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Special
Economic Economy Notes For
Zone UPSC
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The SEZ (Special Economic Zones) are a specific geographical area that has economic laws different from
a country’s typical economic laws. SEZs have hassle-free laws wherein companies can enjoy various
benefits for carrying out their businesses like tax-free imports, etc.

• A SEZ can be understood as designated areas of the country that possess special economic
regulations that are not the same as the other areas in the same country. These regulations
contain certain measures that are favourable for Foreign Direct Investment in India.
• Setting up an SEZ in India is very advantageous for businessmen abroad. Conducting their
business here usually means that the company shall not only receive tax benefits but also the
opportunity to pay lower tariffs.
• The SEZs are located within a country’s national borders, usually near the border, so that
foreign trade is easy from these areas. In India, SEZs can be found in specific locations within
the states of Maharashtra, Kerala, Andhra Pradesh, Gujarat, Tamil Nadu, Uttar Pradesh,
Madhya Pradesh, and West Bengal.

The following banking awareness study notes intend to elaborate more on the special economic zones in
India. Hence, candidates are sure to find the following article noteworthy for their preparation of banking
awareness and related topics.

Special Economic Zones (SEZ) - Meaning & Overview

An SEZ is nothing but a specific area in a country, which possesses special economic regulations that are
different from the other areas of the same country. These regulations contain special provisions that are
conducive for foreign direct investment as well.

Businessmen who carry out business activities in SEZs receive tax benefits and the opportunity to save
on tariffs and duties.

Special Economic Zones in India are controlled by a three-tier structure:

• Board of Approval: Supreme controlling body in the department

• Unit Approval Committee: SEZ development and other related issues at the district level
• Development Commissioner: Controlling the unit approval committee

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Features of SEZs
Now, let’s understand the salient features of the special economic zones in India.

• As opposed to the international counterparts, the SEZs in India are developed by the
government, private, and the joint sector. Hence, it provides equal opportunities to both local as
well as international players.
• The government has allocated at least 1,000 hectares for the greenfield special economic zones
in the country. However, there is no restriction as to the favourable areas in constructing the
specific SEZs.
• 100% of the FDI is allowed for all SEZ endowments apart from the activities listed under the
unconstructive records.

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• The SEZ units are required to encourage the net foreign exchange yield. They are not entitled to
any least amount of additional guidelines or exports.
• Commodity boost from the DTA (Domestic Tariff Area) into the SEZ is known as exports, while
the commodity boost from the SEZ into the DTA is called imports.

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Types of Special Economic Zones

The following are the types of special economic zones in India:

Type Description
• Tax-free area that provides essential facilities for activities like
shipping, trading, import, and export.
Free Trade Zones (FTZ) • Businesses under such areas enjoy exempted, reduced, or less
controlled rules and regulations on labor, etc.

These areas promote the growth of the sickening export business in India.

Export Processing
Zones (EPZ)
They were established to help and revive the growth of Indian export
commodities, particularly from the fast-growing sectors.
• They are a unit of SEZs designated by the trade and commerce
Free Zones (FZ) / Free organizations of the countries.
Economic Zones (FEZ) • The free or free economic zones are in which the companies are
taxed bare minimum to encourage economic activities.

• It is an area planned for the purpose of industrial development within

the country.
Industrial Parks/ Estates
• The industrial parks consist of offices and light industries instead of
(IE)
heavy ones.

• It is a port or other similar area with relaxed jurisdiction of customs

and/ or national regulations.
Free Ports • A free port is a special customs area or territory with less strict
customs regulations.

• Trade arrangements are similar to that of a bonded warehouse over a

particular geographic area.
Bonded Logistics Parks
• Goods can be stored, manufactured, or manipulated without any
(BLP)
duties or customs.

• Policies to encourage economic growth and development

• They generally provide add-ons like tax concessions, reduced
Urban Enterprise Zones regulations, and infrastructure incentives to lure the investors and
private companies to such zones

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Who can set up SEZs in India?

• Any private, public, joining sector, or state government or its agencies are permissible to set up
an SEZ for hassle-free trade activities
• A foreign agency is also allowed to establish SEZs in India
• For that, prior approval is required from the respective state governments. As well, it must be
ensured that the SEZs satisfy in terms of water, electricity, etc.

Locations of SEZs in India

The following are the functional Special Economic Zones in India:

• Santacruz (Maharashtra)
• Cochin (Kerala)
• Chennai (Tamil Nadu)
• Kandla & Surat (Gujarat)
• Noida (Uttar Pradesh)
• Visakhapatnam (Andhra Pradesh)
• Indore (Madhya Pradesh)
• Falta (West Bengal)

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Advantages of SEZs to Businesses

• Businesses are entitled for myriad of benefits and incentives along with a simplified operating
environment
• Duty-free import of raw materials for production
• 100% income tax exemption on export income for SEZ units for the first 5 years, thereafter 50%
for the next 5 years
• Setup of businesses without any hassles of licenses or lengthy procedures
• No license is required for imports, including second-hand machineries
• Exemption from Goods and Service Tax (GST)
• Single-window clearance mechanism
• External commercial borrowing by SEZ units up to US $500 million annually

Objectives of the SEZ Act in India

• Generation of additional economic activity

• Promotion of exports of goods and services
• Promotion of investment from foreign and domestic sources
• Development of infrastructure facilities
• Creation of employment opportunities

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Drawbacks of SEZs

• The biggest drawback is that the SEZ takes up the arable land from the farmers to set up its
business activities
• Due to the consumption of the arable land, there will be low crop production, resulting in
decreased economic growth and reduced GDP.

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Interesting Facts on SEZ

• The concept of SEZs was originated and pioneered largely in China
• India became the first nation in Asia to recognize the effectiveness of the EPZ (Export
Processing Zone) model for promoting exports.
• Asia’s first EPZ was set up in 1965 in Kandla
• The SEZ (Special Economic Zone) policy was announced on 01st April 2000, in India to
overcome the drawbacks experienced on account of the multiplicity of clearances and controls.
• The SEZ Act 2005 was passed by parliament in May 2005. It received the presidential assent
on the 23rd of June 2005.

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