In the early 2000s, India was positioned at the intersection of economic transformation, and the demand for a sturdy framework to instigate growth and draw foreign investments was becoming relatively high. The Country suffered from a torpid manufacturing sector and an unsteady fiscal regime, which prevented potential investors. Comprehending the situation and the urgent need for reform, India was one of the first countries in Asia to perceive the efficacies of the Export Processing Zone (EPZ) model in Kandla in 1965. To overcome the possible weaknesses and to invite larger foreign countries to invest in India, the Special Economic Zones (SEZs) Policy was introduced in April 2000.
The policy was formulated to make SEZs a power source for economic development alongside some magnificent infrastructure topped with an attractive fiscal regime both at the Central and State levels with fewer regulations than before. Special Economic Zones in India started functioning from 1st November 2000 to 9th February 2006 under the regulations of the Foreign Trade Policy. To implant faith in investors and the commitment of the Government to have a steady SEZ policy regime and for greater economic growth, an extensive draft of the SEZ Bill was prepared after various deep discussions with the stakeholders. The Minister of Commerce and Industry and other high-ranking officials even met to discuss this bill. This led to the passing of the Special Economic Zones Act, 2005 by the Parliament in May 2005. The draft was publicly discussed as it was posted on the Department of Commerce website for suggestions. Nearly 800 Suggestions were received on the rules draft, followed by various deliberations; the Special Economic Zones Act, 2005, supported by SEZ Rules, came into effect on 10th February 2006. The Act provides simple procedures and single-window clearance for setting up units in Social Economic Zones.[1].
WHAT IS A SPECIAL ECONOMIC ZONE?
The Special Economic Zone is a designated area within a country that is typically tax-free, where the economic regulations differ from the regions of the same country. It is designed to attract more foreign investments and elevate economic activity. Business units set up in the Special Economic Zone benefit from running their operations at lower costs. They aim to increase their industrial sector growth, create employment opportunities, and promote exports in the country. As of 31st March 2024, there are 280 functional SEZs in India, out of which Tamil Nadu has the highest concentration on SEZs, with 54 operational Special Economic Zones contributing to the State’s Exports. [2]
OBJECTIVES OF THE ACT:
- To promote investment from Domestic and Foreign Sources.
- To generate additional economic activity.
- To boost exports of goods and services.
- To build employment opportunities.
- To develop infrastructural facilities.
CONSTITUTION OF THE BOARD OF APPROVAL:
A board under Section 8 of the Special Economic Zone Act, 2005 approves the proposal for setting up an SEZ. The Central government has constituted the board of approval based on the powers conferred under the act. The board of approval consists of 19 members, with its chairman as the Secretary, Department of Commerce and its constitution is mentioned under Section 8(2) of the Act [3]. The powers and functions of the board of approval are as follows mentioned under Section 9 of the Act [4]:
- Granting or rejecting or modifying the approval for establishing the Special Economic Zones.
- Granting approval for developers to carry out authorised operations.
- Granting of approval for developers or units to bring foreign collaborations and investments.
- Granting, rejecting, or modifying proposals for providing infrastructural facilities in Special Economic Zones.
PROCEDURE FOR MAKING PROPOSAL TO ESTABLISH SEZ:
Section 3 of the Special Economic Zones Act, 2005, mentions the procedure for making a proposal for establishing SEZ. It states that any individual developer, company, partnership or cooperative society who is interested in the establishment of an SEZ will have to submit an Application made in Form- A of the Social Economic Zones Act,2005, to the concerned State Government. The state government, along with its recommendation within 45 days from the receipt of such a proposal, will have to forward it to the Board of Approval. A SEZ or FTWZ (Free Trade Warehousing Zone) shall have adjacent areas of 50 hectares or more of land. SEZs are set up in some states like Assam, Meghalaya, Himachal Pradesh, etc., or Union Territory, where only 25 hectares or more of land is the minimum requirement [5]. This minimum requirement is not applicable for setting up a SEZ for IT/ITES, Biotech or Health (other than hospital) services, but the minimum built-up possess requirement shall be as of SEZ as per the (3rd Amendment) Rules, 2019 notified vide notification dated 17.12.2019. Once the Board and the Central Government have approved an SEZ has been notified, the units can be set up in the SEZ.
ADVANTAGES AND FACILITIES AVAILABLE TO SEZ DEVELOPERS:
- Exclusion from custom duties for the development of SEZs for operations that are approved by the Board of Approval
- Exclusion from Central Sales Tax (CST)
- Exemption from Service Tax [6]
- The supplies provided to SEZ are Zero-rated under the IGST Act 2017
PERFORMANCE OF SPECIAL ECONOMIC ZONE AS ON 30.04.2024 [7]:
- EXPORTS:
Exports of Rs. 9,90,747 Crore (2020 – 2021) have increased to Rs. 13,55,220 Crore (2022-23) - INVESTMENTS:
Investment of Rs.4,035.51 crore (2005-2006) has significantly increased to Rs. 6,92,914 crore as of (2022- 23) - EMPLOYMENT:
Employment opportunities have been given to 1,34,704 person as in 2005 – 2006, which has escalated to employment being provided to 30,70,653 person as on 31st December 2023 (2022 -23)
AUTHOR:
Saraswathy Thogainathan, 5th year BBA. LL.B (Hons.), Saveetha School of Law, Chennai