Special Economic Zones
(SEZs) and Export Oriented
Units (EOUs)
Special Economic Zones (SEZs)
The Special Economic Zones Policy was
announced in April 2000 with the objective of
making the Special Economic Zones an engine
for economic growth, supported by quality
infrastructure and an attractive fiscal package
both at the Central and State level with a single
window clearance. The experience in last 55
years with the Industrial areas and Industrial
clusters has been that large slums come up in
the neighbourhood of these areas. Besides, the
additional population creates pressure on the
Municipal System. The SEZ concept recognizes
the issues related to economic development and
provides for developing self-sustaining Industrial
Townships so that the increased economic activity
does not create pressure on the existing
infrastructure.
I. Special Economic Zones Act, 2005
and Special Economic Zones Rules,
2006
Asia’s first EPZ was set up in Kandla in 1965.
Seven more zones were set up thereafter.
However, the zones were not able to emerge as
effective instruments for export promotion on
account of the multiplicity of controls and
clearances, the absence of world-class
infrastructure and an unstable fiscal regime.
While correcting the shortcomings of the EPZ
model, some new features were incorporated
in the Special Economic Zones (SEZs) Policy
announced in April 2000.
To instill confidence in investors and signal the
Government’s commitment to a stable SEZ policy
regime and with a view to impart stability to the
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6
CHAPTER
SEZ regime thereby generating greater economic
activity and employment through the
establishment of SEZs, a comprehensive Special
Economic Zones Act, 2005, was passed by
Parliament in May, 2005 and received
Presidential assent on the 23rd of June, 2005.
The SEZ Act, 2005, supported by SEZ Rules,
came into effect on 10th February, 2006,
providing for drastic simplification of procedures
and for single window clearance on matters
relating to central as well as State governments.
As a result of this Act and Rules coming into
force, it was envisaged that the SEZs would
attract a large flow of foreign and domestic
investment in infrastructure and productive
capacity leading to generation of additional
economic activity and creation of employment
opportunities.
The main objectives of the SEZ Act are:
 generation of additional economic activity;
 promotion of exports of goods and
services;
 promotion of investment from domestic
and foreign sources;
 creation of employment opportunities; and
 development of infrastructure facilities.
II. Amendments Carried out in The
SEZ Rules, 2006
The following important amendments have been
made to the SEZ Rules, 2006:
 Prescribing minimum built up area for Bio-
technology & Gem & Jewellery Sectors;
 Special Economic Zones (SEZs) and Export Oriented Units (EOUs)
 Prescribing minimum processing area for
Free Trade Warehousing Zone (FTWZ);
 Inclusion of specific provisions regarding
grant of in-principle approval and its
extension;
 Providing for a lease period of not less than
five years as against the earlier provision
of lease period being co-terminus with the
validity of Letter of Approval;
 Stipulating the Upper limit of the area
required for multi product SEZs at 5000
hectares, with the State Governments
having the option to prescribe a lower limit;
 Revising the minimum processing area
uniformly at 50% for multi- product SEZs
as well as sector specific SEZs;
 Housing facilities to be provided to the SEZ
employees by the developer;
 Type of land to be mentioned in the
application form of SEZ;
 Reimbursement of duty in lieu of drawback
for supply of goods to SEZ developers
against Indian rupees;
 Term “vacant land” defined for the purpose
of SEZs;
 Clubbing of contiguous existing notified
Special Economic Zones notwithstanding
that the total area of resultant Special
Economic Zones exceeds 5000 hectares
 A number of other amendments to
delegate powers and to simplify the
procedure;
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 SEZ Authority Rules, 2009 have been made
for the smooth functioning of zones and
SEZ Authority has been set up accordingly.
III. Current status of approvals for
setting up of Special Economic
Zones
Seven Export Processing Zones set up by the
Central Government at Kandla (Gujarat), Santa
Cruz (Maharashtra), Cochin (Kerala), Noida
(U.P.), Chennai (Tamil Nadu), Falta (West Bengal)
and Visakhapatnam (Andhra Pradesh), were
converted to SEZs upon announcement of the
SEZ Policy. Another EPZ set up in the private
sector in Surat was also converted to SEZ. In
addition to these, 11 more SEZs were set up by
the State Governments/private sector during the
period 2000-2005 in the States of West Bengal
(2), Gujarat (1), Madhya Pradesh (1), Uttar
Pradesh (1), Rajasthan (2) and Tamil Nadu (4).
After the coming into force of the SEZ Act, 2005
on 10th February 2006, 573 formal approvals
have been granted for setting up of Special
Economic Zones, out of which 346 SEZs have
been notified and are in various stages of
operation. A total of 101 SEZs are already
exporting.
The fact that the approved SEZs are spread over
20 States and 3 Union Territories indicates that
these are not concentrated in any particular
region. The total land area involved in the 573
formally approved SEZs and 147 in-principle
approvals is around 197945 Ha. The total area
for the notified SEZs would not be more than
0.014% of the total land area of India.
 Annual Report 2009-10

Table: 6.1
State-wise Distribution of Approved SEZs
(as on 31.12.2009)

State Formal In-principle Notified Operational

approvals approvals SEZs SEZs

Andhra Pradesh 103 4 73 19

Chandigarh 2 0 2 1
Chhattisgarh 1 2 0 0
Delhi 3 0 0 0
Dadra & Nagar Haveli 4 0 2 0
Goa 7 0 3 0
Gujarat 48 11 30 8
Haryana 45 17 31 3
Himachal Pradesh 0 3 0 0
Jharkhand 1 0 1 0
Karnataka 52 9 29 16
Kerala 25 0 15 5
Madhya Pradesh 14 6 6 1
Maharashtra 110 36 58 15
Nagaland 2 0 1 0
Orissa 10 3 5 1
Pondicherry 1 1 0 0
Punjab 8 7 2 0
Rajasthan 8 11 7 3
Tamil Nadu 68 19 53 19
Uttar Pradesh 34 5 16 6
Uttarankhand 3 0 2 0
West Bengal 24 13 11 4

GRAND TOTAL 573 147 347 101

Source: Department of Commerce

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Special Economic Zones (SEZs) and Export Oriented Units (EOUs)

121
 Annual Report 2009-10

The six major sectors of IT/ITES, Hardware etc., the highest in Pharma/Chemicals sector (90%)
Textiles and Apparel (including Wool), Pharma followed very closely by engineering sector
and Chemicals, Biotech, Engineering and Multi- (70%).
products account for bulk (82%) of the SEZ
Among the major sectors, the progress in this
formal approvals granted so far. IT/ITES/
regard is slowest in respect of multi Product/
Electronic Hardware/Semiconductor is the single
Services wherein only 47% of formal approvals
most important segment accounting for about
have been converted into Notified SEZs. Sector-
61% of the total formal approvals followed by
wise details of formal approval, in-principle
Biotech and Engineering SEZs. More than half
approvals and notified SEZs are given in table
of the 573 formal approvals issued so far have
6.2 and charts 6.3 and 6.4.
reached the stage of notified SEZs. This ratio is
Table: 6.2
Sector-wise Distribution of Approved SEZs

State Formal In-principle Notified Operational

approvals approvals SEZs SEZs
Aviation/Aerospace 1 2 2 0
IT/ITES/Electronic Hardware/Semiconductor 351 10 214 62
Textiles/Apparel/Wool 19 12 12 4
Pharma/chemicals 22 2 20 4
Petrochemicals & petro. 4 0 1 0
Multi-Product 23 55 13 13
Building product/material 1 2 1 0
Beach & mineral/metals 2 0 2 0
Bio-tech 30 0 17 1
Engineering 23 9 16 5
Multi-Services/Services 17 14 8 0
Metallurgical Engineering 1 0 0 0
Electronic prod/ind 3 4 3 0
Auto and related 3 5 1 1
Footwear/Leather 7 2 5 2
Gems and Jewellery 11 4 5 3
Power/alternate energy/solar 4 2 2 0
FTWZ 8 9 4 0
Metal/Stain. Steel/Alum/Foundary 9 5 5 1
Food Processing 5 2 4 0
Non-Conventional Energy 5 0 3 1
Plasting processing 0 1 0 0
Handicrafts 4 1 2 2
Agro 5 4 4 0
Port-based multi-product 7 0 2 2
Airport based multiproduct 2 2 0 0
Writing and printing paper mills 2 0 1 0
GRAND TOTAL 573 147 347 101
Source: Department of Commerce (Figures are Provisional)

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Special Economic Zones (SEZs) and Export Oriented Units (EOUs)

123
 Annual Report 2009-10
IV. Some success Stories in SEZs
Details of some prominent new generation SEZs
which have made significant progress in terms
of exports, employment and investment
generation are given below:
Nokia Special Economic Zone in Tamil Nadu
(Telecom Equipments SEZ):
 Physical exports of Rs. 5531.53 crore
during the period from April- September:
2009.
 Direct employment provided to 14737
persons.
 Total Investment of Rs. 2702.28 crore has
already been made in this SEZ, out of
which FDI is Rs. 833.51 crore.
Projected investment of Rs.2930 crore (excluding
FDI) and projected direct employment of 20000
persons.
Mahindra City SEZ, Tamil Nadu (Apparels and
Fashion Accessories; IT/Hardware; Auto
Ancillary):
Srinivas Fashions, Madras Economic Processing Zone (MEPZ)
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A cluster of three sector specific SEZs in Tamil
Nadu, for Apparels and fashion accessories; IT
and Hardware; and Auto ancillary. Employment,
investment and exports for these three SEZs
together are:
 Physical exports worth Rs. 904.69 crore
during the period April-September: 2009
and Direct employment provided to 14056
persons.
 Investment of Rs. 1634.17 crore has
already been made in this SEZ, out of
which FDI is Rs. 191.27 crore.
 Projected investment of Rs.2234.13 crore
and projected direct employment of 56766
persons.
Apache SEZ (Adidas Group) in Andhra Pradesh
(Footwear SEZ):
 Physical exports worth Rs.129.3 crore
effected in three years (2006-07 to 2008-
09)
 Direct employment provided to 5165
persons, out of which 1482 are women
 Special Economic Zones (SEZs) and Export Oriented Units (EOUs)
employees.
 Investment of Rs.245.34 crore has already
been made in this SEZ, out of which FDI is
Rs.16.12 crore.
 Projected direct employment of 20000
persons.
Wipro Limited, Andhra Pradesh (IT SEZ):
 Physical Exports worth Rs. 586 crore was
Infosys, Madras Economic Processing Zone
effected in two years (2007-08 to
2008-09)
 Direct employment provided to 6748
persons.
 Investment of Rs. 271.13 crore has already
been invested in this SEZ.
 Projected investment of Rs.223 crore and
projected direct employment of 7000
persons.
Mundra Port and Special Economic Zone,
Gujarat (Multi product SEZ):
 Physical Exports worth Rs. 768.44 crore
was effected in two years (2007-08 to
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2008-09)
 Direct employment provided to 1642
persons.
 Investment of Rs.12714.69 crore has
already been made.
 Projected investment of Rs.38951.74 crore
and projected direct employment of
2,09,396 persons.
Reliance Jamnagar Infrastructure Ltd., Gujarat
(Multi Product):
 Physical Exports worth Rs. 25142.68 crore
during the period April-September: 2009.
 Direct employment provided to 2314
persons.
 Investment of Rs. 32095 crore has already
been invested in this SEZ.
 Projected investment of Rs.36274 crore.
 Annual Report 2009-10

‘VSFT Quilts & Pillow Pvt. Ltd’ Unit at Falta SEZ

V. Employment, Investment and generated in the Special Economic Zones are

Exports in SEZs: given in Box 6.1 and 6.2 below:

The details of employment and investment

Box 6.1
Direct Employment in Special Economic Zones (as on 31.12.09)

 SEZs in India provide direct employment to over 4.90 lakh persons;

 The incremental employment generated by the SEZs in the short span of time since the SEZ
Act came into force in February 2006, is of the order of 3.56 lakh persons.

Box 6.2
Investment in Special Economic Zones

The Special Economic Zones notified under the SEZ Act, 2005 have already made an investment
of Rs. 1.24 lakh crore in the very short span of time since the coming into force of the SEZ Act in
February, 2006.

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 Special Economic Zones (SEZs) and Export Oriented Units (EOUs)

Export Performance crore (as on 31st December, 2009). Exports from

the functioning Special Economic Zones during
The exports in the current year i.e 2009-10 from the last six years are as under:
the SEZs have been to the tune of Rs. 151785

Table: 6.3
Exports from the functioning SEZs during the last six years

Year Value (Rs. Crore) Increase (%)

(Over previous year)

2003-2004 13,854 39
2004-2005 18,314 32
2005-2006 22 840 25
2006-2007 34,615 52
2007-2008 66,638 93
2008-2009 99,689 50
2009-10 (upto 31st December 2009) 1,51,785

Source: Department of Commerce

Box 6.3
Recent policy changes in the EOU scheme

W.e.f. 27th August, 2009:

 Income Tax exemption under Section 10B and 10A of Income Tax Act to 100% EOUs and to
Software Technology Parks of India (STPI) units has been extended for the financial year
2010-11 in the Budget 2009-10.

 EOUs have been allowed to sell products manufactured by them in Domestic Tariff Area
(DTA) upto a limit of 90% instead of existing 75%, without changing the criteria of ‘similar
goods’, within the overall entitlement of 50% for DTA sale.

 EOUs will now be allowed to procure finished goods for consolidation along with their
manufactured goods, subject to certain safeguards.

 During this period of downturn, Board of Approvals (BOA) would consider extension of block
period by one year for calculation of Net Foreign Exchange earnings of EOUs.

 EOUs will now be allowed CENVAT Credit facility for the component of Special Additional
Duty (SAD) and Education Cess on DTA sale.

 DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%.

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 Annual Report 2009-10

Export Oriented Units (EOUs) Exports during 2008-09 from EOUs were of the
The Export Oriented Units (EOUs) scheme, order of Rs.1, 71,498.21 crore as compared to
introduced in early 1981, is complementary to the export of Rs.1, 68,838.78 crore during
the SEZ scheme. It adopts the same production 2007-08 registering a growth of 1.58%.
regime but offers a wide option in locations with Table: 6.5
reference to factors like source of raw materials,
ports of export, hinterland facilities, availability Export performance of the EOUs
of technological skills, existence of an industrial (Rs. Crore)
base and the need for a larger area of land for
the project. As on 31st December, 2009, 2561 Year Value of Exports
units are in operation under the EOU scheme. 2005-06 49,462.35
Table: 6.4 2006-07 69,964.60
State-wise distribution of Functioning EOUs 2007-08 1,68,838.78
(as on 31.12.2009)
2008-09 (P)* 1,71,498.21
States/UTs Functional
EOUs as on *(P) – Provisional data
31.12.2009 Source: Department of Commerce
Andhra Pradesh 242 EOUs are mainly concentrated in textiles and
Chhattisgarh 1 yarn, food processing, electronics, chemicals,
West Bengal 71 plastics, granites and minerals/ores. Chapter
Bihar 1 6 of the Foreign Trade Policy and Handbook of
Jharkhand 5 Procedure, (Vol-I) spells out the policy frame work
Orissa 20 for Export Oriented Units.
Meghalaya 1
Gujarat 292
Kerala 72
Karnataka 464
Tamil Nadu 462
Pondicherry 21
A & N Island 4
Maharashtra 406
Goa, Daman & Diu 56
Dadra & Nagar Haveli 24
Delhi 44
Haryana 108
Uttar Pradesh 107
Punjab 24
Rajasthan 105
Himachal Pradesh 4
Jammu & Kashmir 3
Chandigarh 3
Uttarakhand 3
Madhya Pradesh 18
Total 2561
Source: Department of Commerce

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