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Status: Offline Posts: 3 Management Paradise Rupees.: 503 Join Date: Jan 2009 | SEZ notes -
February 18th, 2009
SEZ - Introduction
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. Usually the goal of an SEZ structure is to increase foreign investment. One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine. North Korea has also attempted this to a degree, but failed. Currently, Puno, Peru has been slated to become a "Zona Economica" by its president Alan Garcia. A single SEZ can contain multiple 'specific' zones within its boundaries. The two most prominent examples of this layered approach are Subic Bay in the Philippines and the Aqaba Special Economic Zone in Jordan.
In a recent comprehensive econometric study on the SEZ policies in China and India, Leong(2007) investigates the impact of opening up the Chinese and Indian economy on economic growth in these countries using new panel data sets for both the national economies and the regional economies of China. The policy change to a more liberalized economy is explicitly identified using instrumental variables. The results provide support that export growth does have a positive and statistically significant effect on economic growth in these countries. However, the growth rates of these countries are export and FDI inelastic, in the sense that a one percentage point increase in growth rate of export or FDI will have a less than one percentage point increase in economic growth rate of these countries. In the case of the Chinese regions, the presence of export processing zones may exert positive effect on the regional growth rate but the increase in regional growth is even more export inelastic than at the national level. The result dispels the popular view that adopting a policy of more openness in the economy has a multiplier effect on economic growth. Of the two phases of liberalization in both countries, the second stage is statistically significant. One possible reason is that the scale of liberalization is greater in the second phase. Additionally, increasing the number of SEZs has very negligible effect on economic growth. Taken together, these results suggest that what contributes to greater growth is a greater scale of liberalization, rather than increasing the number of SEZs.
According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. SEZs have been implemented using a variety of institutional structures across the world ranging from fully public (government operator, government developer, government regulator) to 'fully' private (private operator, private developer, public regulator). In many cases, public sector operators and developers act as quasi-government agencies in that they have a pseudo-corporate institutional structure and have budgetary autonomy. SEZs are often developed under a public-private partnership arrangement, in which the public sector provides some level of support (provision of off-site infrastructure, equity investment, soft loans, bond issues, etc) to enable a private sector developer to obtain a reasonable rate of return on the project (typically 10-20% depending on risk levels).
SEZ AT INDIA
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.
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. 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. To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. 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;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
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 applications duly recommended by the respective State Governments/UT Administration are considered by this BoA periodically. All decisions of the Board of approvals are with consensus.
The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.
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.
Some of the important SEZ in India are as follows -
Karnataka Biotechnology and Information Technology Services - SEZ on biotechnology sector in Bangalore's Electronics City, over an area of 43 acres
Shree Renuka Sugars Limited - SEZ on sugarcane processing complex covering 100 hectares, comprising a sugar plant, power station and distillery, at Burlatti in Belgaum district
Ittina Properties Private Limited and three other - SEZs in IT sector, covering electronics, hardware and software sectors in Bangalore, over an area of 15.732 hectares
Wipro Infotech - SEZ on IT / ITES at Electronics City, Sarajpur Bangalore
Hewlett Packard India Software Operation Pvt. Ltd. - SEZ on IT
Food processing and related SEZ services in Hassan, over an area of 157.91 hectares
SEZs on pharmaceuticals, biotechnology and chemical sectors in Hassan, covering of 281.21 hectares
SEEPZ - Andheri (East), Mumbai
Khopata - Multi-product, Mumbai
Navi Mumbai - Multi-product, Mumbai
Salt Lake Electronic City, West Bengal
Manikanchan - Jems and jewelery, West Bengal
Calcutta Leather Complex, West Bengal
OBJECTIVES OF SEZ AT INDIA
Generation of additional economic activity across all the states
Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
Promotion of investment from domestic and foreign sources
Creation of employment opportunities across India
Development of world class infrastructural facilities in these units
Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities
Single window clearance cell for the establishment of Special Economic Zone
Single window clearance cell within each and every Special Economic Zones
Single window clearance cell relating to formal requirements of Central as well as all State Governments
Easy and simplified compliance procedures and documentations with stress on self certification
THE SALIENT FEATURES OF THE FIRST SEZ POLICY OF INDIA
Exemption from duties on all imports for project development
Exemption from excise / VAT on domestic sourcing of capital goods for project development
Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any
restrictions on foreign ownership
Income tax holidays on business income
Exemption from import duty, VAT and other Taxes
10% FDI allowed through the automatic route for all manufacturing activities
Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
Simplification of procedures and self-certification in the labor acts
Artificial harbor and handling bulk containers made operational through out the year
Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations
Has host of Public and Private Bank chains to offer financial assistance for business houses
A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise
Well connected with network of public transport, local railways and cabs
Pollution free environment with proper drainage and sewage system
In-house Customs clearance facilities
Abundant supply of technically skilled manpower
Abundant supply of semi-skilled labor across all industry vertical
Easy access to airport and local Railway Station
10-year tax holiday in a block of the first 20 years
Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis
No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation |
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