First SEZ Policy of India

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The First SEZ Policy of India came in to existence because the economic reforms promulgated and implemented in the early 1990s did not resulted in the overall growth of the Indian economy. The First SEZ Policy of India was drafted to act as a catalyst to fuel the economic earnest in the early 1990s. The economic reforms of 1990s did not produce desired results, especially the Indian manufacturing sector witnessed slump in the second-half of the decade. Bottlenecks like red tape, lengthy administrative procedures, rigid labor laws and poor physical infrastructural facilities had detrimental effects on the flow of Foreign Direct Investments (FDI). Further, the Indian markets were not mature enough to embrace Foreign Institutional Investors (FIIs) in the system. Furthermore, the legal framework of Indian economy was not binding enough to prevent overexploitation of Indian markets by the foreign investors. Thus, there was no congenial environment for investments in India in spite of implementation of liberal economic policy by the Government of India.

To negate these problems, the Government of India decided to reestablish its old policy of developing Export Processing Zones (EPZs). The previously designed Export Processing Zones (EPZs) of India could not provide the expected economic returns due to the lack of Government of India commitment towards the formulated schemes, irrelevant reforms, poor policy, poor land selection, failure to provide world class physical infrastructure, meager fiscal incentives and poor management. The Government of India devised a new and modern version of Export Processing Zones (EPZs). The new amended version of these Export Processing Zones (EPZs) is in fact Special Economic Zones (SEZs). Under the new Government of India policy, all existing Export Processing Zones were converted into Special Economic Zones in the year 2000. The basic difference between a Special Economic Zone and Export Processing Zone is that while the former is an integrated and fully equipped township while an Export Processing Zone is a dedicated area for intensive industrial activity.

The Special Economic Zone policies are well complimented by the provisions of the Acts and Rules of Special Economic Zone. The SEZ Rules provide pre-defined minimum land requirements for different type of Special Economic Zones. To create an investor friendly environment, the Government of India formulated a stable Special Economic Zone policy regime and it is devised with a view to add stability to these SEZ units of India. A number of meetings were held across India for the formulation of - 'The Special Economic Zones Act, 2005', which was subsequently passed by Parliament in May 2005. The SEZ Act, 2005 and SEZ Rules became effective on and from 10th February 2006. The SEZ Act 2005 defines the key role for the State Governments in Export Promotion and creation of infrastructure. A Single Window SEZ approval mechanism has been facilitated through a 19 member inter-ministerial SEZ Board of Approval or BOA. The respective State Governments or Union Territories Administration duly recommended these applications. This Board of Approval considers any application for the establishment of a Special Economic Zone. All decisions of the Board of Approvals are with consensus of all the concerned members. 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 main objectives of the First SEZ Policy of India are as follows -
  • 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 are as follows -
  • 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

Last Updated on May 29, 2015