Special Economic ZonesEngines of Growth

Sanjeet Singh, Director (SEZ)

Dept of Commerce, Govt. of India

1

Rationale for Special Economic Zones in India

To overcome the hurdles to export oriented investment on account of:

• multiplicity of controls • absence of world-class infrastructure, and • an unstable fiscal regime

….was not possible to achieve immediately on a country wide basis.

2

Evolution of SEZs

Evolved from the Export Promotion Zones initiative of the 70’s

Special Economic Zones (SEZs) Policy was announced in April 2000.

Parliament passed the Special Economic Zones Act, 2005 which supported by SEZ Rules, came into effect on 10th February, 2006.

3

Key Objectives of SEZ Policy

Generation of additional economic activity

Promotion of exports of goods and services;

Promotion of investment from domestic and foreign sources;

Creation of employment opportunities;

Development of infrastructure facilities

4

• Simplified procedures for setting up SEZs

• Single window clearance

• A designated duty free enclave

• Simplified compliance procedures

5

The SEZ Policy

• Enhanced investment inflow

• Enhanced export infrastructure and productive capacity

• Generation of additional economic activity

• Creation of employment opportunities.

Fiscal Incentives Regime

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction, as per the guidelines of the Ministry of Finance.

Exemption from Central and State levies (Sales Tax, Service Tax, some other levies).

Single window clearance for Central and State level approvals.

Income Tax exemption on income of SEZ Developers and Units has been severely curtailed through imposition of measures like MAT and DDT etc.

Net foreign exchange earnings by Units within five years;

Domestic sales subject to full customs duty

6

SEZ Administrative Structure

• Department of Commerce, Govt of India• The Board of Approvals

Apex: Govt of India

• SEZ Development Commissioner• Unit Approval Committee

Operational Level: SEZ

• State Governments• Department of Revenue (CBEC, CBDT, DGEP)• Ministry of Environment, etc

Other KeyDepartments

7

SEZs at a Glance (As on 25.10.2012)

Number of Formal approvals 586

Number of notified SEZs 385(incl 7 Central Govt. + 12 State/Pvt. SEZs)

No. of In-Principle Approvals 49

Operational SEZs 158(17 are multi product SEZs)

Units approved in SEZs 3,482

Exports from SEZs

Years Exports( Rs. Crore)

Growth Rate

2006-2007 34,787 52%

2007-2008 66,638 93%

2008-2009 99,689 50%

2009-2010 2,20,712 121%

2010-2011 3,15,868 43.1%

2011-2012 3,64,478 15.4%2012-2013

(April – June, 2012)1,18,322 64%

Major Sector-wise Exports from SEZs(2006-07 to 2011-12)

Financial Years

Computer/ Electronic software

Gems and

Jewellery

Chemicals and

Petroleum Refinery

Other Mfg sectors

Total Exports

2006-07 507 16,069 1,106 16,933 34,615

2007-08 3,985 23,006 1,423 38,224 66,638

2008-09 16,228 33,436 6,386 43,639 99,689

2009-10 45,784 43,829 73,972 57,126 2,20,711

2010-11 84,700 47,849 1,06,558 76,761 3,15,868

2011-12 81,017 74,617 1,52,516 56,327 3,64,478

(export figures in crores)

Employment and Investment in SEZs (as on 30.6.2012)

EMPLOYMENT(no. of persons)

Incremental Employment(after Feb, 2006)

Total Employment

Total 7,85,539 9,20,243

INVESTMENT Incremental investment (after Feb, 2006)

Total Investment

Total Rs.2,09,570.03 cr. Rs.2,13,605.54 cr.

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

India's Global Trade 2000-2011Exports, Imports and Trade Balance (Rs Crores)

Source : DGCIS

Exports (X) Imports (M) M-X

The Imperative for Enhanced Exports and FDI Growth

• India’s Balance of Trade is in deficit, which is a fairly high proportion of GDP.

• While exports have growth over the past decade, imports have also risen sharply, resulting in a growing adverse balance of trade position.

• This gap is financed in part through net services income and net remittances.

• The Current Account remains in deficit, the remaining gap is covered through net inflows on the Capital Account

• There is no option other than promoting enhanced export and FDI growth.

• The SEZ program is a promising instrument for achieving both these objectives

.

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-120

50

100

150

200

250

300

350

4.885 6.05 10.16

11.86 26.127.64

25.07

Share of SEZ Exports in India's Exports

Total exports of the Country

Total SEZ Exports

% share of SEZ exports in the total exports of the country

Impact of SEZs

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Direct and indirect employment

CChanges in consumption pattern and social life

Emergence of new economic activities

,

Human development facilities (such as for education, healthcare etc.)

Studies commissioned by the Department of Commerce have indicated that SEZs have had a positive local area impact in terms of

Some Significant Trends in SEZ Sector Growth

Geographical Concentration of SEZs: Six States, Andhra Pradesh, Kerala, Maharashtra, Gujarat, Karnataka and Tamil Nadu, account for a major proportion of SEZs and 92% of total exports from them.

Urban centric growth of SEZs – Even within these six States, SEZs are largely concentrated around existing urban agglomerates, leaving the hinterland virtually untouched.

Sectoral Dispersion of SEZs: There is a pre-dominance of IT SEZs in the sector, and multi sector SEZs are few and far between. Of the 153 operational SEZs, only 17 are multi product SEZs.

Skewed Export Pattern: IT/ITES SEZs and Petroleum sector contribute to the roughly two-thirds of SEZ exports. Non-petroleum manufacturing contributes the balance minority share.

Inadequate progress of Manufacturing activity: As reflected above, the SEZ sector has not fully addressed the concern of boosting the manufacturing sector in India.

Limited number of Operational SEZs: While 589 SEZs have been formally approved as on 31st May 2012, only 389 have been notified, of which only 153 SEZs are exporting i.e. only 39.33 % of the approved SEZs.

Distribution of SEZs in the Country

Andhra Pradesh

25%

Tamil Nadu20%

Karnataka14%

Maha-rashtra

13%

Gujarat9%

Kerala5%

Others15%

Distribution of SEZs across States in India( Percentage of operational SEZs as on May

2012)

State wise Approved, Notified and Operational SEZs(as in Aug, 2012)

19

Andhra Pradesh

Chandiga

rh

Chhattisg

arh

Delhi

Dadra &

Nag

ar Hav

eli Goa

Gujarat

Haryan

a

Jhark

hand

Karnata

kaKera

la

Mad

hya Prad

esh

Mah

arash

tra

Nagala

ndOris

sa

Puducherr

y

Punjab

Rajasth

an

Tamil N

adu

Uttar Prad

esh

Uttarakh

and

Wes

t Ben

gal

0

20

40

60

80

100

120

Approved SEZs Notified SEZs Operational SEZs

IT/IT Enabled Services

54%

Multi-Product11%Other

8%

Engineering 5%

Pharma/chemicals5%

Electronic Hardware3%

Textiles/Apparel/Wool

3%Food Processing

2%

Gems and Jewellery 2%

Bio-tech1%

Footwear/Leather1%

FTWZ1%

Non-Conventional Energy

1%

Semiconductor1%

Sector-wise Distribution of exporting SEZs (As on 30.06.2012)

2006-072007-08

2008-092009-10

2010-112011-12

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

SEZ Exports – main sectors breakup

Computer/Electronic softwareGems and JewelleryChemicals &Pharmaceuticals (Crude Petroleum Refinery) Other Mfg sectorsTotal Exports

2007-08 2008-09 2009-10 2010-11 2011-120

100000

200000

300000

400000

500000

600000

700000

800000

900000

336235 384957

503611

676608

844916

77,209.50107,224.45

148,488.62202,809.54

201,874.76

Employment and Investment in SEZs

Total Employment (No. of Persons)Total Investment (Rs. in crore)

2006 2007 2008 2009 2010 20110

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

34,615

66,638

99,689

220,711

315,868

364,478

Total SEZ Exports (Rs. in crore)

Some Success Stories in SEZs

New generation SEZs which have made significant progress in terms of Exports, Employment and Investment generation:

Nokia Special Economic Zone in Tamil Nadu (Telecom equipments SEZ)

Apache SEZ Development India Private Ltd, Andhra Pradesh (Footwear SEZ)

Some Success Stories in SEZs

Mahindra City SEZ, Tamil Nadu (Apparels and fashion accessories; IT / Hardware; auto ancillary)

Sri City, Nellore/Chitoor, Multi Product SEZ

Some Success Stories in SEZs

Brandix Apparel, SEZ, Vizag Serum Bio Pharma Park, Pune

Some Success Stories in SEZs

Reliance Jamnagar SEZ, Refinery Quark City, Mohali, Punjab

Challenges facing the SEZs

Non availability of non-double cropped, contiguous and vacant land for SEZs

Changed fiscal regime - imposition of MAT/ DDT; possible changes through DTC.

Single Window Mechanism and coordination across departments at the Central and State Government level.

Large number of States not having an SEZ Policy / Act

Slow pace of development of infrastructure within the SEZs and external support infrastructure

Non availability of incentives for SEZs under schemes such as FPS, FMS, DPEB, Duty Drawback, VKGUY etc.

SEZ Policy and Operational Framework Reform Initiative

Major Areas of Reform

1. Minimum Land Area Required For SEZ2. The Issue of Broad-banding – Revision

definition of Sector:3. Contiguity Norms:4. Vacancy Issues:5. Non-Processing Area of SEZ6. Free Trade and Warehousing Zone Issues

Major Areas of Reform

7. IT and ITES SEZs – Special Dispensation8. Exit Policy for Developers and Units:9. Advance Ruling: 10.Shifting / Relocation of Units in a SEZ :11. Operational Issues to be addressed through

amendments to the SEZ Rules:A. Towards more meaningful State Govt Recommendations (SGRs)B. Defining Consumables -allowing benefits under SEZ Policy: C. Benefits and exemptions under Rule 27 for sub-contractors of Units

sezindia.nic.in

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Apache SEZ, Nellore Brandix SEZ, Vizag Nokia SEZ, Sriperumbudur

Mahindra World City, Chennai Quarkcity, Mohali