Special Economic Zones in India

Special Economic Zones in India

An SEZ i.e. Special Economic Zone is a geographical area that has liberal economic laws than the general economic laws. It helps gain tax and other business incentives which in turn attracts foreign investment and build entrepreneurship. An SEZ is a trade capacity development tool, with the goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. Since, India offers great incentives by investing in SEZ; therefore, it attracts foreign exchange and perhaps, boosts economic growth, exports and employment in India. The Ministry of Commerce and Industry lays down the regulations that govern the setting up and administering of the SEZs. The policy framework for SEZs has been enacted in the SEZ Act and the supporting procedures are laid down in SEZ Rules.

The SEZs Rules provide for the procedures for setting up SEZ and for single window clearance on matters relating to central as well as state governments. The expected SEZ investments are in sectors like IT, Pharma, Bio-technology, Textiles, Petro-chemicals, Auto-components, etc. The SEZ Rules provides the simplification of procedures for development, operation, and maintenance of the Special Economic Zones and for setting up and conducting business in SEZs. This includes simplified compliance procedures and documentation with an emphasis on self-certification; single window clearance for setting up of an SEZ, setting up a unit in SEZs and clearance on matters relating to Central as well as State Governments; no requirement for providing bank guarantees; contract manufacturing for foreign principals with option to obtain sub-contracting permission at the initial approval stage; and Import-Export of all items through personal baggage.

The SEZ policy was introduced in India in April 2000, as a part of the Export-Import (“EXIM”) policy of India. Units were allowed be set up in SEZ for manufacture of goods and rendering of services to provide an internationally competitive and hassle free environment for exports. Sales in the Domestic Tariff Area by SEZ units are subject to payment of full Custom Duty and as per import policy in force. Further Offshore banking units are being allowed to be set up in the SEZs.

The minimum requirements to set up SEZ in India are as follows;

1.    Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ).

2.    The minimum size of the Special Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not be applicable to product specific and port/airport based SEZ. This measure is expected to promote self-contained areas supported by world-class infrastructure oriented towards export production.

3.    The application must accompanied along with Project Report containing financial details, area from port, proposed business and details of foreign equity.

Obligations of SEZ Units, if approved

1.    SEZ Units needs to provide periodic reports to the development Commissioner and Zone Customs

2.    SEZ Units are also required to furnish the financial accounts periodically along with clearly mentioning the value of exports and imports

3.    SEZ Units are also required to get positive Net Foreign exchange for a period of 5 years from commencement of production.