A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others.
A policy was introduced on 1.4.2000 for setting up of Special Economic Zones in the country with a view to provide an internationally competitive and hassle free environment for exports. Units may be set up in SEZ for manufacture of goods and rendering of services. All the import/export operations of the SEZ units will be on self-certification basis. The units in the Zone have to be a net foreign exchange earner but they shall not be subjected to any pre-determined value addition or minimum export performance requirements. Sales in the Domestic Tariff Area by SEZ units shall be subject to payment of full Custom Duty and import policy in force. Further Offshore banking units may be set up in the SEZs.
The policy provides for setting up of SEZ's in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones. Accordingly, the Government has converted Export Processing Zones located at Kandla and Surat (Gujarat), Cochin (Kerala), Santa Cruz (Mumbai-Maharashtra), Falta (West Bengal), Madras (Tamil Nadu), Visakhapatnam (Andhra Pradesh) and Noida (Uttar Pradesh) into a Special Economic Zones. In addition, 3 new Special Economic Zones approved for establishment at Indore (Madhya Pradesh), Manikanchan - Salt Lake (Kolkata) and Jaipur have since commended operations.
In addition, approval has been given for setting up of 42 Special Economic Zones in various parts of the country in the private/joint sectors or by the State Government.
Salient Features of the Indian SEZ
- Unlike most of the international instances where zones are primarily developed by Governments, the Indian SEZ policy provides for development of these zones in the government, private or joint sector. This offers equal opportunity to both Indian and international private developers.
- For greenfield SEZs, the Government has specified a minimum preferable area of 1,000 hectares. However, for sector specific SEZs, there is no restriction of minimum area.
- 100 per cent FDI is permitted for all investments in SEZs, except for activities under the negative list.
- SEZ units are required to be positive net foreign exchange earners and are not subject to any minimum value addition norms or export obligations.
- Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be treated as exports and goods coming from the SEZ area into DTA are treated as imports.
Incentives and Benefits
Besides providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ policy also provides enterprises and developers with a favourable and attractive framework of incentives:
- 100% income tax exemption for a block of five years and an additional 50% tax exemption for two years thereafter
- 100% FDI in the manufacturing sector permitted through automatic route, barring a few sectors.
- External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels.
- Facility to retain 100% foreign exchange receipts in Exchange Earners’ Foreign Currency Account.
- 100% FDI permitted to SEZ franchisee in providing basic telephone services in SEZs.
- No cap on foreign investment for small scale sector reserved items.
- Exemption from industrial licensing requirements for items reserved for the SSI sector.
- No import licence requirements
- Exemption from customs duties on import of capital goods, raw materials, consumables, spares etc
- Exemption from Central Excise duties on procurement of capital goods, raw materials, consumable spares etc., from the domestic market.
- No routine examinations by Customs for export and import cargo.
- Facility to realize and repatriate export proceeds within 12 months.
- Profits allowed to be repatriated without any dividend-balancing requirement.
- Job work on behalf of domestic exporters for direct export allowed.
- Subcontracting both domestic and international is permitted; this facility is available to jewellery units as well.
- Exemption from Central Sales Tax and Service Tax
- Facilities to set up off-shore banking units in SEZs.
The policy provides for setting up of SEZs in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones. Accordingly, the Government has converted Export Processing zones located at
- Kandla and Surat (Gujarat)
- Cochin (Kerala)
- Santa Cruz (Mumbai–Maharashtra)
- Falta (West Bengal)
- Chennai (Tamil Nadu)
- Visakhapatnam (Andhra Pradesh)
- NOIDA (Uttar Pradesh)
- Nanguneri and Tirunelveli (Tamil Nadu)
Attempts to set up a Special Economic Zone in Nandigram have led to protests by villagers in the area. A Parliamentary Committee to study and give recommendations on SEZs has said that no further SEZs be notified unless the existing law is amended to incorporate the changes related to the land acquisitions.
Genpact has announced its plans to expand its presence in Hyderabad by setting up a Special Economic Zone (SEZ) across 50 acres in the city at Jawahar Nagar.