Special Economic Zones: Issues in Corporate Governance

Abstract:     
A SEZ(SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. In India, eight previously existing Export Processing Zones have been converted into SEZs. The policy provides for setting up of SEZ's in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.

Over the past few years, the policy of promoting zones has found favour with the government of India. In 2005, it enacted the SEZ Act and the SEZ Rules were notified in February 2006. The policy is expected to give a big push to exports, employment and investment in SEZs. The SEZ Act gives a wide area of discretion to the State and Central Governments to regulate an SEZ as they see fit.

What is crucially different about other south-Asian projects from the Indian model is that all these export promotion zones, special economic zones, free trade zones etc. were by and large state initiatives. The Indian SEZ program instead, shifts the burden of development and maintenance to the private investor. Again the legal regime inside a specific SEZ is the initiative of the concerned state government.

In the context of a SEZ, the most pertinent facet of Corporate Social responsibility is the aspect of Corporate Social Rectitude, or corporate ethics. Writers have also tried to bring in a difference between social obligations and social responsibilities. They argue that social obligations imply corporate functioning within legal and social constraints, whereas social responsibility implies keeping in step with the prevailing social norms, values and expectations of performance. Concluding, a new initiative towards industrialization and manufacturing cannot violate basic fundamentals of corporate ethics and responsibility.

Keywords: Special Economic Zones, India, Corporate Social Responsibility, SEZ

JEL Classifications: E65, G18, H59

Working Paper Series