SEZ The Next Frontier For India

Presented By:
Shudodhani Sharma
Deepika Malhotra

SPECIAL ECONOMIC
ZONES IN INDIA

Overview

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Meaning of SEZ & Associated

Terms
SEZs in India
Difference between SEZ &
EPZ
SEZ ACT,2005
Features of SEZ
SEZ Policy Objectives
SEZ Formats
Key Stakeholders
Incentives to boost SEZ
development

Advantages of development
of SEZ Units
Who can set up SEZ
Implementation of SEZ
Policy
Major Economic Zones in
India
States Share in Notified
SEZs
Regulatory Framework
SEZ and Export Promotion
SUMMARY

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SEZs

Special Economic Zones

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A Special Economic
Zone (SEZ) is defined as a
deemed foreign territory within a country with
special rules for facilitating FDI for export-oriented
production, and for purposes of trade operations and
custom duties and tariffs.
It is a specifically delineated duty free enclave
SEZ is basically a specified geographical region
that has economic laws that are more liberal than a
country's typical economic laws.

Categories

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The category 'SEZ' covers a broad range of

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specific zone types,
including
Free Trade Zones (FTZ)
Export Processing Zones (EPZ)
Free Zones (FZ)
Industrial Estates (IE)
Free Ports
Urban Enterprise Zones and others.

Nokia SEZ Complex in Tamil Nadu

Domestic Tariff Area

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-Domestic Tariff Area
is an area within India but
which is outside the Special Economic Zone.

-The Units operating under certain specific

schemes such as EPZ/SEZ/EOU are expected to
carryout their activities within customs bonded area.
The area which is not coming under the jurisdiction
of custom bonded are called Domestic Tariff Area.

Domestic Tariff Area

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Goods going in to
SEZ from Domestic
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Tariff Area (DTA) are treated as physical
exports.
Those coming out of SEZ to DTA are
treated as if imported from other
countries, for all trading operations.
Taking goods into and out of SEZ are
mostly done with minimal Customs
supervision and paper work, and on selfcertification.

Processing Area

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Processing Area is the demarcated

area where units can be located for
manufacture of goods or rendering
of services.

Non- Processing Area

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Non-processing
area is intended to

provide support infrastructure in terms

of SUPPORT FACILITIES to SEZ
processing area and may include
commercial and social infrastructure.

Special Economic Zones in India

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Number of Special Economic Zones in India has increased over

the last few years.

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In India, Special Economic Zones are being set up in many states

of the country due to the efforts that are being undertaken by the
Indian government.
The implementation of the first drafted SEZ policy statement took
place from the end of the year 2000.
It was drafted as a five-year project, starting from 1.11.2000 to
09.02.2006.
Further, the first policy statement of the Indian Special Economic
Zones were amended to accommodate and compliment the growth
attained.

How SEZs are different from EPZ

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Restriction on Sectors: SEZ is open to all

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manufacturing, services
& trading activities whereas
EPZ focuses only on manufacturing & trading.

Tax Exemption: SEZs enjoy a 5 year tax holiday

followed by 50% exemption for 2 more years which is
not the case with EPZ.
DTA * Sales: For SEZ unlimited DTA Sales are
allowed on full duty but incase of EPZ only 50%
exports qualify for DTA Sales. Thus SEZ enjoy greater
access to domestic market.

How SEZs are different from EPZ

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Retention of Foreign
Exchange Earnings:
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SEZ Units can retain 100% foreign currency

earnings in Exchange Earner Foreign Currency

Account (EEFC) but EPZs allow only 70% to
retain.
This gives companies in SEZ better control over
foreign currency in relation to purchase of imported
inputs.

How SEZs are different from EPZ

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Export Performance
Requirements:
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No minimum export performance
required in terms of Net Foreign
Exchange Earning as % of Exports
(NFEP) for SEZ s but for EPZs it is
required.

Who is a trader ?

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-Traders are persons who trade in

goods & services manufactured
by companies operating in SEZ
units.
-They deal in exports & imports.

What is EEFC

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Exchange Earners' Foreign

Currency Account (EEFC):
It is an account maintained in

foreign currency with an Authorized

Dealer, i.e. a bank dealing in foreign
exchange.

History of Formation of SEZs in

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India

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Seeds of the basic concept of SEZ were sown in the mid

sixties
Export Processing Zones: Basic model of the present day
Indian SEZ was structured with the establishment of the
first Export Processing Zone (EPZ) at Kandla in the year
1965.
Failure of EPZs paved way for
modern
day SEZs
SEZ policy of India was devised to act as a catalyst
to promote the economic growth attained in the early
1990 but it did not produce the desired results.

MAIN PROBLEMS

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Lack of Good Economic

Policy & inefficient
management
became detrimental factors
for EPZs
Red tape, lengthy
administrative procedures,
rigid labor laws & poor
physical infrastructural
facilities: main cause of
deterioration of FDI inflow
into India.

Indian markets were not

mature enough to facilitate
easy entry of FIIs into the
Indian economic system.
The legal framework of
Indian economy was not
strong enough to prevent
misuse of Indian markets
by the foreign investors.

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Thus, the lack of investor friendly environment in India

prevented growth of Indian industry, in spite of implementation of
liberal economic policy by the central government.

History of Formation of SEZs in

India

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These problems resulted in the formation of a much larger and

more efficient form of their predecessors with world-class
infrastructural facility.

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The modern day SEZ came into existence because the economic
reforms incorporated in the early 1990s did not resulted in the overall
growth of the Indian economy.
The History of SEZs in India suggests that the present day SEZ
policies of India are well complimented by the provisions of the Acts
and Rules of SEZ.
'The Special Economic Zones Act, 2005 was then formulated.
The SEZ Act, 2005 and SEZ Rules became effective from 10th
February 2006.

SEZ ACT 2005

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The SEZ Act 2005Template

defines the key role for the
State Governments in Export Promotion and
creation of infrastructural facilities.

A Single Window SEZ approval mechanism has

been facilitated through a 19 member interministerial SEZ Board of Approval or BOA. And
the decision of the SEZ Board of Approval is
binding and final.

SEZ ACT,2005

Enacted to

Triggered

Special Fiscal

give boost to

Foreign &

Incentives

Domestic

were introduced

ECONOMIC
GROWTH

Investment in
SEZ

for
entrepreneurs
& developers

Features of Indian SEZs

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Modern harbor
Airport
Financial Institutions
A vibrant industrial city with abundant supply of skilled
manpower, covering the entire spectrum of industrial and
business expertise
Well connected with network of public transport, local
railways and cabs
Abundant supply of technically skilled manpower
Abundant supply of semi-skilled labor across all industry
verticals
Easy access to airport and local Railway Station

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Why SEZ Policy-OBJECTIVES

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- Generation of economic
activity
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- Simplified procedures for development, operation &
maintenance of SEZs
- Promotion of exports of goods and services

- Single window clearance for setting up of a SE

- Promotion of investment from domestic & foreign
sources
- Setting up of SEZ units
- Creation of employment
- Development of infrastructure facilities
- Framing easy procedures for conduct of SEZ business

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Incentives to boost SEZ Development

-Single Window Clearance System for the establishment of
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SEZ

-SEZ Units exempted from paying 100% income tax on the

export income for a period of 5 years
-After that they have an exemption of 50% income tax for a
period of 5 years.
-Local procurement of goods used for the operation,
maintenance, and development of SEZ Units are duty free
and exempt from sales tax, mandi tax, turnover tax, and
electricity cess.
-Foreign direct investments up to 100% are allowed

Advantages of SEZ Units in India

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10-year tax holiday in a block of the first 20 years

Exemption from dutiesTemplate
on all imports & excise/VAT
Freedom to develop township in to the SEZ
10% FDI allowed for all manufacturing activities
Procedural ease & efficiency for approvals & clearances
Handling bulk containers made operational
Houses both domestic and international air terminals to
facilitate transit
Public and Private Bank financial assistance Abundant
supply of skilled manpower
Network of public transport, local railways and cabs &
In-house Customs clearance facilities
Creation of employment

Advantages of SEZ Units in India

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Major Facilities of Indian SEZ

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-Units within the SEZ do not have to have a license for importing
goods
-Support services such as post office, banks, food courts, ATMs,
and fire services are provided in the SEZ complex.
-Do not require separate documentation for Exim and customs
policy

-The units performance is monitored by the Development

Commissioner, and the supplies that the SEZ receives from the
DTA are treated as exports.

Who can set up SEZ

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Any private/public/joint sector or

State Government or its agencies can
set up Special Economic Zone (SEZ).
Foreign Companies can also set up
SEZs.

Implementation of SEZ Policy

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Successful implementation of Indian SEZ Policy is evident from

the following facts:
-Projected exports from all SEZs for 2007-08 is Rs. 67300 crore
-Presently, 1016 units are in operation and providing direct
employment to over 1.79 lakh people of which around 40% are
women
-Private investment by entrepreneurs before the SEZ Act was
around Rs. 4400 crore. In the 63 notified SEZs which have come
up after
-10th February 06, investment of Rs. 13,435 crore has already
been made in less than a year
-Have created direct employment for around 18,457 people

Major Special Economic

Zones in India
Navi Mumbai Special Economic Zone (NMSEZ)
Andhra Pradesh Special Economic Zone
(APSEZ)
Kendal Special Economic Zone (KASEZ)
Surtax Special Economic Zone (SURSEZ)
Maha Mumbai Special Economic Zone
(MMSEZ)
Madras Special Economic Zone (MEPZ)

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States Share in Area under

Notified SEZs

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Regulatory Framework

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Land in SEZ cannot
be sold.
Development Commissioner to demarcate
processing areas- subsequent to which
proposals for setting up of units will be
entertained.
Only units with valid Letter of Approval
from Development Commissioner can set
up operations.

Regulatory Framework

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Land may be allotted for development of

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infrastructure facilities for use by units- specific
approval may be obtained for lease of land for
creation of facilities such as canteen, PCOs,
first aid centres, creche, etc. for exclusive use of
unit.
Only authorized persons with identity cards
permitted to enter processing area.
No vacant land in non-processing area will be
available for business & social purposes.

SEZ & Export Promotion

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Export policy of India was eased by Govt. of India to facilitate

easy growth of SEZ and Export Promotion of Indian goods
across international destinations.

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This led to the development of special kind of units within the

designated Special Economic Zones.
These specialized export oriented units were called Export
Oriented Units or EOU and they were created to increase the
overall export potential of these SEZ.
Further, these EOU were devised in such a way, so that they
can focus specifically on the growth of Indian exports.

SEZ & Export Promotion

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-The recipient of goods exported by these export oriented

units allows them to sell their products in the domestic markets
in case of rejection by them, after payment of designated tax
and within the direct tariff area. Only some exclusive
commodities are barred from such selling process.

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-Exemption on duties on Indian capital goods and inputs

-Preferential treatment of these units to the Indian market for
easy dissemination of their products and / or service

Trend in Export Performance of SEZ

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SEZ Exports as % share of Total Exports in India

SUMMING UP
SEZs a tax efficient option for Developer and Units.
Besides direct taxation benefits, indirect benefits
contribute to low cost of doing business and ensure
SEZs as profitable investment destinations.
Provides widespread opportunities in different
location in diverse sectors involving a whole range of
primary and secondary activities in manufacturing,
trading and service activities.
The SEZ Act embodies strategic positioning of Zones
in the international markets by leveraging on
linkages with hinterland/Domestic Tariff Area through
establishment of world class infrastructure and
providing economic benefits.