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SEZ- Perspective and Impact

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SEZ- Perspective and Impact

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We at MBARendezvous.com have started series of articles to equip MBA aspirants with general awareness with the hope that you would get success in various MBA entrance exams

Following article on ” SEZ- Perspective and Impact ” is part of our series on general awareness: 
 
Special Economic Zones are the duty free enclaves created primarily to boost the economic activity in the said area. SEZs are deemed to be a foreign territory while the rest of the region is known as Domestic Tariff Area (DTA). The Special Economic Zones Policy was announced in April 2000 with the intention of making the Special Economic Zones an engine for economic growth supported by quality infrastructure and an attractive fiscal package both at the Central and State level, with a single window clearance. However the Special Economic Zones (SEZ) Act, 2005 came into effect in 2006 with following objectives:
 
(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 benefits for setting up an SEZ are immense. For instance-
 
1)Facilities in the SEZ may retain 100 per cent foreign-exchange receipts; 
2)No cap on foreign investment for small-scale-sector reserved items which are otherwise restricted; 
3)Exemption from industrial licensing requirements for items reserved for the small-scale-industries sector.
4)No import license requirements
5)Exemption from customs duties on the import of capital goods, raw materials, consumables, spares, etc
6)No routine examinations by Customs for export and import cargo.
 
Apart from above benefits, many other incentives are also provided to the developers for establishing SEZs which had lead to the setting up of many SEZs. As of now, there are 143 SEZs in the country and the maximum SEZs are being set up in Tamil Nadu (20) followed by Karnataka (18) and Maharashtra (14). Additionally, more than 500 SEZs are approved which are in different stages of development. 
 
According to a study conducted by the Institute of South Asian Studies (SAS), the fiscal environment available to SEZ developers and units have played a vital role in attracting export oriented foreign investment in areas such as hardware, apparel and shoes, which would have normally headed for other Asian destinations in its absence. This study also points towards the relief and rehabilitation packages in poor areas where people's lives have improved as a result of SEZ activity.
 
Another study by The Indian Council for Research on International Economic Relations on Special Economic Zones which concludes that if the opportunities thrown open by globalization are to be grabbed, policies ensuring a business environment that is predictable and is in tune with the needs of the private sector need to be the top priority of the policy agenda. The SEZ policy has been described as an attempt by the Government to turn around the domestic economy and find a niche in the global economy. According to this study, if implemented successfully, it can play a crucial role in promoting the manufacturing sector. While highlighting the incremental benefits in terms of employment, the study goes on to state that the SEZ policy will make a positive impact on regional employment and human development by creating economic opportunities, especially for those without high levels of schooling. The fact that the SEZ Policy has encouraged many of the Developers such as Nokia, Apache etc. for setting up of their operations in India has been brought out in the study. SEZ Policy has also encouraged Indian companies like Mahindras, Wipros, Infosys etc. to set up SEZs.
 
However, the SEZ policy of the government, just like any other policy is not devoid of criticism such as misuse of land in SEZs, diversion of domestic industries, tax losses on account of fiscal incentives given to SEZs etc., which have been raised from time to time. It is alleged that the agriculture land is forcefully purchased from farmers at much cheaper rates and is not used for the assigned development as majority of area is not used for industrial activity. Misuse of land while creating infrastructure in the non-processing area such as housing, commercial and shopping complexes etc is often quoted. However, the concept of developing a non-processing area in SEZs is to provide support facilities to the SEZ processing area and the employees working therein. The authorized activities are to ensure that world class infrastructure is set up to facilitate the operation of manufacturing and service units in the SEZ.
 
Another area of concern often cited was on shifting of domestic industries into SEZs. The objective of the Special Economic Zone Policy being generation of fresh investment and employment, conversion of any DTA unit or even 100% EOU or STPI unit is not allowed. In order to ensure that such conversions do not occur, the SEZ Act and Rules stipulate that SEZs can be set up only on vacant land. But here also, industries from the non SEZ area can relocate themselves to the SEZ area to avail the benefits of SEZ. This may create the islands of prosperity in the ocean of poverty. Therefore shifting of industrial establishments must be checked as the objective of SEZ is to reduce regional inequalities, not increase them.
 
criticism thrown is that the Government would be incurring tax losses on account of the direct and indirect tax incentives being given to SEZs is yet another apprehension expressed from time to time. However, evidence of employment and investment generated by the private sector SEZs in the short time span of two years of operation of the Act show that in the long run, the benefits accrued from SEZs would far outweigh the tax losses to the Government which are notional in nature.
 
In the year 2010-11, the exports from SEZs have shown a growth of 43 percent over year 2009-10. Further, the employment growth has also been picking up in SEZs. Though it is too early to comment on the efficacy of SEZs but primary findings reveal that they had the potential to transform the economy into a vibrant economy.  
 
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