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SEZ-AN INTRODUCTION

Special Economic Zone(SEZ) is a specificallydelineated duty free enclave and shall be

deemed to be foreign territory for thepurposes of trade operations and dutiesand tariffs

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FEATURES O F SEZ

D uty free imports of capital goods Inputs for production for exports L iberal access to foreign exchange

Encouragement to F DISimplified one stop approval

G enerous tax concessions especially in the earlyyears

Flexible labour laws L imitation on sales within the country B etter infrastructure

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

Introduction

- H istorical background- From ancient times H arappan, Roman to mediaeval times and later- Small fenced - in areas specializing in manufacturing for exports

- M odern times Free ports Aden, Singapore, H ong Kong Difference- M odern version of export zones starting from Puerto Rico (USA), ShannonInternational Airport in Ireland in 1959 latter considered the first one

- India Kandla in 1965. EPZs in Taiwan, S. Korea and other countries- Since 1979, most extensive, large and successful SEZs in PRC (China)- After early start, India slow in following up- Recent interest in India

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R ATIONALE BEHIND SPECIAL ECONOMICZONES (SEZs)

Main be nef its sought fr om SEZ s a re :

Fast er Ec onomi c Gr owthEmploym e nt ge ner ation on a la r ge s caleEa r ning mo re f ore ign exc hang eInf usion of mod er n tec hnologi e s & the ir de monst r ation and sp re ad effec t

Economi e s in pr odu ction du e to clust er ingExpo r t le d gr owth and cre ation of f ast gr owing e mploym e nt a re as

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DIFFE R ENCE BETWEEN SEZs & EPZ

W hile EPZ is an indust r ial e stat e, SEZ is an indust r ial township. The s cop e of SEZ s is also mu ch wider and the ir linkag e s with the dom e sti cec

onomy st

r ong

er .

SEZp

r ovid

es

suppo

r ting

infr ast r ucture su ch as housing , po r ts , r oads and te lec ommuni cations and theref ore hav e wider indust r ial bas e .

Compa re d to EPZ s , SEZ s give mu ch mo re in ter ms of ex po r ts , indust r ial gr owth ,inve stm e nts both dom e sti c and f ore ign and e mploym e nt ge ner ation

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in ChinaPolicy Background

- Reforms since 1978, Aim : Quadrupling GD P in 20 years 1980 to 2000- Four modernizations Liberalization of Agriculture; Rural & Town

Industrialization through TVEs; Defence; Urban & Area Export - orientedenterprises through ET DZs and SEZs

- Importance of the last in faster economic growth, modernization ofIndustry & Trade and export growth

- Policy of preferred regions unequal growth open - door policies- H ong Kong and East Asian factors- O verriding approach based on Dengs O bservation: For us to establish

SEZs and adopt open - door policies, we must have a clear guiding ideology:that is, N ot to con strain but to relea se

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in China

Rea son s f or Succe ss:- Unique locations of the five SEZs, Shenshen, Shantou and Zhuhai are in G uangdong

Province adjoining H ong Kong. Fourth, Xiamen, is in Fujian Province and nearer Taiwan.- Large size with government and local authorities providing improved infrastructure with

foreign collaboration- Investment - friendly attitudes towards Non - Resident Chinese and Taiwanese!- Attractive incentive packages for foreign investment- Liberal customs procedures- Permission to sell in DTA- Flexible Labour Laws providing for contract appointments for specified periods- Powers to Provinces and local authorities to frame additional guidelines and in

administering the Zones.

These arise out of the over - all releasing open - door policy mentioned earlier

Emerging Challenge s

- O ver - capacity- H eavy burden of non - performing laws- Declining competitiveness- W TO constraints

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in India

The rea son s w ere :(i) Very Small Size of EPZs

Location Size (Sq. mile s)

Kandla ( G ujarat) 1.17

SEEPZ (Mumbai) 0.15

Cochin (Kerala) 0.16

Surat ( G ujarat) N.A

NO ID A (UP) 0.48Chennai (TN) 0.41

Vizag (AP) 0.56

Falta ( W B) 0.44

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in India

(ii) Inadequate infrastructure(iii) Restrictive policies

(iv) Lengthy procedures No Single W indow(v) Locational disadvantages(vi) Stringent labour laws

- In the 1990s, as a part of reforms, powers delegated to zone

authorities, additional fiscal incentives were given, policy provisionswere simplified and greater facilities were provided leading to some,not very significant, improvements.

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIASEZs in India

SEZ Policy o f 2000

- New Policy in April 2000. SEZs permitted to be set up in the public,private, joint sector or by the State G overnments

- M inimum size of 1000 hectares (4 sq. miles)- Simplified procedures and more incentives- M ain measures were:

Conditions for automatic approval relaxed considerablyCustoms procedures simplifiedUnits could produce items reserved for SS I units in domestic market100% FDI investment for manufacturing

Profits could be repatriated fullyFreedom for sub - contracting100% I.T. exemption for five yearsExemption from Central Excise Duty on capital goods, raw materials,consumable spares from domestic marketReimbursement of CST paid on domestic purchases

Some states also promulgated SEZ Policies (including Kerala)

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in India- Since 2000

11 functioning SEZs

About 40 were approved in addition G rowing interest by private developers to go in for large projects

Mumbai Integrated Special Economic Zone, Reliance Petroleum Zoneat Jamnagar and so on.

- The special Economic Zones Act 2005 Comprehensive law providing for larger tax incentives Covers all aspects of establishment of zones, operation and fiscal

regime

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SPECIAL ECONOMIC ZONES (SEZs)IN

CHINA & INDIA

SEZs in India

Incremental change s over 2000 Policy : main are :

Corporate I.T. exemption increased to a block period of 15 years100% I.T. exemption for 5 years, 50% for next five years and 50% of ploughed - backprofits for last five yearsO ther fiscal incentives in the form of exemption from Service Taxes and SecuritiesTransaction Tax

G reater operational freedom, eg., Free to fix user chargesApproval committee for each zone to provide single - window clearance in allmatters.10 more SEZs were sanctioned since the Act was passed in June 2005

B igger than before. Investment of over 15000 crores in all. Big players like W IPRO ,Reliance, Biocon, etc., in actionSEZs are public utilities under I. D. Act, but no changes in Labour Laws.

G eneral perception among f oreign inve stor s t hat SEZs wont play a great part in Indian manu f acturing

Reasons Problems of infrastructure, continued small size despite some increase;continued centralization of power with G oI & its functionaries, over - all restrictiveclimate for foreign investment. Role of F IPB and F IIA.

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CR ITICAL EVALUATION

Encourages Regional Disparities D etrimental to farmers interest by

taking up fertile agricultural land andthus compromise food security

Loss of tax revenueProfiteering in real estate

Too many SEZs in any one sector mayresult in declining competitiveness

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Suggestions for making SEZs morebeneficial

Scarce management and infrastructure resources could beconcentrated on an effective programme rather than spreadingthem too thinly

As the pace of industrialisation picks up, area under agriculture isbound to come down.Considering the countrys total land area,the proportion allocated to SEZs,both already approved and in the pipeline is miniscule(75,000 Hectares) spread over 16 states.

Investments in the order of Rs.100,000 Crs.over a period of next 3years with an employment potential of over 500,000 is expectedfrom the new SEZs apart from indirect employment during theconstruction of SEZs.

Profiteering in real estate could be checked by making the approvalprocess more stringent with applicants providing sufficient proofthat their intentions are genuine

A more even distribution of sector specific SEZs by way of sectoralcaps could be achieved

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CONCLUSION

F r om hum b le be ginnings thir ty ye a r s ago ,with 80 SEZ s in 30 c ount r ie s ge ner ating ba re ly $ 6 B illion in ex po r ts and e mploying a bout 1 million pe opl e to 3000 SEZ s op er ating in 120 c ount r ie s , a cc ounting f o r ov er $ 600 b illion in ex po r ts and 50 million

direc t e mploym e nt SEZ s hav e c om e a long way and a re here to stay as a ve hic lef or ec onomi c gr owth.

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CHINAS SEZS, COASTAL OPEN CITIES, AND OPEN ECONOMICR EGIONS