what are sezs (special economic zones)

8/6/2019 What Are SEZs (Special Economic Zones)

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SEZ : Bane or Boon for economy Presented to:

Ajgaonkar sir Presented by:

1. Ashish Dixit2. Shweta

Richharia3. Pulkit tripathi4. Vrishad

Shahde

5. Rajashreeradhakrishnan6. Tahseen

Fatima


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SEZ is a geographical region that haseconomic laws that are more liberal than acountry's typical economic laws.

An SEZ is a trade capacity developmenttool, with the goal to promote rapideconomic growth by using tax andbusiness incentives to attract foreigninvestment and technology.

Today, there are approximately 3,000SEZs operating in 120 countries, whichaccount for over US$ 600 billion in exportsand about 50 million jobs.

What are SEZs (special economic zones)?


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Considering the need to enhance foreigninvestment and promote exports, theGovernment of India introduced a policy toset up Special Economic Zones (SEZs).

The April 2000 SEZ policy providedseveral tax incentives for SEZ developers.

Why SEZs are set up?


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The main objectives of the SEZ Act are: generation of additional economic activity. promotion of exports of goods and

services. promotion of investment from domesticand foreign sources.

creation of employment opportunities.

development of infrastructure facilities.

Main objectives


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The Primary objective appears tofacilitate exports

Secondary objective could be attraction of export-oriented Foreign

Direct Investment enable Indian entrepreneurs to

operate under internationalconditions

Tertiary objectives could include

creation of global industries andpractices which would eventually spillover to the mainland

Objectives of SEZ


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Fundamentals of SEZs

SEZs (special economic zones) arefundamentally different from thetraditional free zones.

They are much larger in size; offer broader range of activities such as

a single-window management, streamlined procedures, duty-free privileges, also access to the domestic

market on a duty-paid basis.


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Fundamentals of SEZs

Whether the enclave is termed an EPZ, FTZor SEZ, the cardinal factors are appropriate infrastructure and transport

facilities, low factor cost, flexible labour laws, convertibility of currency,

stable legal and administrative regime, and a commitment to the canons of an open

economy


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A designated duty free enclave to betreated as foreign territory for tradeoperations and duties and tariffs

No licence required for import Exemption from customs and central

excise on import of capital goods, rawmaterials, consumables, spares etc

100% income tax exemption for 5 years,50% for next 2 years

SEZ units may be for manufacturing,trading or service

Features


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Features cont

SEZ unit to be positive net foreignexchange earner within three years. 100% FDI in manufacturing, sector

allowed through automatic route barring afew sectors

Profits allowed to be repatriated freelywithout any dividend balancingrequirement.

In house customs Clearance. Support services like banking, post office

clearing agents etc. provided in ZoneComplex.


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- Duty-free imports of capital goods andinputs for production for Export

- Liberal access to foreign exchange- Encouragement to FDI- Simplified, one-stop approvals- Generous tax concessions esp. in early

years- Flexible Labour Laws- Limitations on sales within the country- Better Infrastructure (Power, Transport &

Communications)

Common Features of SEZs


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Rationale for SEZ . . . . In India

To Compete GloballySEZ is the best..??

Provide Restorative andLeading edge

S

E

Z

World Wide Max. FDI &Export from Zones

MNCs Destinationfor Intra Firm Trading

Concept of V Velocity,Volume and Value

3


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1. Inadequate infrastructure2. Restrictive policies3. Lengthy procedures No Single Window4. Locational disadvantages

5. Stringent labour laws

- In the 1990s, as a part of reforms, powersdelegated to zone authorities, additional fiscalincentives were given, policy provisions were

simplified and greater facilities were providedleading to some, not very significant,improvements.

SEZs in India


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Historical background

- From ancient times Harappan, Roman to mediaevaltimes and later

- Small fenced-in areas specializing in manufacturing forexports

- Modern times Free ports Aden, Singapore, Hong Kong

Difference- Modern version of export zones starting from Puerto

Rico (USA), Shannon International Airport in Ireland in1959 latter considered the first one

- India Kandla in 1965. EPZs in Taiwan, S. Korea andother countries

- Since 1979, most extensive, large and successful SEZs inPRC (China)

- After early start, India slow in following up- Recent interest in India


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- Starting with Kandla in 1965; SEEPZ in 1972, Basedon reviews of working, Cochin, Falta, Madras(Chennai) and NOIDA in 1984 and Vizag in 1989

- Very limited impact

- Less than 40% of approvals fructified- Rest cancelled or lapsed

- Employed only 0.01% of labour force- FDI was less than 20% of total investment

- Accounted for less than 4% of exports. Net exportmuch lower as imports were over 60% of exports

Experience with EPZs


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The policy provides for setting up of SEZs in the public, private, joint sector or by State Governments. It was alsoenvisaged that some of the existingExport Processing Zones would beconverted into Special EconomicZones. Accordingly, the Governmenthas converted Export Processingzones located at:

Kandla and Surat (Gujarat) Cochin (Kerala) SEEPZ(MumbaiMaharashtra)

List of SEZs in India


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- New Policy in April 2000. SEZs permitted tobe set up in the public, private, joint sector

or by the State Governments- Minimum size of 1000 hectares (4 sq. miles)- Main measures were:

Conditions for automatic approval relaxedconsiderably

Customs procedures simplified

Units could produce items reserved forSSI units in domestic market 100% FDI investment for manufacturing Profits could be repatriated fully Freedom for sub-contracting 100% I.T. exemption for five years Exemption from Central Excise Duty on

capital goods, raw materials, consumablespares from domestic market

Reimbursement of CST paid on domesticpurchases

SEZ Policy of 2000


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SWOT Analysis for Indian SEZs Strengths:

Skilled Manpower knows English Worldwide acceptance of capabilities in

fields like Pharmaceutical manufacturing &

research Manufacturing auto parts Engineering designing & consultancy,

IT & ITES

Entertainment etc etc Financial & other institutional Networks Attraction of a large Indian market:

growing middle class with purchasepower


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SWOT Analysis for Indian SEZs Weakness :

Infrastructure bottlenecks connectinginfrastructure like Roads leading toSEZs.

Political changes

Convertibility of Currency on CapitalA/c Red Tape Labour reforms

Zones by & large are still zones notsmart cities. Inappropriate locations Long gestation period 4 to 5 years in

absence of infrastructure development.


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SWOT Analysis for Indian SEZs

Opportunities :

An alternative manufacturing base,particularly compared to Chinese SEZs.

Services SEZs do not require movement of input and output physically and hence,surrounding infrastructure may not matter much.

For multi-product SEZs, almost 23 ports areavailable. Most of them are likely to be EDIcompliant.

New small ports & airports are also beingdeveloped keeping SEZ concept in mind.


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SWOT Analysis for Indian SEZs Threats :

Loosing edge of low labour costs - manycountries are competing.

Formation of economic blocks, Effect onGovernment Revenues.

Negotiations for FTAs with many countriesmay erode competitiveness.

The pattern of buying & selling may notcontinue. With relocations of industries inother third world countries, newcompetitors will emerge.


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Major Issues Land Acquisition

Role of State Govt. in Land Acquisition

Compensation Packages to land owners

Rehabilitation packages for displaced farmers

State Govt.s commitment to create infrastructure

Time frame for operationalisation

Control over SEZs MoC or MoF

Amendments to Laws and Rules


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Falta (West Bengal) Chennai (Tamil Nadu) Visakhapatnam (Andhra Pradesh) Noida (Uttar Pradesh) Nanguneri and Tirunelveli (Tamil

Nadu)


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Currently, India has 811 units inoperations in 8 functional SEZs,each an average size of 200 acres.

8 Export Processing Zones (EPZs)have been converted into SEZs.These are fully functional.


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NMSEZ (Navi Mumbai SEZ) is spreadover an area of approximately 4,377hectares (around 44 square kilometres).

Comprises of four zones:Dronagiri,KalamboliUlwe

RPZ

NMSEZ - Best positioned SEZ in India


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Proximity to international and domestictransportation infrastructure. Proximity to Mumbai Port, which is also amajor port in the country.

Chhatrapati Shivaji International Airport atSahar, is 60/90 minute away.

The second Mumbai International Airportis planned to be set up by 2010.

Well-connected road and rail linkages -National Highways (NH3, 4, 8, 9 & 17) linkthe area to the rest of the country.

NMSEZ - Best positioned SEZ in India


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Attempts are being made to set up aSpecial Economic Zone inNandigram, but the villagers haveprotested against it.

Genpact has announced its plans toexpand its presence in Hyderabadby setting up a Special EconomicZone (SEZ) across 50 acres in thecity at Jawahar Nagar.

More SEZs


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Exports from the functioning SEZs

Year Value (Rs. Crore) Growth Rate( over previousyear )

2003-2004 13,854 39%

2004-2005 18,314 32%

2005-2006 22 840 24.7%

2006-07 34,787 52.3%


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Export growth

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2003- 04 2004- 05 2005- 06 2006- 07


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(A) Current investment andemployment: Investment: Rs. 43123 crores

Employment: 35053 persons (B) Expected investment andemployment (by December 2009): Investment: Rs. 2,59,159 crores

Employment: 17,43,530additional jobs

Employments and investments


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(C) Expected investment andemployment if 341 formalapprovals become operational:

Investment: Rs. 3,00,000 crores Employment: 4 million

additional jobs


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0

50000

100000

150000

200000

250000

300000

350000

A B C

Investments


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0

500000

1000000

15000002000000

2500000

3000000

3500000

4000000

4500000

A B C

Employment


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Inconsistencies in government regulations Insufficient comprehensive and well-

knitted internal and backup infrastructure. High dependence on outside

infrastructure Size does matters (Bada hai to behtar hai) Labour Environment

Barriers


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They attract foreign investment They help the growth of the export

industry They earn foreign exchange They provide employment

opportunities They help the indigenous

economy improve its level of technology

SEZ: A Boon


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providing generous tax breaks would divertexisting (or already planned) investment intothese zones. FM calculated the resulting tax lossat a staggering Rs 100,000 crore (Rs 1,000billion) .

It is a safe heaven for tax free investment by richindustrialists.

Govt find it as a excuse for not paying attentionto infrastructure problem of the whole country.

SEZ: A Bane


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No freedom from labour laws evenin SEZ.

The difference between farm land

price and urban property price willprovide Billions for developers. According to the laws domestic

investments are also allowed. Gift wrapping of valuable farm

land to Industrialists. Small size,so no significant benefit

SEZ: A Bane


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Tax Breaks are not too much more thanalready given for infra development. Minimum size should be fixed. Separate labour laws should be prepared

Fixed apportionment of land for differentpurposes.

Increased control of govt. The policy should be revised and benefits

on domestic investment must be reduced.

Conclusion


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what are sezs (special economic zones)

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