Special Economic Zones
Source : The Hindu
GS III : Economy

What is discussed under Special Economic Zones?

• • Special Economic Zones
  • Major Challenges and issues to Special Economic Zones

Why in News

Union Budget this year, the government proposed to replace the existing law governing Special Economic Zones (SEZs) with a new legislation to enable states to become partners in ‘Development of Enterprise and Service Hubs’ (DESH).

Special Economic Zones

• • A special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country.
  • Regulations tend to be conducive to and attract foreign direct investment (FDI).
  • SEZ is created for rapid economic growth by leveraging tax incentives to attract foreign investment and spark technological advancement.

Special Economic Zones (SEZs), China has been the most successful model in using SEZs to attract foreign capital.

• • Presently, 379 SEZs are notified, out of which 265 are operational.
    • About 64% of the SEZs are located in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.

Important Facilities Available to SEZ

• • Single window clearance for Central and State level approvals.
  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
  • Simplified compliance procedures and documentation with an emphasis on self certification.

Approval mechanism

• • The developer submits the proposal for establishment of SEZ to the concerned State Government.
  • The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval.
  • The applicant also has the option to submit the proposal directly to the Board of Approval.
  • The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act.
  • All the decisions are taken in the Board of Approval by consensus.
  • The Board of Approval has 19 Members.

Major Challenges and issues to Special Economic Zones

• • Lack of flexibility to utilise land in SEZs for different sectors (more than 25,000 hectares).
  • Existence of 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.
  • Under-utilisation of existing capacity.
  • The domestic sales of SEZs face a disadvantage as “they have to pay full customs duty”, as compared to the lower rates with the Association of Southeast Asian Nations (ASEAN) countries due to free-trade agreement (FTA).
  • Lack of support from the state government when it comes to developing effective single-window system for clearances, according to the presentation.
  • Requirement of payment in foreign exchange for services provided by SEZ units to DTA area.

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