Special Economic Zone

A Special economic zone is defined as an economic zone in any particular area of a country where trade rules are designed to attract foreign investment & promote exports and are different from other parts of the country. Various incentives such as tax concessions, tax holiday, availability of cheap lands, etc are provided to businesses that set up in an SEZ. Different SEZs are set up with different objectives. The various types of zones are:

• Free trade zone
• Export processing zone
• Enterprise zone
• Free ports
• Specialised zones

Special economic zones play an important role in the development of an economy. Apart from the primary effects of increase in the national product or GDP and better growth prospective, SEZ by attracting foreign technology, improves the standard of living. SEZ helps in employment creation in backward areas and hence develops the future prospects of the area. This employment creation is both direct and indirect. Direct employment is generated when businesses are set up in backward areas. Indirect employment is generated because of the increase in production, as a result of increase in GDP. Moreover, there is transfer of technology from the foreign investors to the citizens of the country. This enables technological transformation of the domestic country. Also, foreign companies investing in social infrastructure help in developing human capital.

In India, the SEZ act was introduced in 2005. Before that there were few Export promotion zones operational in the country. The first SEZ under the Act was launched in 2006 and it has grown since then. Currently, around 580 SEZs have been approved and around 196 are operational. There has been a decline in the contribution of SEZ in the national exports. Latest statistics show that there is a decline in growth of exports from 4% in 2013 to -4.73% in 2014 coming from SEZs.

Some of the major problems faced by the SEZ in India are:

Land acquisition: Due to the disputes between the farmers and the state authorities, acquiring land has become a major problem. The old law stated that land can be acquired without any consent of the farmers living there. The new land acquisition bill requires consent of 80% households living in that land. Both of the laws are extremes. The Act needs a new look and has to go under reforms. Due to the problems of land acquisition, there has been minimal investment in the SEZs.

Changes in policies: Recent changes in the taxation policy have snagged the incentives of investing in SEZ. Under the original scheme, businesses were exempted from MAT (minimum alternate tax) and DDT (Dividends distribution tax). From 2011 onwards the exemptions were withdrawn. Levying of tax is not a big issue but what can be debated is the level of the tax rate.

Lack of Infrastructure: Another major issue is the lack of comprehensive package of world class infrastructure. Highways, reliable power, clean water, effective transportation system etc are in short supply. Lack of proper infrastructure leads to increase in cost of operations and thus makes SEZ an unfavorable option for investment.

SEZs have the potential of driving the economy to higher levels by encouraging exports. There is a need for more rational and balanced growth approach towards the development of SEZs. It’s an era of development and growth, and policies like ‘Make in India’ will help in better utilization of the SEZs. In addition to that, Indian policymakers should take examples from the success story of SEZs in China and take the decisions in improving the situation of SEZs in India.

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