Special Economic Zones

UGC SAP National Seminar on Special Economic Zone (SEZ)
16-17th March, 2007 at Department of Geography, Delhi School of Economics,
University of Delhi, Delhi – 110007, India
SPECIAL ECONOMIC ZONES-BOON OR BANE?
Shankar Jha 1&
Sangeeta Mishra 2
INTRODUCTION
Special Economics Zones is specially depicted duty free enclave and shall be
deemed to be foreign territory for the purpose of trade operations and duties and also
tariffs. Therefore, goods supplied to Special Economics Zones from Domestic Tariff Area
(DTA) are treated as deemed export and goods brought from SEZ to Domestic Tariff
Area (DTA) are treated as imported goods. This scheme was introduced in EXIM policy,
which came into effect from 1st April 2000. This scheme has been introduced saying,
having minimum paper work, single window clearance and transparent policy. The main
objective behind encouraging SEZ is to give big push to our exports. Any private or
public or joint sector or state government or its agencies can set up special Economic
Zone.
This SEZ s will have factories, IT Parks, office space, warehouses, residential,
apartments and malls. Thus SEZ will be for manufacturing of goods and rendering of
services.
Our economy is plagued with laws relating to labour, environment, small
industries, foreign investment and bureaucratic system, which increases the cost of
production and the price, which keeps us out of global market. These laws will not be
applicable in SEZ.
Special Economics Zones, when operational are expected to offer high quality
infrastructure facilities and support services, besides allowing for duty free import of
capital goods and raw materials. Setting up of SEZ is also treated as an infrastructure
development activity and that is why offered tax incentives.
‘In order to encourage exports, government has set up 8 Export Promoting Zones
(EPZ), which in the year 2000, government replaced by a new scheme Special
Economic Zones (SEZ), with more benefits and incentives offered to SEZ, which were
previously not available to EPZ. The difference between SEZ and EPZ is that, SEZ is an
integrated township with fully developed infrastructure, whereas EPZ was just an
industrial enclave.’ (Aggarwal, 2006).
1 Shankar Jha
Lecturer in the Dept. of Business Economics, Faculty of Commerce,
M.S. University of Baroda.
2 Sangeeta Mishra
Lecturer in the Dept. of Geography, Faculty of Science,
M. S. University of Baroda
UGC SAP National Seminar on Special Economic Zone (SEZ)
16-17th March, 2007 at Department of Geography, Delhi School of Economics,
University of Delhi, Delhi – 110007, India
‘The competitive advantages of SEZ may also be explained within the framework
of the “cluster approach.” Zones are industrial clusters, where external economics of
scales and other advantages help the operating competitive production system and
attractive investment in particular, FDI. ‘(Aggarwal, 2006).
The package of fiscal incentives offered to SEZ units and the developers are:
• Exemption from custom duties. Central excise duties, services tax, central
sales taxes, and securities transactions tax to both, developer and SEZ
units.
• Tax holidays for 15 years that is 100% tax exemption for 5 years, 50% for
the next 5 years, and 50% of the plough back export profit for the next 5
years.
• 100% income tax exemptions for the 10 years in a block period of 15
years for SEZ developer
• On 1st March 2007, the government of Gujarat announced that SEZ units
would be exempted from Value Added Tax and from other state taxes.
Other than Fiscal incentives, SEZ units are also enjoying other benefits which are
• Exemption from industrial licensing requirements for items reserved for
SSI sectors.
• Job work on behalf of domestic exporters for direct export allowed.
• Support services like banking, post office clearing agents etc provided in
zone complex.
• Assurance of continuous and quality power supply to SEZ units.
• SEZ units would be exempted from the electricity duty for 10 years period
from the date of production.
POSITIVE ASPECTS OF SEZ
By Special Economic Zones, we are trying to make India, a global
manufacturing hub. In a country like India where the problem of unemployment is
serious, where majority of youth are busy in finding out job for them, SEZ is to create
more employment to the Indian people, particularly to educated people. Government
also believe that by Special Economic Zone, we can create millions of employment. If we
all people of a country put collective efforts in implementing policies, we will definitely
make India an attractive destination for becoming a Global Manufacturing hub.
The Special Economic Zones policy, based on private sector financing and
aimed at creating both industrial and social infrastructure is clearly an important step in
this direction and deserves the incentives that are given to SEZ.
The SEZ are expected to provide employment to the millions of people. This
employment is expected to outweigh the large revenue losses and large scale
displacement of farmers.
UGC SAP National Seminar on Special Economic Zone (SEZ)
16-17th March, 2007 at Department of Geography, Delhi School of Economics,
University of Delhi, Delhi – 110007, India
‘The Economic Survey of 2006-07 highlighted the positive aspect of SEZ.
Export from functioning SEZs - mainly former Export Promoting Zones that were
converted into SEZ, was worth $ 5 billion in 2005-06.There are 1016 units in operation.
These providing direct employment of about 1.79 lakhs people. Private investments in
these units is to the tune of Rs 3163 crores. The notified 63 SEZ have already attracted
investment worth Rs 11,194 crores in the last year, providing direct employment to
15000 workers. The survey added that once all 63 notified SEZ become fully operational
by the end of 2009, total investment of which would touch Rs . 58.459 crores and also
8.9 lakhs new jobs would be created’(ET-2007)
NEGATIVE ASPECTS OF SEZ
The controversies against SEZ started when this Act was passed in June 2005, without
any discussion. How government could pass this Act without any public discussion?
Ministry of Finance feels that tax rebate would result in huge losses from
direct and indirect taxes. According to the finance minister, country would be losing Rs.
160,000 crores on account of SEZ granted tax rebate by 2010 ,which is certainly not a
small amount.
Ministry of Commerce and Industry, is canvassing for SEZ, in order to make
our industries more competitive in the global economy, but principally they are incorrect
.By giving them tax exemption to SEZ units would not make them competitive in the
global market. Even RBI and IMF have warned against the present trend of promoting
SEZ in India. Thus, SEZ are enjoying huge concession and financial incentives would
provide employment of 5 lakhs people by the end of 2007.Are the benefits in terms of
employments sustainable?
The fiscal deficits of the country are rising, government is trying to control this
deficit. Then, is it justified government action offering tax concession to SEZ units? This
is also not in favour of those people who are paying taxes.
We are planning to achieve double digit growth rate, for that we need to
fasten growth rate of agricultural sector and industrial sector. Industrial sector is already
doing well, having recorded 11% growth rate .Now with the help of SEZ; it will grow
more, but what about the agricultural sector which is already lagging behind, with a
growth of 2.3% to 2.7%, certainly it is not satisfactory against the target of 4%.Then, is it
justified to convert the most fertile agricultural lands into SEZ, making poor farmer
poorer. What would then happen to the supply of food-grains, if the fertile lands are
taken for SEZ? There should be complete ban on conversion of the fertile lands for
commercial use, only barren and waste land should be permitted to use for the
commercial purposes. How can government allow acquiring fertile agricultural land for
industrial use? Why government is not asking the industrialists to set up their units in
waste and barren lands? Thousands of farmers had filed the objections and raised their
voices against SEZ said why their lands and livelihoods should be sacrificed to promote
SEZ, for the profit of the SEZ developer and industrialists?
UGC SAP National Seminar on Special Economic Zone (SEZ)
16-17th March, 2007 at Department of Geography, Delhi School of Economics,
University of Delhi, Delhi – 110007, India
When government has offered tax concessions to SEZ units, why not
government declare entire India as SEZ? Let small and medium entrepreneur also enjoy
tax benefits. These SEZ will certainly kill many small and medium business.
SPECIAL ECONOMIC ZONES IN GUJARAT
In Gujarat, the central government has sanctioned 33 Special Economic
Zones and 20 more are in pipeline. Here also, farmers had raised their voices against
the acquisition of their land for SEZ like the farmers of Haryana and Maharastra. The
said objective of special economic zone is to create more employment opportunities, but
rather SEZ have snatched employment of many farmers and artisans. The farmers of
Gujarat had also complained Prime Minister that they are forced to sale their most fertile
agricultural land at a lower price and in return they are not been properly rehabilitated .In
one of the unit of SEZ, in the Rajula taluka of Amreli district, a power compainy named
“Viza Power” had given notice to 750-850 farmers to quit their lands and sell them at
the price which they had offered. These farmers had complained the concerned authority
for such exploitation.
In Vadodara district also, government acquired 1500 hectares most fertile
land, which had even irrigation facilities, to develop IT Park at Por and Fajalpur. Due to
this IT Park, around 3000 to 4000 people who were directly dependent on those 1500
hectares of land would loose employment and livelihood. Against of that, this IT Park is
expected generate employment of only 800 to 1000 people. So, where economy is
gaining in terms of employment by encouraging SEZ?
Mundra SEZ is for multiproduct. Here, because of SEZ , fishermen have lost their
traditional occupation. For the extension of SEZ, the government has demanded 1500
hectares more of forested land. Since SEZ are also exempted from the environmental
impact assessment , it will certainly have adverse effect on environment .
Surat, which was an export promoting zone, became SEZ, many workers in the
company of SEZ, recruited on contract basis. They are employed on short term contract
so they can be hired and fired at any time. Most of the workers had complained that they
are not even getting the minimum wages, as the entrepreneur by law, are exempted to
pay minimum wages. Since industries in SEZ are very export oriented, emphasis is on
minimizing cost of production and to keep price lower in the world market. Thus, in order
to keep cost of production lower, workers are exploited more. Forcibly they are working
more than 8 hours, as per the labour law, they should get the over-time, but for SEZ,
labour law is also not applicable. Therefore many workers are deprived of their rights of
over-time.
CONCLUSION
The Economic Survey of 2006-07 pointed out some serious problems, which
have risen due to SEZ, like –acquisition of prime agricultural lands could have serious
implication on food security and there could be misuse of lands by the developers for the
real estate. Large scale land acquisition by the developers may lead to displacement of
UGC SAP National Seminar on Special Economic Zone (SEZ)
16-17th March, 2007 at Department of Geography, Delhi School of Economics,
University of Delhi, Delhi – 110007, India
farmers with meager compensation; even this survey pointed out that SEZ would lead to
loss of revenue and possibility of relocation of industries in SEZ to take advantage of tax
concession. (ET, 2007)
The government should promote Special Economic Zones only after analyzing
the cost and benefits of Special Economic Zones.
REFERENCES
1. Aggarwal Aradhana: ‘Special Economic zones’ Economic and political
weekly Nov 4th 2006.
2. Economic Times-Feb 28th 2007.
3. Gujarat Samachar -6th March 2007.
4. Govt of Gujarat policy on SEZ-www.smallindustry.com
5. Gupta R.K. ‘Special Exploitation Zone’ Info change and feature feb-
2007
6. Jhunjhunwala Bharat ‘SEZ Boon or Bane’ free press journalwww.
sify.com
7. Ministry Of Commerce industry and Industry, dept. of commerce ‘SEZ
in India’ www.sezindia.nic.in
8. Suchitra M –‘SEZ Special economic or exploitation zone’ Info change
and feature feb-2007
9. The Times Of India-2nd March 2007.