SEZ - Special economic zone

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.

A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are:

(a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;

The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA).

The SEZ Rules provide for :

• Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs;
• Single window clearance for setting up of an SEZ;
• Single window clearance for setting up a unit in a Special Economic Zone;
• Single Window clearance on matters relating to Central as well as State Governments;
• Simplified compliance procedures and documentation with an emphasis on self certification

· The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members. Its constitution is as follows:

(1)	Secretary, Department of Commerce	Chairman
(2)	Member, CBEC	Member
(3)	Member, IT, CBDT	Member
(4)	Joint Secretary (Banking Division), Department of Economic Affairs, Ministry of Finance
(5)	Joint Secretary (SEZ), Department of Commerce	Member
(6)	Joint Secretary, DIPP	Member
(7)	Joint Secretary, Ministry of Science and Technology	Member
(8)	Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries	Member
(9)	Joint Secretary, Ministry of Home Affairs	Member
(10)	Joint Secretary, Ministry of Defence	Member
(11)	Joint Secretary, Ministry of Environment and Forests	Member
(12)	Joint Secretary, Ministry of Law and Justice	Member
(13)	Joint Secretary, Ministry of Overseas Indian Affairs	Member
(14)	Joint Secretary, Ministry of Urban Development	Member
(15)	A nominee of the State Government concerned	Member
(16)	Director General of Foreign Trade or his nominee	Member
(17)	Development Commissioner concerned	Member
(18)	A professor in the Indian Institute of Management or the Indian Institute of Foreign Trade	Member
(19)	Director or Deputy Sectary, Ministry of Commerce and Industry, Department of Commerce	Member Secretary

Incentives and facilities offered to the SEZs

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-

• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the respective State Governments.

The major incentives and facilities available to SEZ developers include:-

• Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
• Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
• Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
• Exemption from Central Sales Tax (CST).
• Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Land requirements for approved Special Economic Zones:

The total land requirement for the formal approvals granted till date is approximately 59685 hectares out of which about 97 approvals are for State Industrial Development Corporations/State Government Ventures which account for over 20000 hectares. In these cases, the land already available with the State Governments or SIDCs or with private companies has been utilized for setting up SEZ. The land for the 195 notified SEZs where operations have since commenced involved is approximately over 26072 hectares only.

Out of the total land area of 2973190 sq km in India, total agricultural land is of the order of 1620388 sq km (54.5%). It is interesting to note that out of this total land area, the land in possession of the 195 SEZs notified amounts to approximately over 260 sq km only. The formal approvals granted also works out to only around 596 sq km.

Exports from the functioning SEZs during the last three years are as under:

Year	Value (Rs. Crore)	Growth Rate ( over previous year )
2003-2004	13,854	39%
2004-2005	18,314	32%
2005-2006	22 840	25%
2006-07	34,615	52%

Projected exports from all SEZs for 2007-08: Rs. 67088 crores

Investment and employment in the SEZs set up prior to the SEZ Act, 2005:

At present, 1277 units are in operation in the SEZs. In the SEZs established prior to the Act coming into force, there are 998 units providing direct employment to over 1.83 lakh persons; about 40% of whom are women. Private investment by entrepreneurs in these SEZs established prior to the SEZ Act is of the order of over Rs. 7104 crore.

Investment and employment in the SEZs notified under the SEZ Act 2005:

Current investment and employment:

• Investment: Rs. 67347 crore
• Employment: 61015 persons

Impact of the scheme

The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the list of Developers who have set up SEZs:

• Nokia SEZ in Tamil Nadu
• Quark City SEZ in Chandigarh
• Flextronics SEZ in Tamil Nadu
• Mahindra World City in Tamil Nadu
• Motorola, DELL and Foxconn
• Apache SEZ (Adidas Group) in Andhra Pradesh
• Divvy’s Laboratories, Andhra Pradesh
• Rajiv Gandhi Technology Park, Chandigarh
• ETL Infrastructure IT SEZ, Chennai
• Hyderabad Gems Limited, Hyderabad