Q. What are SEZs (Special Economic Zones)?
Have they been able to accomplish their intended goals? Comment.
A. In order to undertake economic activity as well as to promote and simplify it, SEZs were created to overcome various shortcomings like –
– multiplicity of controls and clearances
– absence of world-class infrastructure
– an unstable fiscal regime (with a view to attract larger foreign investments in India)
It was then intended to make SEZs an engine for economic growth with the following objectives –
• (a) generation of additional economic activity
• (b) promotion of exports of goods and services
• (c) promotion of investment from domestic and foreign sources
• (d) creation of employment opportunities
• (e) development of infrastructure facilities
SEZs of different land size requirements were envisaged.
With every SEZ divided into –
• a processing area, where alone the SEZ units would come up and
• the non-processing area, where the supporting infrastructure is to be created.
SEZs have been able to achieve certain positive results such as –
1. Helped India’s IT and Pharma sector grow rapidly through various tax exemptions and holidays.
2. SEZs now account for about 25% of India’s exports.
3. Indian exports from SEZs accelerated during the economic crisis.
4. Development of ancillary industry and peripheral infrastructure.
5. Growth of small-scale services around SEZs.
6. Spreading the benefits of growth across the country because of vast spread of SEZs across the nation.
Reasons for the failure of SEZ policy:
1. The introduction of Minimum alternate tax and Dividend distribution tax have neutralized income tax benefits.
2. The absence of complementary infrastructure to support the SEZ like availability of airports, power, water, roads, etc.
3. The lack of proactive assistance from state as well as other officials.
4. The export incentives granted to industries outside the zones have not been extended to the SEZ thus making them less attractive to invest in.
5. The free trade agreements signed with other countries have garnered an edge over the SEZs.
6. Policy discontinuity.
1. Predictable taxation policy.
2. The creation of complementary infrastructure like continuous power, strong evacuation system consisting of connectivity through roads and ports.
3. Skill development.
4. Effective land management practice.
5. Social welfare to be promoted in backward regions.
6. Rather than withdrawing MAT and DDT, discussions must be made on the level at which they can be levied.
7. Harmonisation of LARR with requirements of SEZ.