconnects Central India to North Karnataka and Goa, passes through Navi

Mumbai. These linkages enable ready access to other industrial areas inPune, Thane, Vapi, Nagothane, Kalyan, Bhiwandi, Nashik, Dombivili,

Ambernath, Rasayani and others. In terms of sea linkages, Navi Mumbaihas access to one of India's largest seaports - JNPT that lies within theboundary of Navi Mumbai.

In addition to the existing infrastructure, several new projects are on theanvil. These include a proposed new international airport, which is to be

located at Navi Mumbai (estimated project cost around USD 2 billion). Theairport has already been approved by the State Government and is in

advanced stages with respect to Central Government approval. Otherproposals include the proposed sea-link between Mumbai and NaviMumbai which will land in the SEZ (estimated project cost around USD 1.5

billion).

The development of these planned facilities is likely to be accelerated on

account of demand generated due to the SEZ Project as well as fiscalincentives offered by the State Government.

The township has adequate power and water facilities. The total installedpower generation capacity in Navi Mumbai is around 960 MVA with a

planned capacity of over 1500 MVA by 2010. There is adequate watersupply for the region as well. CIDCO has developed its own dams in thearea - with an existing capacity of 150 MLD and a planned capacity of

around 465 MLD by 2005.

In terms of living standards, Navi Mumbai scores over Mumbai on account

of the low level pollution, de congested residential areas and highproportion of open spaces and green belts. In comparison to Mumbai, the

township has significantly lower living costs, owing mainly to the optimalland and infrastructure costs.


61

Currently, Navi Mumbai has a population of around 1.2 million people,which is projected to reach 2 million by 2008.

NMSEZ is spread over an area of approximately 4,377 hectares (around 44

square kilometres), and comprises of four zones, Dronagiri, Kalamboli,Ulwe and the regional park zone (RPZ) of 1,850 ha. In addition, 300hectares of land adjacent to the port is proposed to be contributed by

JNPT. CIDCO has already acquired the land in the zones of Dronagiri,Kalamboli and Ulwe. Land in the RPZ area has not been acquired.

NMSEZ is the only new SEZ in India where the land (except the RPZ area) isin possession of the project sponsor. This significantly reduces thepossiblity of any regulatory delays on account of land transfer and

improves time to market for the SEZ.

Certain zones in the SEZ area like Dronagiri and Kalamboli have beenpartially developed. The existing development includes basicinfrastructure such as access roads, master water supply and sewerage

network, and a few commercial and residential complexes. However, nodevelopment has commenced in the Ulwe zone. The RPZ is proposed as agreen belt and no industrial activity is envisaged in this zone. This zone

could be utilised for recreational activities and proposed infrastructure inthe zone includes a club house, golf course and other recreational

facilities amenities.


62

NMSE-Best positioned SEZ in IndiaAn analysis of NMSEZ's strengths and the available opportunities bringsout the attractiveness of NMSEZ as an investment destination for potential

tenants and investors. The analysis has been conducted by the Ernst &Young led consortium on the basis of factor considerations (availability ofraw material, labour, infrastructure, policy incentives, and competition

from international and local SEZs, etc.

Strengths

InfrastructureProximity to international and domestic transportation infrastructure.

JNPT, which is adjacent to NMSEZ, is India's largest and most

modern seaport providing necessary linkages to the internationalmarkets. Further, the SEZ is in proximity to Mumbai Port, which isalso a major port in the country.

Chhatrapati Shivaji International Airport at Sahar, is 60/90 minute

away. Further, the second Mumbai International Airport is planned


63

to be set up by 2010, which will give a boost to air-cargo-linkedindustries.

Well-connected road and rail linkages - National Highways (NH3, 4,8, 9 & 17) link the area to the rest of the country.

Water transport, linking south Mumbai to NMSEZ is expected to

boost accessibility to the area.

With convenient rail, sea, road and air linkages, NMSEZ is best placed tocreate a world-class trans-shipment hub in Navi Mumbai. This would

divert a lot of existing traffic from Mumbai and nearby areas to the SEZ,increasing avenues to earn additional revenues

Proximity to Mumbai and Navi Mumbai

Proximity to international and domestic transportation

infrastructure

Jawaharlal Nehru Port, which is adjacent to NMSEZ, is an efficient

container port providing necessary linkages to the internationalmarkets. Further, the SEZ is in proximity to Mumbai Port, the

largest port facility in the country.

Chhatrapati Shivaji International Airport at Sahar, is 60/90 minuteaway. Further, the Navi Mumbai International Airport is expected to

be set up by 2007-08, which will give a boost to air-cargo-linkedindustries

Well-connected road and rail linkages - National Highways (NH3, 4,

8, 9 & 17) link the area to the rest of the country.

Water transport, linking south Mumbai to NMSEZ is expected to

boost accessibility to the area.With convenient rail, sea, road and air linkages, NMSEZ is best placedto create a world-class trans-shipment hub in Navi Mumbai. This

would divert a lot of existing traffic from Mumbai and nearby areas tothe SEZ, increasing avenues to earn additional revenues


64

Proximity to Mumbai and Navi Mumbai

Access to trading centres - Mumbai is a regional and national

trading centre for many products (e.g. gems and jewellery

Access to cheap and skilled manpower- Navi Mumbai is locatedon the Pune- Mumbai-Thane knowledge corridor, and has access to

skilled manpower from reputed national and internationaleducational institutes including engineering and technical colleges,

management institutes, etc. Further labour costs in the region aresignificantly lower than those in other developed countries, therebyproviding outsourcing opportunities

Access to social infrastructure - CIDCO has developed the

residential areas in Navi Mumbai and Belapur region. Theseresidential units are ready for occupation

Access to huge urban markets - Mumbai, Navi Mumbai and Pune,with a population base of approximately 15 million are within the

catchment area of the SEZ.

Access to finance - NMSEZ's proximity to Mumbai, the commercialcentre and financial capital of the country, will provide unlimited

access to capital, for the units located in NMSEZ.

Infrastructure availability

The Navi Mumbai region has adequate power generation

capacity

Water from CIDCO's own dams is available in plenty

Internal infrastructure such as water supply pipelines andinternal roads, etc., has already been developed within Dronagiri

zone


65

Existence of international and national transport infrastructure along withthe significant internal infrastructure that is already developed provides a

head-start to NMSEZ as compared to other local SEZs

CIDCO as co-promoter

CIDCO is a premier town planning & development agency in India, andhas established itself as an excellent infrastructure provider over the

years. CIDCO has been instrumental in the development of Navi Mumbai.


66

CIDCO is a special planning authority for a number of other urban areasin Maharashtra.

Due to its long-standing experience in township development and the

success of the Navi Mumbai township project, CIDCO has been invited byseveral other Indian states to provide consultancy services oncity/township development.

Due to its expertise in town planning as well as its success in NaviMumbai, GoI has appointed CIDCO as the nodal agency for the planning,

development and marketing of NMSEZ.

CIDCO's presence as a co-promoter to the project would provide NMSEZ

with an existing administrative setup that would help implement theproject effectively, as well as provide easy access to a quasi-government

body that would facilitate the interaction between NMSEZ and the GoM.

Proximity to other industrial areas

Proximity to well-developed industrial areas such as Ambernath, Belapur,Dombivli, Kalyan, Nasik, Nagothane, Pune, Thane, Taloja, etc., provide

excellent linkages with support industries and suppliers of intermediates,to the units that would come up within NMSEZ.

Miscellaneous

Climatic conditions are favourable in Maharashtra for growing fruits,

vegetables, flowers which ensure abundant supply to agro-basedindustries

Maharashtra's long coastline of 720 km and river length of 3200

km could be leveraged to boost the exports of marine products

Opportunities


67

Industrial units in India are increasingly looking out for industrialestates and integrated facilities, where infrastructure facilities are

on par with international standards.

There is an increasing trend among unorganized sectors to move to

integrated facilities in order to get cluster and commoninfrastructure benefits. Such industries include Gems & Jewellery,Biotech, Information Technology, toys and leather. These sectors

can reap the benefits of clustering. NMSEZ will be catering to thespecific needs by building specialized enclaves for these sectors

There is an increasing trend worldwide for developing

trans-shipment facilities in order to achieve transportationefficiencies. JNPT has the potential and is also being positioned as a

trans-shipment port. Given NMSEZ's access to airports, road & railnetworks as well as JNPT, there is significant opportunity for NMSEZto position itself as a transshipment hub

Several infrastructure facilities like the airport project, sea-linkproject, water transport terminals, extension of railway network,

etc., are planned to be developed in order to cement NMSEZ'sposition as a leading industrial township


68

Administration of SEZ

The overall administrative responsibility for the SEZ shall vest with the

designated DC of the SEZ. The DC shall function as a quasigovernmentbody, and shall perform all the functions as laid down in the Handbook ofProcedures, Vol. 1. As per the SEZ policy, powers of several state & central

government departments, including the Labour Commissioner, PollutionControl Board and many others shall vest with the DC, thus making theDC the single, point authority for the SEZ. The SPV management will work

in close coordination with the DC.

LaborLaws

Combined boardapproval

FIPB Ministryof

Commer

Exception SEZpolicy &EXIM

Exception

FEMARules

Ministry Of

Finance

StateGovernment

DevelopmentCommissioner

SPV Board

NMEZ

Tenants


69

Upcoming SEZs in India

With the announcement of the previous two successive EXIM Policiesfavouring the establishment of SEZs, most of the states have decided to

be a part of the SEZ revolution. The details of the major SEZs and theirstages of completion are given below:

Positra SEZ – Gujarat

This is the most hyped SEZ project in India these days. The location is thePort of Positra (near Pipavav in Jamnagar), Gujarat and the expected area

covered will be around 200 square kilometres. Those involved indeveloping the island city-state of Singapore will undertake the designing;master planning and detailed engineering of Positra SEZ.

Project Description

The project is considered to be the first of its kind in the world, as similarSEZs across the world including the ones in China, Hong Kong or


70

Mauritius are owned and run by the respective governments. The Indianproject is expected to become operational in three years.

In the first phase, to be completed by 2003 at a cost of Rs 40 billion, the

central business district covering 40 square km will be set up alongsidethe roads, railways and airport. The second phase will cover constructionof the seaport and jetties, while in the third phase entertainment facilities

and development of the outer periphery of the zone for chemicalindustries would be undertaken. All the companies and services inside thezone will have to adhere to a minimum Euro II standards-these are

environmental norms for industries which are located in coastal areas.

USPThe unique value proposition of PSEZ, according to its promoters, is apowerful IT infrastructure, complete with an in-zone optic fibre cable

backbone and data storage centres. The SEZ is positioned as world’s firstdigitised economic zone. The whole idea is to build a global class andglobally competitive infrastructure to give a tough competition to other

SEZs in this part of the world such as Shenzen, Shintou, Tinjiang, Jebel Aliand Taiwan.

FinancingThe Gujarat Positra Port Infrastructure Ltd (GPPIL) equity pie has already

been carved up between the SKIL (54 per cent), the Gujarat Government(11 per cent), the Jurong Town Corporation and the SumitomoCorporation (10 per cent each) and three FIIs (5 per cent each).

As per original projections, the equity was to the tune of Rs 1,272 crore

while long-term debt was marked at Rs 3,180 crore. The remaining Rs1,200 crore was to be raised through ’lease deposits' from those unitswho planned to set up shop at the SEZ.


71

The total investment in the economic zone plus the project cost (which isdirect investment) is pegged at $2 billion or around Rs 9,200 crore.

Latest Developments

THE Rs 5,652-crore Positra SEZ, being put up by the Gujarat Positra PortInfrastructure Ltd (GPPIL) is now faced with the task of relocating its jettysite to Okha, 20-odd km away from the originally mooted site at Positra.

The cost overruns may be to the tune of Rs 500 crore as the GPPIL willnow be forced to undertake construction of a breakwater, a 3-4 km-longtrestle to the offshore jetty site and considerable amount of dredging at

Okha.


72

Nangunery SEZ – Tamil NaduTamil Nadu is going to house the country’s first greenfield Special

Economic Zone (SEZ). The SEZ will be set up at Nangunery and bedeveloped by the state government and the Tamil Nadu Industrial

Development Corporation (TNIDC) in collaboration with some privatecompanies, the main promoter being Advanced TechnologiesManufacturing and Assembly City (ATMAC). The SEZ will be totally

pollution-free and geared to attract hi-tech investments to boost exports.Besides the industrial area, the Nangunery SEZ will include a golf course,modern recreation centres including movie halls and multi-cuisine

restaurants, battery-operated buses, upmarket schools, glitzy retailarcades and a hi-tech hospital. It will target big software companies

including the US-based Intel, Sun Microsystems and Cisco, among others.

Atchutapuram-Rambili SEZ – Andhra Pradesh

The exact site for this zone has not yet been finalized. In fact, KPMGConsulting has been hired to recommend the location and cost of the SEZ.The consultant was appointed to help the state government in selection

of site, outlining the role of the state government in the project and alsoin suggesting policy changes required to be effected in the present laws.

The initial investment for the proposed special economic zone in AndhraPradesh has been pegged at Rs 1,860 crore. The zone is proposed to belocated on the east coast in Atchutapuram-Rambili area. While part of the

base infrastructure is likely to be provided by the government, the projecthas been will be implemented entirely through private initiative.

Hassan SEZ - Karnataka

KARNATAKA plans to set up special economic zone with an area of 2,000acres at Hassan. As per the plan, the state government is to provide


73

infrastructure and the union government would take care of excise,customs and taxation. The Centre has cleared the proposal. Hence, the

Infrastructure Development Corporation of Karnataka (IDecK) has beenasked to give a detailed project report (DPR) on the proposed Special

Economic Zone (SEZ) at Hassan.

Mundhra SEZ – Gujarat

After the earthquake, the government has announced special taxincentives for investors in Gujarat. It is to avail of these benefits that theAdani group proposes to develop the Mundra port as a special economic

zone at a cost of Rs 500 crore. The Gujarat government will shortlyrequest the Central government to sanction this project proposal. Once

the Mundra SEZ proposal is approved by the Center, the state governmentwill acquire the necessary land and hand it over to Adani for developingindustrial parks with complete infrastructure facilities. The Mundra SEZ

will accommodate only exporting units.

Gopalpur SEZ – Orissa

Tatas have finally got a permission to set up a SEZ in Gopalpur after theirplan to set up a 10-mn steel plant did not materialize. The proposed SEZwill be built on the 3,500-acre land that Tata Iron and Steel Company had

originally purchased to set up the steel plant. The group has alreadyspent Rs1.5bn to buy land for the steel project and to rehabilitate the

displaced owners. The Orissa state government has granted the proposalto build SEZ after its move to develop Gopalpur, the only deep-water portin eastern India.

It has been reported that Adani Exports, part of the Rs.35 bn Adani Group,has already signed an agreement with the state government for the


74

development of the port. This would be a build-own-operate-transferscheme for a concession period of 30 years.

Tatas reportedly came up with the idea after the Orissa government

started developing the Gopalpur port which can easily cater to bigcape-size vessels over 120,000 tonnes. It would help any industry thatwants to focus on volumes, as they would need such big cape-size

vessels to enjoy the freight advantage. Tisco plans to develop the SEZwith infrastructure facilities and then lease it out to potential investors.

Other SEZs

Punjab is assessing the viability of setting up a Special EconomicZone (SEZ). The likely choice of location is Ludhiana or any other

suitable place the industry may suggest.Goa has decided to ask Tata Consultancy Services (TCS) to studyvarious aspects of its proposal to set up a special economic zone

(SEZ) in the port town of Mormugao in south Goa. The stategovernment was exploring the possibility of having tourism andhospitality sectors along with industrial growth as the main focus of

the SEZ.

List of SEZs approved for establishment (8.1)

Name of theSEZ Name of Promoter

Positra SEZ Gujarat Positra Port Infrastructure Limited,Ahmedabad

Nanguneri SEZ Tamil Nadu Industrial DevelopmentCorporation, Madras

Bhadohi SEZKanpur SEZ

Secretary, Small Scale Industries & ExportPromotion, Govt. of UP, Lucknow


75

Kakinada SEZ Principal Secretary (Industries), Govt. of AP,Hyderabad

Paradeep SEZGopalpur, SEZ

Secretary (Industries), Govt. of Orissa,Bhubhaneshwar

Kulpi SEZPrincipal Secretary, Commerce andIndustries Dept, Govt. of West Bengal,Kolkota

Indore SEZPrincipal Secretary, Commerce andIndustries Dept, Govt. of Madhya Pradesh,Bhopal

Current development on SEZsAfter suffering ceaseless bashing from the skeptics for years, specialeconomic zones (SEZs) have finally caught the fancy of India’s Inc.

Investment worth Rs 10000 crore have been lined up for the next threeyears and SEZs fever has caught all categories including private sector

companies. PSUs, state government and foreign investors. From MNCslike Nokia and Hewlett Packard, to domestics giants like Reliance Energy,Wipro, Reliance Industries and Mahindra, states like Jharkhand, and PSUs

like MMTC and Cochin Port Trust are busy finalizing ambitious investmentplans, Commerce and industry minister Kamal Nath. Had quoted that theinvestment are flowing in industries, like telecom, IT, software, auto

ancillaries, gems, and jewellery, textiles, handicrafts and electronics.

Private sector‘s Busy BEE queue in development of SEZsReliance Energy has acquired 1000 hectares in Ghaziabad formulti-product SEZ

IT major Wipro has committed an investment of Rs 1710 crores inseven locations. Wipro’s SEZ are to be located in Hyderabad,Chennai, Pune, Bangalore, West Bengal and Noida (UP). The biggest

SEZ investment of the IT major is earmarked for Chennai at Rs 450Crore.


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HP is investing Rs 3000 crore in an IT SEZ in Bangalore.Nokia is pumping in Rs 675 crore in Sriperumbudur near Chennai

for telecom equipments well as services.Reliance industries has committed Rs 5000 crore for a petro

product SEZ at Jamnagar in GujaratMahindra has lined up Rs 300 crore in separate projects in TamilNadu

Cochin Port Trust has obtained permission from the government toinvest Rs 800 crore in a port based SEZ which will be located closeto Puthuvypeeen or Vailarpadam in Kerela .

Maharashtra Airport Development Company has sought permissionfor a 1300 hectare SEZs in Nagpur.

And many more SEZ have been lined up to be opened in the country

State Government investments in SEZsState Government of Jharkhanad is planning to invest Rs 1156 crorein 1200 hectare facility in Ranchi.

Haryana State Industrial Development Corporation has obtainedapproval of investing Rs 2000 crore in Gurgoan

UP State Industrial Development Corporation is planning aninvestment of Rs 2100 crore in KanpurAP State Industrial Development Corporation has obtained a

permission to invest Rs 2000 crore in Visa State IndustrialDevelopment Corporation khapatnamAs many as 55 SEZs have been approved so far and more

application are coming in

PSUs (Public Sector Units) Investment in development of SEZsMMTC (Mineral and Metal Trade Corporations) Is setting up awarehouse SEZ at Haldia in West Bengal.


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ONGC is working with Gujarat State Industrial DevelopmentCorporation for multi-purpose SEZ at Dahej at a cost of Rs 294

croreDelhi Metro Has been allowed to set up a Rs 170 crore SEZ at

Shastri Park in Delhi

Conclusion

Importance of a SEZ

SEZs attract foreign investment resulting in the fusion of advancedtechnology, thereby improving standards of quality and efficiency in

products offered in the export market. High employment and technologytranferthrough the FDI

SEZs continue to be efficient vehicle for increased exports. It can bring adouble digit growth. With its preferential fiscal policies it helps to create

jobs and reduce regional disparity.

Exports from Special Economic Zone

Zone2003-2004(Rs. in

crores)2004-2005(Rs. in

crores)Kandla SEZ 1018.82 1060.14SEEPZ-SEZ 7832.81 8298.59Noida SEZ 1534.17 4266Madras SEZ 1037.96 1376.91Cochin SEZ 298.91 462.99Falta SEZ 825.34 569.15Visakhapatnam SEZ 435.67 579.27Surat SEZ 869.9 1539.72Jaipur SEZ 5.27Indore SEZ 55.02Manikanchan SEZ 95.54Total 13853.58 18309


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Migration of capital labor and technology across geographical boundarieswould reduce disparity at all levels and lift the economy to higher levels

of growth.

Analysis of the SEZ Scheme in India

The decision of the Union Minister for Commerce and Industry Mr.

Murasoli Maran to set up Special Economic Zones in India based on thesuccessful Chinese models to attract foreign investment and boostexports is a move in the right direction. . But the objectives of this move

will be met only if certain essential conditions are met. Simply designatingcertain areas won’t do the trick. The success of the SEZs hasn’t comemerely from wishing it. The following fundamental factors can be

identified as influencing China’s success, and it is these that India shouldbear in mind when working out the plans for its SEZs:

Community SupportThe Chinese SEZs have enjoyed support from the Chinese communities inHong Kong, Taiwan, and elsewhere. In fact, nearly 70 per cent of all

foreign investment in Shenzhen is from Hong Kong just as mostinvestments in Zhuhai are from Taiwan. This provided the bedrock onwhich Shenzhen was able to build and the early momentum that made its

task of attracting other foreign investors easier.

India’s proposed SEZs would need a similar initial push, and that couldcome only from the vast expanse of Indians worldwide. India should tryand reach out to the successful industrialist families abroad. This

community has not been given the importance it deserves, and as suchhas been ignored till now. There are many successful patriotic Indianswho want to do their bit for the country. When such alumni can donate

huge funds to institutes like IIT, they would surely be interested in anysuch venture, which would help develop their nation.


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Strategic Location & Linked Growth

Almost all the Chinese SEZs and ETDZs are located in, around, or not toofar from provincial capitals, economic strongholds, or transport hubs. In

fact, the entire initial bunch of 14 ETDZs that China established in 1984involved existing coastal cities, such as Dalian, Tianjin, Shanghai, andGuangzhou. Being close, the zones and the cities nourished one another

and created an irresistible dynamism for growth.

The lesson here is simple: SEZs won’t succeed if they remain isolated

enclaves out in the boondocks, simply as collections of factory buildingsand sheds. The best example is the Navi Mumbai SEZ which is

strategically located. Navi Mumbai is well connected to Mumbai both bywide roads and mass rapid rail systems. Travel time from Mumbai'scentral business district at south Mumbai varies from 45 minutes (water

transport) to 60 minutes (road/rail transport). India's busiest domesticand international airport Chatrapati Shivaji International Airport - is just90 minute drive from Navi Mumbai.

Scale & Magnitude

A very important factor in the success of China is the scale andmagnitude of special economic zones. The five largest such zones in

China – Shenzen, Zhuhai, Santou, Ziamen and Hainan – exported $ 26billion in 1994, almost 22 per cent of the total exports.

The Indian Commerce Minister said “Taking the size into consideration, Ipropose to consider them (Positra of 880 hectares and Nangunery SEZ of

1012 hectares) as our country's two first Special Economic Zones''. Hefurther said: “We expect that the minimum size of the Special EconomicZone shall be 400-500 hectares or more''. (One square km consists of

100 hectares).


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It would serve little purpose if such tiny areas were being considered for

the establishment of SEZs in India. The first four SEZs set up in China in1980 had areas as follows: Shenzen with 328 sq kms; Zhuhai with 121 sq

kms; Shantou with 234 sq kms; and Xiamen with 131 sq kms. Chinasubsequently set up two more SEZs – Pudong with 518 sq kms andHainan (a whole island and a province) with 34,000 sq kms. India cannot

even dream of replicating the Chinese success if it goes in for very tinySEZs.

The proposal to allow tiny SEZs in India would perhaps imply that theconcept of the Chinese SEZs has not been understood. While the small

EPZs operating in India, ranging from 40 hectares to 300 hectares, aremeant only for export-manufacturing, the Chinese SEZs permit foreigninvestments in a whole range of economic activities – hence the

appellation ‘Economic’ Zone - such as industrial production, agriculture,commerce, tourism, housing, etc.

This would obviously imply that one should look at SEZ size similar to ataluka/district or even a province. The SEZ concept envisages

multi-sectoral foreign investments bringing about all-round regionaldevelopment while promoting foreign capital inflow, export production,technology transfer and employment generation.

A large chunk of Raigarh district (Maharashtra) forming the hinterland tothe Nhava-Sheva Port (Mumbai) could make an ideal SEZ. Also, the whole

of Goa (3702 sq kms) can be another ideal SEZ. We should look at thelandmass where foreign corporates would be attracted to come and invest

in exporting industries as well as in hotels, resorts, agriculture,telecommunications, power-generation, etc. Recently companies likeReliance Energy and Mahindera and Mahindera are acquiring more 1000

hectares of land to develop SEZs.


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In India, as per norms prescribed for SEZs, the area has to be around

1,000 to 2,000 acres. Naturally advantage went to states like Gujarat,Maharashtra, Tamil Nadu etc. Now the government is considering

reducing the size of SEZ to benefit more states. If this is the way locationand sizes of SEZs are going to be decided in India, we should be ready foranother potential failure in the government’s string of export promotion

measures.

Considering all the implications of size on the success of an SEZ, this

factor has to be given due consideration and all decisions related to ithave to be based on objective facts and figures, and not otherwise.

Legal Autonomy & Labour LawsThe Chinese SEZs have their own legislature and can enact their own laws

and regulations, including labour laws. The SEZs are marked bydecentralised administration. The SEZs are administered by PASEZ (theProvincial Administration of Special Economic Zones). This effectively

ensures the involvement of the provincial administration in themanagement of the SEZs.

There are also some special provisions for industrial relations applicableto the industries and other ventures in the Chinese SEZs. Foreign

companies in the Chinese EPZs enjoy tremendous flexibility in terms oflabour laws. Employment is contractual, the wages – subject to aminimum between 120 per cent and 150 per cent higher than state

enterprise wages – are fixed by the companies themselves, andretrenchment is permitted. These apart, the governor of the SEZs in China

has enormous powers, including the right to approve projects involvinginvestments up to $ 30 million, and grant concessions and incentives toforeign players.


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However, in India, the EPZ management has been vastly Centre-driven.Despite the freedom from import and export licensing as well as tariffs,

our EPZ enterprises have been having a difficult experience with thecustoms administration. The Central government should invest customs

responsibility and powers in the development commissioners manningthe SEZs if unnecessary red tape and harassment to the zone-exportershave to be minimized.

Additionally, India has a large labour force and if we were to move over tocapital-intensive industries there will be more unemployment. But the

need of the hour is to accelerate growth, which can come only if wereverse our operating stance from that of a labour-intensive industry to

that of a capital-intensive industry.

In India, the only ray of hope for units in SEZs is that the Development

Commissioner of the zone (who is appointed by the Commerce Ministry)will double up as the Labour Commissioner. This is expected to minimizethe time taken to settle labour disputes. That's small comfort, given the

country's rigid labour laws.

The issue of simplification of labour laws for SEZs was left unanswered byMr. Maran in the EXIM Policy. Without this authority for independenteconomic management, SEZs will remain a cripple, always depending on

provincial or federal support and, therefore, ever susceptible to politicalinfluences.

Infrastructure and FacilitiesEvery nation requires a good infrastructure to for a consistent growth and

development. It is said that when United Nation of America becameindependent the first thing which they developed was their infrastructure.China is ahead i.e. is growing fast then India because it has first-class

infrastructure in place. Recently one of the important agenda in India’s


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planner is to develop its infrastructure and progress in the construction ofthe SEZs is one of the ways towards it. As SEZ does not concentrates only

on developing industrial estates but endeavors in the development oftownship.

All Chinese SEZs and EDTZs have superior logistic support and transportand communication links. A major contributor to China’s success is its

investment in the infrastructure. The Chinese government has spent $ 3billion in the infrastructure alone in Pudong & it is committed to spending744 billion in infrastructure in 1995-2004. As opposed to this, a paltry

few billions were proposed to be spent on infrastructure in India, in theUnion Budget of 1999-2000. In fact, a major part of China’s post-open

door infrastructure spending has gone into creating, strengthening, andexpanding these links to bring the zones closer to ports, airports, andrailheads as well as to major cities across the country.

Moving over to Dubai, the Jebel Ali Free Trade Zone, famous for itsstate-of-the-art technology and logistics, has fuelled economic growth of

Dubai. The FTZ contributes almost a quarter of all outbound trade fromthe United Arab Emirates.

Structuring India’s SEZs along the lines of overseas SEZ models can berisky. For, the ground conditions are vastly different in India. So, India

should take care to ensure free flow of financial and fiscal concessions inthese Indian SEZs. For instance, in Jebel Ali Free Trade Zone there is anuninhibited free flow of capital and profits. There are no currency

restrictions there, nor is there any corporate or personal income tax. TheSharjah Airport’s International Free Zone has the biggest air cargo hub in

West Asia and Africa. Apart from no import restrictions, this FTZ allows100 per cent ownership and repatriation of funds.


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India has a complicated market structure and if it wants to set up SEZslike those in the rest of the world, it will have to put in place the logistics

of market structure and functioning. SEZs function independent of therest of the market and differ in their market policies. These zones should

in fact function in an environment free from complex and irksomeregulations and high tariff rates.

To facilitate such wrinkle-free functioning of SEZs, the Indian governmentwill have to integrate the various departments involved such as customs,sales tax, environment and pollution control. Such integration is possible

only if a forward-thinking foolproof policy is put in place and no tinkeringis done thereafter. Without such a logistical framework, just setting up

SEZs will not work.

Eventually, nothing pleases an investor more than developed

infrastructure and a working environment that’s free of bureaucratichassles.

Government Attitude

The attitude of the Chinese government has been marked by strongdetermination and commitment when it comes to liberalizing, even

though it is in selective areas. There have been no half-hearted steps inany direction. There has also been no lagging behind, when it comes totaking steps to ensure success of its endeavors. This is evident especially

from the proactive measures taken by the government in matters relatedto SEZs.

Even India has had a series of EPZs in the past. But today, they have losttheir relevance and are in no way better off despite all the policy

announcements and liberalisation measures. They have become


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non-operative blocks. All this is because, In India, there is littleconvergence of objectives and strategies between the union and state

governments. As such, policies are short-lived and lack long-term vision.There is dilly-dallying in implementation of policies. With a change of

government at the centre, there is a change in stance and perception ofpolicies resulting in a lot of confusion among the exporters. There is thenno initiative on their part to increase volumes.

India has good economic advisers but sadly enough their policies onlygather dust. A Free Trade port was to be set up in Tuticorin, Goa and

Andaman Nicobar islands according to a suggestion. Ten years havepassed and the policy-makers have forgotten the issue.

China used a different exchange rate system in the initial years tokick-start investments. A unified exchange rate was introduced only in

1994. A recommendation to do the same thing was given in the RaunaqSingh Committee Report (1985) that recommends a different exchangerate, or currency, for SEZs (following the argument that an undervalued

currency would boost exports). The Indian government was not evenwilling to consider this recommendation for reasons unknown.

SEZ was created to set up a special enclave where companies could haveincentives and infrastructure to focus on exports and avoid the reams of

red tape they usually face. Instead, the New Act could end up merelyproviding a new and lucrative tax shelter for corporate India, with littleimpact on export growth. And the government could lose valuable tax

revenue in the process.

Let us discuss the provision of the New Act


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According to Ardhana Agarwal an associate professor at the department

of business economics in Delhi University who has researched the impactof SEZ is of the opinon that in India , companies who shift to an SEZ

purely take advantage of tax benefits, And when the tax benefits expirethey shift out.

In past Indian companies have been making such use of indirect taxholidays given by various states like Himachal Pradesh or union territorylike Silvassa for years. Once a company uses up the sales or excise tax

The New ACT 2005

Exporters will continue to get corporate tax exemptions well

beyond 2009—100% for 5 years, 50 % for the next five years afterthat on the profits ploughed back for investment

If the units are relocated to an SEZ exporters can claim capital

gains tax exemption; such units will be eligible for tax breakseven if they aren’t really fresh capacities

No limit on sales from an SEZ unit within India, though the

exporter has to pay custom duty. All imports into the SEZ areduty-free

SEZ units can raise funds from the international market through

external commercial borrowings of up to $ 500 million a year.

100% foreign direct investment allowed for SEZ manufacturing

units

Units can invest or make business payments overseas out of

export earnings with few restrictions.

Banks which set up off shore banking units in the SEZs can get

income tax exemptions for that operation for 10 years


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benefits in one states it simply shutsthe unit and shifts it to another statewhere it can get those benefit all over again

Experts are skeptical about whether the Act will actually promote exports.

For instance, Nokia which is setting up a plant in Sriperumbuerur SEZ formanufacturing handsets and telecom equipments , has no plans ofexporting from there as now.

But the act provides no concession on the labor laws, which is fully beapplied in the SEZs

The Indian government always takes a very short-term view and caught in

its fiscal mess has no better option but to stall the project. With too manywindows in the administrative setup, complications are bound to ariseand misunderstandings will take place. Unless and until an overall liberal

framework is designed to look into monetary, trade, fiscal, taxation, tariffand labour policies, all other efforts will go waste.

To sum up SEZ will be the launch pad for future economic growth andhave come to stay

sez(special economic zones)

Business

special economic zonesnation

whats special

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concept of economic

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foreign trade zone ftz

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