Special Economic Zone
What is a Special Economic Zone?
Special economic zone is a particular area in which the business and trade laws vary from the rest of the country. SEZs are a specific and special zone created in the country to promote business services, trade, employment, investments, etc.
Now let us dive straight into the topic briefly.
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
The definition of an SEZ is determined individually by each country.
According to the World Bank in 2008, the modern-day special economic zone typically includes a “geographically limited area, usually physically secured (fenced-in); single management or administration; eligibility for benefits based upon physical location within the zone; separate customs area (duty-free benefits) and streamlined procedures.
In simple terms, Special Economic Zones are special or specific zones created in which the business and trade laws are different from the rest of the country even though they are created within National borders.
Their objectives are basically to promote trade balance, employment, increased investments, job creation, and various effective administration. Also to motivate and encourage businesses to set up in the zone.
Financial policies are introduced and these policies typically encompass investing, taxation, trading, quotas, customs, and labour regulations. Also certain additions to these are Companies may be offered tax holidays, where upon establishing in the zone, or granted a period of low taxation.
The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.
Objectives of SEZs
SEZs are normally established with the aim of achieving one or more of the following objectives:
- To enhance foreign investment, especially to attract foreign direct investment (FDI), thereby increasing GDP.
- Increase shares in Global Export (international Business).
- As experimental laboratories for the application of new policies and approaches- China’s large-scale SEZs are classic examples.
- Creation of employment opportunities and to serve as “pressure valves” to alleviate large-scale unemployment. SEZ programs of Tunisia and the Dominican Republic are frequently cited as examples of programs that have remained enclaves and have not catalyzed dramatic structural economic change, but remained robust, job-creating programs.
- In support of a wider economic reform strategy. In this view, SEZs are a simple tool permitting a country to develop and diversify exports. Zones reduce anti-export bias while keeping protective barriers intact. The SEZs of China, The Republic of Korea, Mauritius, Taiwan, and China, follow this pattern.
- Development of infrastructure facilities.
- Exposure to technology and the global market.
Need of SEZs
The primary objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote and motivate exports from the country and realizing the need that level playing field must be made available to the local enterprises and manufacturers at the international level.
SEZ are set up in order to attract foreign investors to invest in India, SEZ are brought with one of the best facilities in the world, water, electricity, roads, transport, storage, etc. this foreign investment will help in economic development of our country.
SEZ also plays an important role in the rapid development of the economy in the country.
In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits. Provided, however, that the zones offered attractive enough concessions.
Types of SEZs
The term special economic zone can include-
- Free-trade zones (FTZ)
- Export processing zones (EPZ)
- Free zones/ Free economic zones (FZ/ FEZ)
- Industrial parks/ industrial estates (IE)
- Free ports
- Bonded logistics parks (BLP)
- Urban enterprise zones
Few SEZ in India
• SEEPZ- Andheri (East), Mumbai
• Khopata- Multi-product, Mumbai
• Navi Mumbai- Multi-product, Mumbai
• Salt Lake Electronic City, West Bengal
• Manikanchan- Gems and jewelry, West Bengal
• M/S. Apiic Ltd., Naidupeta, Nellore
• Sricity Pvt. Ltd., Chittoor
• Rajiv Gandhi Technology Park, Phase-1 Chandigarh
• Surat Special Economic ZoneSachin, Surat
BENEFITS OF SEZs
- No license required for import made under SEZ units.
- Exemptions from custom duty on imports of capital goods, raw materials, consumables, spares, etc.
- Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that the goods are meant for undertaking authorized operations.
- Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act, 1947.
- In-house customs clearance facilities.
- Abundant supply of technically skilled as well as semi-skilled manpower.
- Well connected with Network of public transport, local railways and cabs.
- Pollution free environment with proper drainage and sewage system.
- Simplification of procedures and self-certifications of labour acts.
- Full authority to provide services such as water, electricity, security, restaurants, recreational facilities, within the zone but on completely commercial basis.
- Has a host of public and private bank chains to offer financial assistance for business houses.
Limitations of SEZs
- Loss of revenue to the government
Generally the government gets a huge tax from industries. But, as the government is providing tax holidays for industries, it loses most of the revenue from it. This is the reason the government has to lay more burdens on the common man. If it is not laid, the government may not fulfill its stint properly. Even if the government fails to give subsidies, it falls on the poor and middle class. Hence, there is criticism of the government that it is helping the rich.
- Land Grabbing
Lands are grabbed from poor and middle class people on the pretext of development. Generally, the land is considered to be an asset to these people and they invest on it working their entire life. But, the government with its simple G.O., it evacuates people. This is the reason in so many states there are widespread movements by people.
- Regional disparity
The places which are near to SEZs get good facilities and good infrastructure is available. This produces disparity among places. There may be tensions prevail like new states movements
SEZs attract many industrialists in other places in India and they show interest as there is tax exemption. This process enables deindustrialization in already existing places and migration starts. This is not a good omen. There should be equal development.
- Compensatory problems
Government provides compensation. But it is not equal to the loss rendered. People have to sacrifice their lands for private persons which they have earned with years of their hard work. In land related issues, agriculture land loss due to SEZs is more problematic as farmers lose their livelihood and their assets. He has to search for another livelihood which is not easy. He has to work as a laborer in another farm or has to leave his village.
- Loss of agricultural land
As land grabbing is going on, there are instances that fertile agricultural lands are being taken in order to provide a way for industries. This is not only keeping agriculture at stake but also food crises may arise in the near future.
With operational success, the role of the special economic zones has expanded from trade to investment technology, Research and Development, service, and training. Free zones have become the center of activity in the modern economy. SEZs have played a significant role in the economic enrichment of developing countries, by improving international business. However, due to the economic slowdown prevailing globally, the export businesses especially are at stake. Some of the countries are facing turmoil and set back due to unstable SEZ business.
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