Urban Infrastructure: - Special Economic Zone in India

Urban Infrastructure: - Special Economic Zone in India

Special economic zone is geographical region which is designed for export goods and creating employment. SEZ comprises of free trade zone, industrial park, free economic zone, urban enterprise zone etc.

The objective of SEZ is

        i)            generate additional economic activity

       ii)            Promotion of export of goods and services.

     iii)            Promotion of investment from domestics and foreign resources.

     iv)            Creation of employment

      v)            Development of infrastructure.

SEZ Act 2005

SEZ act bill was passed in May 2005 and it came into effect in Feb 2006. This bill provide partial or complete exemption in custom/excise, income tax, dividend distribution tax, central sales tax and service tax for developer and operating unit. For operating unit, 100% tax exemption for first 5 years, 50% for next five year, and 50% of ploughed back profit for next 5 year. Ploughed back means it enables these units to reinvest profit into their business without paying the taxes. While for developer, they will continue to get 100% income tax exemption for 10 year in block period of 15 years.

It also has provision for Single Window Clearance Mechanism. It is trade facilitation idea which enables traders to submit regulatory document at single location or single entity. Such documents are typically custom declaration, import export permits and other certificates.

Indian Scenario

In India 143 SEZ are currently operating in our country (till June 2012).   And as of June 2012, 634 SEZ are approved by Indian Government. It results in tremendous increase in export which is shown in table.

Year	Export
2009-2010	INR 2.20 Trillion
2010-2011	INR 3.16 Trillion
2011-2012	INR 3.64 Trillion

In year 2010-2011, SEZ created 840,000 jobs in country. SEZ comprises of 23% of total India’s Export.

India and China: Scenario compared

ü  In India, apart from land grabbing exercise, SEZ is completely led by private sector. While in China, public sector is too involved in it.

ü  China has Command Economy, which means there is no other way for foreign traders or investor to enter into the country. While in India it is not which makes its importance a little.

ü  China has world class infrastructure, more liberal labor environment, and more attractive tax exemption which give chance for SEZ to grow properly, while in India there is always dirty political interference and buckling pressure from left parties which doesn’t facilitate SEZ and leads to some corruption scam.

ü  The only advantage which India has from China is that we have advantage of large English speaking workforce and better knowledge based industry.

Areas of Concern

ü  Role of State Government: - As every state doesn’t have capacity to build their own SEZ and can have different political Constraint, therefore central Govt. should take care of it.

ü  Conversion of Agricultural land to SEZ: - Though land used for SEZ in India is not much (75000 acres) which is .0025 % of agricultural land. But proper rehabilitation and reimbursements should be given to farmer who loses their land. For this Ministry of Rural development has formulated a comprehensive resettlement and rehabilitation policy.   

ü  Losses in Tax Revenues: - Because of various tax exemption, India is losing INR 75,000 Crore per year. But if we are able to get more profit out of it like creating employment, increase in economic activity etc... It’s not a bad deal!!

REFERENCES

Wikipedia,

Indian Infrastructure Report 2008,

Article by Amit Abhayankar  (Mumbai based Lawyer)