WEALTH MANAGEMENT

INFERNO-2020
TEAM- 4
Table of Contents
INTRODUCTION ................................................................................................................. 1
Objectives of SEZ scheme in India- ..................................................................................... 2
Advantages of SEZ- ............................................................................................................ 3
Major problems of the SEZ-................................................................................................ 4
New legislations and laws- ................................................................................................ 6
Infrastructure plan- ........................................................................................................... 7
• Transportation- ................................................................................................................. 8
• Power- ............................................................................................................................... 8
• Quality of ports and air transports- .................................................................................... 8
• Telecommunication- .......................................................................................................... 8
• Water and waste-water infrastructure- ............................................................................. 8
Sources of Funds- ............................................................................................................... 9
Phase-wise uses of the funds- ............................................................................................ 9
Strategies to combat concentration of SEZ’s .................................................................... 10
1. Invest in non-coastal areas- ..............................................................................................10
2. Infrastructure Development- ............................................................................................10
3. Increasing Diversification of Areas- ...................................................................................10
4. Upgradation of HR and Labour Relation Strategy- .............................................................11
Policies to encourage Foreign Direct Investments- ........................................................... 11
1. Trade policy leading to higher degree of openness- ..........................................................11
2. Monetary and fiscal policies- ............................................................................................11
3. Infrastructural Development ............................................................................................12
4. High Domestic Investment- ...............................................................................................12

INTRODUCTION-

On 1 April 2000, the policy of creating Special Economic Zones for the promotion of export-
oriented development in the public, private, joint sector or by the State Governments was first
implemented in the country with a view to providing an internationally competitive and hassle-
free environment for exports in the specified zones, so that the obstacles involved in the process
can be streamlined. The initial thought of the policy makers in 2001 was expansive enough to
include even SEZs focused on agriculture and horticulture, which subsequently found no
mention in the policy, and so were the liberal concessions proposed to zoned industries in the

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form of full income tax exemptions for the next twenty years. During that time, it was also
envisaged that some of the existing Export Processing Zones ( EPZs) would be converted to
SEZs by incorporating them in the act.

However, there has been a rapid rise in interest in SEZ proposals since 2002-03, with the active
participation of state governments as well as private actors. Over time , the number of approvals
issued by the Ministry of Industry and Commerce of the Central Government has gradually
increased from 18 in 2003 to 27 in 2004 to 41 in 2005, all of which were, in theory, required
to start operations. The SEZ Act , 2005 has played a major role in providing a clear path and
boosting private player sentiment and the booming economy as well as the real estate / housing
sector further asserted private players that for a long time economic policies and development
have remained in place. The Ministry of Commerce subsequently authorised the creation of as
many as 63 special economic zones, In the private / joint sectors or by state governments in
different parts of the country, which are now referred to as notified SEZs.

Undoubtedly, in an age of globalisation and its focus on rising competition and foreign trade
flows, SEZs have become an important part of the industrialization strategy of developing
economies. However, through increased export earnings and increased levels of employment,
they were also intended to serve the interests of the nation-state; they were also expected to
contribute to the overall growth of the local economy by triggering backward and forward ties
and to help diversify the local economy's export basket. However, from the direction in which
they are going, clear signs of success in this direction are not evident. Investment diversion and
industrial transfer from the domestic region to SEZs are also some of the pitfalls associated
with SEZs, as well as the possibility of foreign players dumping low-technology industries into
SEZs, i.e., simple processing industries only, given the provision of generous incentives and
the availability of low-wage labour in the host countries. Therefore, in addition to offering
incentives, the government also needs to keep a watch on check to come in and what is going
out to respond proactively instead of just sitting aside and watching the show; it can also frame
disincentives to prevent such unwanted results.

Objectives of SEZ scheme in India-

• Increase exports, increase foreign exchange earnings and create jobs in order to give a
boost to the production sector.

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 • To reduce the unemployment in areas with high unemployment.
• To increase the competitiveness in the private sector to increase efficiency and having
low prices of the products, leading to lower inflation.
• Grow the involvement of the private sector, which is correlated with the growth of
SEZs.
• To provide the set-up of export-oriented industrial units with easily built industrial
infrastructure as well as residential infrastructure.
• To have the process of self-certification to establish hassle-free operations.
• To stimulate foreign direct investment flows to India.
• To develop both technical and managerial skills.
• Transferring skills and technologies and attracting investors to particular skills that are
deemed strategically essential to the economy, such as electronics, IT, R&D and HRD,
to launch the economy.
• Building back-and-forth ties with local economies and contributing to regional
(provincial) economic growth.

Advantages of SEZ-

• It will reduce export transaction costs and provide an export and trade climate that is
hassle-free.
• The unemployment in the areas with high unemployment will reduce significantly, this
would even lead to higher tax revenue generation.
• The competitiveness in the private sector would increase, so domestic producers would
try to produce high quality products at low prices, leading to lower inflation.
• One of the priority items under implementation is the potential adoption of FDI in all
sectors of the trading economy.
• Under SAFTA, trade with our neighbouring countries should be increased by reducing
duties and developing border infrastructure.
• Trade and investment deals for Indian exporters with Singapore, Mauritius, ASEAN,
Japan , Korea and the EU are expected to provide further business openings.
• In order to have more value for our exports, Indian exporters need to export value-added
goods and join the distribution channels in the developed countries, and SEZs will be
fruitful.

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 • SEZs are considered to be growth engines which, through the generation of additional
economic activity, the development of infrastructure, the promotion of investment and
the export of goods and services, will lead to the creation of employment on a large
scale.
• Detailed recovery packages, starting with skills training, enhancement and participation
of local people (including women) in development activities, have ensured direct and
indirect benefits.

Major problems of the SEZ-

• The Act should aim to amend the Act to ensure that at least 50 percent of the land is
used for industrial purposes as opposed to the current SEZ Act , which allows up to 75
percent of the land to be used for non-industrial or industrial housing purposes, as it
encourages more real estate activity than industrial activity in the Zones and can make
it easier for developers to conduct a specula.

• The SEZ Act may permit the acquisition of industrial agricultural land, the construction
of housing that causes large-scale displacement of farmers in the name of industry, and
other social implications. The modifications requested are in line with the development
strategy of the SEZ adopted by West Bengal. Two SEZs stipulating the use of 50
percent of land for industry, 25 percent for infrastructure construction and the remainder
for industrial housing development have been approved by the State.

• Compared to industrial growth, food security is equally critical, the absence of which
leads to a spiralling inflation in the prices of basic food grains and goods that reach
people's daily consumption baskets rather than manufactured products. Land made
available to SEZs must be ensured that it is not agriculturally rich and priority should
be given to land flowing from waste land to land unfit for cultivation to land suitable
for restricted cultivation / lack of irrigation facilities to land suitable for cultivation in
one season per year.

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• Most of the government-approved 403 SEZs were developed in major cities and towns,
while SEZs should also be encouraged in the new pockets where there has been little to
no development.

• The SEZ agenda is extremely export-centred, not people-centred. Efforts must be made
to create adequate structures and frameworks to facilitate the overall humane
development of individuals and to stimulate local and regional economies.

• Lower interest rates are hardly going to provide an income for which he would have
considered giving up his land on his own. In the design of welfare promotion for the
poor, alternative strategies such as job guarantee programmes and pension plans for the
poor need to be addressed.

• There is real fear that, with the incentives, labour laws and tax benefits entrusted to
SEZs, the expansion of SEZs would ruin current SMEs in addition to declining
government revenues. With respect to the concentration of these units, it is the location
of SEZs that needs to take the decision.

• Giving extremely high benefits to foreign firms creates an unfair advantage for the
domestic firms and this may drive many small firms out of business. The profits these
MNCs earn is often repatriated back to their home countries and because of low tax
benefits the tax revenue gained form these firms is very low.

• The Ministry of Finance considers that Direct Taxes, Customs Duties and Excise Duties
will lose almost Rs.1,75,000 Crore over the next five years. Standard Income and
Corporate Taxes, along with Customs, Excise and State Sales Taxes, will not only be
waived, nor will the Minimum Alternative Tax be paid by developers, leaving exporters
alone. There is a common perception that a developers' scan of a scale not seen in India
will be created by the SEZs.

• Increased competition in foreign commodity markets calls on companies in the zone to

respond to these developments and calls for a quicker response, shorter lead ties, faster
delivery times, greater consistency in production and lower costs. Only by optimal

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 human resource growth and positive labour-management relations can these
competitive demands be met. This principle should be accepted by both the government
and the resident industries of the district.

New legislations and laws-

1. It must be ensured that all those who have stood to sacrifice their land in the cause of
industrialization, whether they are landlords, sharecroppers or landless workers, are
adequately compensated. The compensation does not have to be limited to the "fair"
land price alone, but certain livelihoods are either directly supported in the sector or
generated by other financial structures, such as pension funds and job guarantee
schemes, to ensure such livelihoods.

2. It must ask itself whether it has taken all the facets of the life of a farmer that are
influenced by the forcible takeover of his land into account. The compensation must be
obtained by a farmer who is evidently unhappy with the displacement of his land and
livelihood, or his family's very life will be threatened. In terms of costs, relocation of
the farmer 's family with alternative livelihood prospects in a different place that may
also be culturally alien from the place for which he was made to negotiate under the
SEZ, takes on crucial importance.

3. Certain incentives like low wages to workers, low taxes, subsidies, export benefits, land
subsidies creates a lot of unfair advantage for the foreign firms, these should be reduced
so that even domestic firms can compete with these firms. The worker’s wages should
be maintained at the similar levels to any other area and export taxes should be further
reduced as this will only improve the balance of payments balance and for the domestic
firms the taxes on imports of capital equipment should be reduced, this will reduce their
costs and help them compete with larger firm set up in SEZ.

4. The SEZ should not allow for any corporate tax benefits unless they meet a certain
amount of sales in exports, this would further improve the Balance of payments and
reduce their advantage over domestic firms.

5. By changing the instruments of action, the government could respond. The need to
reduce the number of people dependent on agriculture, which ultimately needs industry

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 promotion, is obvious. The expense should not, however, be harmful to the life of the
farmer and to agriculture itself.

6. A clear policy on SEZs should be established by the Centre and it must be Sector
Specific. Instead of allowing them through model legislation, States shall adhere to this,
the enactment of which will take longer and lead to more problems for undertakings
varying from State to State within the same country.

7. Within 50 kms of major towns and cities, the government should make attempts to stall
proposals for SEZs as the move would stop speculation on land prices leading to real
estate scams. The land use distribution provisions are entirely different from the
standards and procedures of urban planning, and there would thus be more pressure
from developers to reap the benefits of selling developed land at a very high premium.

8. Many industrial parks produced using land acquisition models contain only dead units
or have taken a very long time or have simply been unable to take off at all. You can
successfully turn these Industrial Parks into SEZs. This move not only saves the
acquisition of productive agricultural land, but also helps to set up specialised SEZs
using existing infrastructure and facilities in the surrounding areas, which could in turn
support development and job creation in the years to come.

Infrastructure plan-

In order to attract FDIs the government will have to improve the infrastructure of the country,
because the foreign MNCs will not only base their decision of entering a country on the basis
of the benefits they get through SEZs, the infrastructure development would be a major part
the government will have work on, as it will improve the overall living standard of the country
and the country would become developed. The infrastructure plan is as follows-

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• Transportation-
Extensive spending on roads and bridges will be required, as this will improve the
supply routes and the producers will receive the delivery of raw materials quicker. The
congestion and accidents would also reduce and this would improve the overall living
standards of the country.

• Power-
Major spending on improving the power and energy sector is required, spending more
on solar energy would promote sustainability and would attract hot money flows
through FDIs into the country.

• Quality of ports and air transports-

Improving ports and air transportation will not only improve the supply system put also
improve the tourism sector of the country. This would help the country growth and
increase the GDP, and attract more foreign investments in the country.

• Telecommunication-
Telecommunication is one of the major sector that needs additional spending to attract
more FDI, as telecommunication is one of the most important part for all the businesses.
• Water and waste-water infrastructure-
Though this might seem basic and not important for FDI, but it is one of the most
important things to work on to improve the living standards of the country and pushing

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 it towards being developed. This would be significant to increase the FDIs in the long
run.

Sources of Funds-

The government would take out these funds from the original budget of the country to spend
money for development of SEZ and the infrastructure. Major allocation would be done from
revenues from indirect taxes like GST.

Phase-wise uses of the funds-

• As mentioned in the new proposed laws, the farmers must be treated fairly during the
setting up of SEZs, so Rs 80000 crores would be allocated for the compensation for
their land and new accommodations.

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 • As mentioned in the infrastructure plan, the government will spend a significant amount
for the development of the infrastructure of SEZ so that more MNCs are attracted
towards the country and the FDI would increase. Therefore, Rs 35000 crores has been
allocated for the development of roads and Rs 10000 crores for the development of
bridges and 95000 crores for the construction in SEZ areas so that most building would
be government owned and the foreign firm can’t take advantage of buying real estate
and earn profits on the area developing instead of spending money on industrial use.

• Rs 20000 crores has been allocated for additional subsidies to firms and even the
farmers if needed even after the compensation of land.

Strategies to combat concentration of SEZ’s

1. Invest in non-coastal areas-

Investment in the economies of the non-coastal regions within the country will be an
effort to close the economic gap between regions. The Investment will increase
employment opportunities in the underdeveloped regions. Subsequently, It would also
encourage Domestic as well as Foreign Direct Investment.

2. Infrastructure Development-

The main components of the infrastructure construction is to develop transportation

networks, telecommunication systems and hydropower plants; policies that provided
favourable treatment to industries in energy, mining, agricultural processing and
tourism; enhancing education and public health services; and preferential policies to
attract FDI (e.g., lower tax rates and greater flexibility in land use).

3. Increasing Diversification of Areas-

Zones have an investment monoculture. This should change; there should be

increasing diversification of investment in terms of sources and sectors. Host States
should develop suitable strategies towards this end through their role in the zone
promotion and administration.

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 4. Upgradation of HR and Labour Relation Strategy-

State governments need to upgrade their human resources and labour relations
strategies. Zones which can offer high-quality human resources, training facilities
and labour relations services such as conciliation and mediation are more likely
to attract and retain world investors.

Policies to encourage Foreign Direct Investments-

As we saw in the new laws proposed for the SEZ , certain policies will be made strict to reduce
the unfair advantage the SEZs have on the domestic firms, however, to continue increasing the
FDI in the country these policies would be introduced-

1. Trade policy leading to higher degree of openness-

To attract FDI, relevant trade policy reforms leading to higher degree of openness are
essential. Trade openness refers to the orientation of a country's economy in the context
of international trade. The degree of openness is measured by the actual size of
registered imports and exports of an economy. With the increased importance of
globalisation, trade openness has become a key component to growth. Liberalisation of
trade leads to greater specialisation and division of labour leading to higher productivity
and export capabilities.

The export laws would be further reduced on firms in SEZ so that their costs reduce
and this will improve the Balance of payments of the country, as mentioned in the new
laws for SEZ.
2. Monetary and fiscal policies-

To attract firms to the country the government can use reflationary fiscal policies and
deflationary monetary policies by, increasing the government expenditure on
infrastructure and reducing the corporate taxes for the firms within SEZ and even
increasing the interest rates to attract hot money flows into the country and using two
different policies would also keep the inflation down and maintain price stability.

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3. Infrastructural Development

Infrastructural development is needed to attract larger FDI in an economy. A major

component of infrastructure is electricity, and analysis shows that electric power
consumption is strongly and positively associated with inflow of FDI. Infrastructure
also includes roads and highways, railways and waterways, telecommunication
services, etc. These services assist in smooth operation of the businesses and promote
greater productivity with the possibility of further investment. The standards of
infrastructure and business environment within SEZs have to be up to the global mark.

4. High Domestic Investment-

FDI is positively associated with the magnitude of domestic investment. Low or

stagnant domestic investment may show lack of business confidence by the domestic
investors, which may convey negative messages to the foreign investors. Therefore,
government needs to improve the business environment, reduce the cost of doing
business and facilitate domestic investment through eliminating policy induced and
supply side constraints.

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