Module 3

• SPECIAL ECONOMIC ZONE (MEANING, FEATURES & EXAMPLES),

• SMALL SCALE INDUSTRIES,
• MAKE IN INDIA INITIATED BY THE GOVERNMENT OF INDIA AND
SUPPORT FOR INDUSTRIES.
• SCHEME AND ASSISTANCE FOR ENTREPRENEURIAL DEVELOPMENT.
 Special Economic Zone

• A Special Economic Zone or SEZ is a specially marked territory or enclave within the
national borders of a country that has more liberal economic laws than the rest of the
country.
• An SEZ is an enclave within a country that is typically duty-free and has different business
and commercial laws chiefly to encourage investment and create employment.
• Apart from generating employment opportunities and promoting investment, SEZs are
created also to better administer these areas, thereby increasing the ease of doing business.
SEZ Background
An SEZ Policy was announced for the very first time in 2000 in order to overcome the obstacles
businesses faced.
• There were multiple controls and many clearances to be obtained before starting a venture.
• Infrastructure facilities were shoddy and well below world standards in India.
• The fiscal regime was unstable as well.
• In order to attract huge foreign investments into the country, the government announced the Policy.
• The Parliament passed the Special Economic Zones Act in 2005 after many consultations and
deliberations.
• The Act came into force along with the SEZ Rules in 2006.
• However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).
• As of 13th January 2023, 270 SEZs are operational in the country. About 64% of the SEZs are located in
five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.
Special Economic Zones Act, 2005
“It is defined as an Act to provide for the establishment, development and management
of the Special Economic Zones for the promotion of exports and for matters connected
therewith or incidental thereto.”
The chief objectives of the SEZ Act are:
• To create additional economic activity.
• To boost the export of goods and services.
• To generate employment.
• To boost domestic and foreign investments.
• To develop infrastructure facilities.
SEZs Facilities & Incentives
• Duty-free import or domestic procurement of goods for developing, operating and
maintaining SEZ units.
• 100% Income tax exemption on export income for SEZ units under the Income Tax Act
for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export
profit for next 5 years. (Sunset Clause for Units will become effective from 2020).
• They were exempted from Central Sales Tax, Service Tax and State sales tax. These
have now subsumed into GST and supplies to SEZs are zero-rated under the IGST Act,
2017.
SEZs Facilities & Incentives
• Single window clearance for Central and State level approvals.
• There is no need for a license for import.
• In the manufacturing sector, barring a few segments, 100% FDI is allowed.
• Profits earned are permitted to be repatriated freely with no need for any dividend
balancing.
• There is no need for separate documentation for customs and export-import policy.
• Many SEZs offer developed plots and ready-to-use space.
Challenges
Unutilized Land in SEZs:
• Due to lack of demand for SEZ space and disruptions caused by the pandemic.
Existence of Multiple Models:
• There are multiple models of economic zones such as SEZ, coastal economic zone, Delhi-
Mumbai Industrial Corridor, National Investment and Manufacturing Zone, food park and
textile park which pose challenges in integrating the various models.
Competition from ASEAN Countries:
• In the past few years, many of the ASEAN countries have tweaked their policies to attract
global players to invest into their SEZs and have also worked on a developmental set of
their skilling initiatives.
• Consequently, Indian SEZs have lost some of their competitive advantages globally and
hence need to have fresher policies.
Make in India Initiative

• Launched in 2014, Make in India aims to transform the country into a leading global
manufacturing and investment destination.
• It is being led by the Department for Promotion of Industry and Internal Trade
(DPIIT), Ministry of Commerce and Industry, Government of India.
• The initiative is an open invitation to potential investors and partners across the globe
to participate in the growth story of ‘New India’.
• Make In India has substantial accomplishments across 27 sectors under Make in India
2.0 which include strategic sectors of manufacturing and services as well.
 Make in India: Background

• For the past two decades, India’s growth story seems to have been led by the services sector.

• Even though the share of the services sector in the Indian economy rose to 57% in 2013, it contributed to only 28% in the
share of employment. So, the manufacturing sector needed to be augmented to boost employment.

• Another reason to launch the campaign is the poor condition of manufacturing in India. The share of manufacturing in
the overall Indian economy is only about 15%.

• There is an overall trade deficit when it comes to goods. The trade surplus in services hardly covers one-fifth of India’s
trade deficit in goods.

• The manufacturing sector has larger backward linkages and hence, growth in demand in manufacturing
spurs growth in other sectors as well. This generates more jobs, investments, and innovation, and generally
leads to a higher standard of living in an economy.
 Make in India: Objectives

• To attract foreign investment for new industrialisation and develop the already existing industry base in
India to surpass that of China.
• Target of an increase in manufacturing sector growth to 12-14% per annum over the medium term
• To increase the share of manufacturing sector in the country’s Gross Domestic Product from 16% to 25% by
2022
• To create 100 million additional jobs by 2022.
• To promote export-led growth.
• Creating required skill sets among the urban poor and the rural migrants to foster inclusive growth.
• Augmenting the global competitiveness of the Indian manufacturing sector.
Make in India: Four Pillars

1. New Processes:
• ‘Make in India’ recognizes ‘Ease of Doing Business’ as the single most important factor to
promote entrepreneurship for which a number of initiatives have already been undertaken.
• The aim is to de-license and de-regulate the industry during the entire life cycle of a business.

2. New Infrastructure:
• The government intends to develop industrial corridors, strengthen existing infrastructure,
and design a fast-paced registration system as part of its commitment to the growth of the
industry.
Make in India: Four Pillars

3. New Sectors:
• ‘Make in India’ has identified 27 sectors in manufacturing, infrastructure and service
activities and detailed information is being shared through interactive web-portal and
professionally developed brochures.

4. New Mindset:
• ‘Make in India’ intends to bring a paradigm shift in how Government interacts with
industry.
• The Government will partner industry in economic development of the country and
the approach will be that of a facilitator and not regulator.
 Make in India: Schemes

• Goods and Service Tax

• Skill India: This is important because the percentage of formally skilled workforce in India is only 2% of the
population. This mission aims to skill 10 million in India annually in various sectors.
• Start Up India: The main idea behind this programme is to build an ecosystem that fosters the growth of start ups,
driving sustainable economic growth, and creating large-scale employment.
• Digital India: This aims to transform India into a knowledge-based and digitally empowered economy.
• National Single Window System (NSWS)
• PM Gati Shakti Programme
• One-District-One-Product (ODOP)
• Production Linked Incentive (PLI): The Production Linked Incentive (PLI) scheme across 14 key manufacturing
sectors, was launched in 2020-21 as a big boost to the Make in India initiative.
Make in India: Outcomes

• Foreign Direct Investment (FDI) Inflows: To attract foreign investments, Government of India has
put in place a liberal and transparent policy wherein most sectors are open to FDI under the
automatic route.
• FDI inflows in India stood at USD 45.15 billion in 2014-2015 and have since consecutively reached
record FDI inflows for eight years.

• The year 2021-22 recorded the highest ever FDI at USD 84.84 billion.
• On the back of economic reforms and Ease of Doing Business in recent years, India is on track to
attract USD 100 Billion in FDI in the current Financial Year (2022-23).
 Make in India: Outcomes

• Exports have seen tremendous growth over the last two years. India has reached $418 billion of
manufacturing exports in the fiscal year 2022 (FY22) with rapid growth over the last 2 years.
• The import of toys in FY21-22 has reduced by 70% to USD 110 Mn (Rs. 877.8 cr.). India’s export of toys
registers tremendous growth of 636% in April-August 2022 over the same period in 2013.
• Recognising the importance of semiconductors in the world economy, the Government has launched a
USD 10 billion incentive scheme to build a semiconductor, display, and design ecosystem in India.
• FDI liberalization has helped India’s EoDB index to be favourable.
• India jumps 79 positions from 142nd (2014) to 63rd (2022) in 'World Bank's Ease of Doing Business
Ranking 2020'.
• To further enhance the ease of doing business in the country more than 39,000 compliances have been
reduced and more than 3,400 legal provisions have been decriminalized.
 Make in India: Challenges

• Investment from Shell Companies

• Low Productivity: The productivity of Indian factories is low and workers have insufficient skills.
McKinsey report states that Indian workers in the manufacturing sector are, on average, almost four
and five times less productive than their counterparts in Thailand and China.

• Small Industrial Units: The size of the industrial units is small for attaining the desired
economies of scale, investing in modern equipment and developing supply chains.
• Infrastructure
• Transportation: Average speeds in China are about 100 km per hour, while in India, they are about 60
km per hour.

• Red Tapism: Bureaucratic procedures and corruption make India less attractive for investors.
 Micro, Small and Medium Enterprises (MSME)

• MSME are referred to as those industries in which the process of manufacturing, production and
servicing are done on a small scale.
• The investment on such industries is one time and these investments are mostly done on plant and
machinery.
• MSMEs are known as the lifeline of an economy, which is very important for a country like India.
Being a labour intensive industry, it is very helpful in creating employment opportunities for the
population of the country.
• They are also a crucial part of an economy from a financial standpoint, as they help in stabilising the
per capita income of the country.
 Micro, Small and Medium Enterprises (MSME)

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018 proposes to reclassify all MSMEs,
whether they are manufacturing or service-providing enterprises, on the basis of their annual turnover.
 MSME: Characteristics

• Ownership: Small scale industries generally have a single ownership, which means it either has a
sole proprietorship structure or a partnership.
• Management: The management of the small scale industries rests with the owners and therefore, the
owner plays an active role in the day to day functions of the business.
• Labour Intensive: Small scale industries are very much labour intensive, hence there is limited use of
technology.
• Limited Reach: Small scale industries work in a restricted area which makes them able to meet local
and regional requirements.
• Resources: Small scale industries use resources that are local and readily available, which helps the
economy fully utilise the natural resources and bear minimum wastage.
 MSME: Objectives

• To create job opportunities for the population.

• To help in the development of the rural areas of the economy.
• To play an active role in reducing the regional imbalances in the nation.
• To help in improving the standard of living for people in rural areas.
• To ensure there is equal distribution of wealth and income
 MSME: Importance in Indian Economy

• Employment: It is the second largest employment generating sector after agriculture. It

provides employment to around 120 million persons in India.
• Contribution to GDP: With around 36.1 million units throughout the geographical expanse
of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of
the GDP from service activities.
• MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India
becomes a $5 trillion economy.
• Exports: It contributes around 45% of the overall exports from India.
 MSME: Importance in Indian Economy

• Inclusive growth: MSMEs promote inclusive growth by providing employment

opportunities in rural areas especially to people belonging to weaker sections of the society.
• For example: Khadi and Village industries require low per capita investment and employs a
large number of women in rural areas.
• Financial inclusion: Small industries and retail businesses in tier-II and tier-III cities create
opportunities for people to use banking services and products.
• Promote innovation: It provides opportunity for budding entrepreneurs to build creative
products boosting business competition and fuels growth.
 MSME: Challenges

• Mounting NPAs: According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross
advances of Rs 17.33 lakh crore as against 8.2 per cent in 2020.
• The MSME sector was among the most pandemic afflicted sectors.

• Non-availability/Delays of Funds
• Lack of Infrastructure and Technology
• Lack of Formalization: Almost 86% of the manufacturing MSMEs operating in the country are
unregistered. Out of the 6.3 crore MSMEs, only about 1.1 crores are registered with the Goods and
Services Tax (GST) regime and the number of income tax filers are even less.
 Scheme and assistance for entrepreneurial development.

• Startup India: This scheme to promote the entrepreneurship and innovation among the youth of the
country. The Startup India scheme offers several benefits to the startups that are eligible, including tax
exemptions, funding support, and mentorship opportunities. Startup India Scheme is one of the best
schemes for entrepreneurs in India
• Stand-Up India: This scheme that aims to provide financial support to women and SC/ST
entrepreneurs in the country. It is the best government schemes for startups in India for womens.
Through this scheme, women or SC/ST entrepreneurs can get a bank loan of anywhere between Rs. 10
lakh and Rs. 1 crore.
• ATAL Innovation Mission: scheme that aims to promote innovation and entrepreneurship in India
and it is one of the best government grants and schemes in entrepreneurship development. It includes
Atal Incubation Centres, Atal Tinkering Labs, and Atal New India Challenges.
 Scheme and assistance for entrepreneurial development.

• Pradhan Mantri Mudra Yojana: Pradhan Mantri Mudra Yojana is a government scheme in India aimed
at providing financial assistance to small and micro enterprises enterprises. The scheme offers loans
up to Rs 10 lakh to eligible startups and entrepreneurs.
• Entrepreneurship Skill Development Programme (ESDP): Entrepreneurship promotion and
development Programmes are being organized regularly to nurture the talent of youth by
enlightening them on various aspects of industrial/business activity required for setting up MSEs.

• Assistance to Training Institutions (ATI): The assistance is provided to National level training
institutions operating under the Ministry of MSME, namely, NIMSME, KVIC, Coir Board, NSIC &
MGIRI in the form of capital grant for the purpose of creation and strengthening of infrastructure and
support for entrepreneurship development and skill development training programmes.