India's SEZ - Business Zones Development: Economic Performance, Social/Environmental Impacts
SPECIAL ECONOMIC ZONES: PRESENT AND FUTURE, edited by Audhinarayana Vavili, ICFAI Press
19 Pages Posted: 31 Oct 2008 Last revised: 17 Apr 2014
Date Written: October 21, 2008
Export Processing Zones (EPZs) are an international phenomenon influencing increasing share of trade flows and employing a growing number of workers. From 176 zones across 47 countries in 1986; the number had increased to over 3,000 across 116 countries by 2003. India also favours this so in the year 2000, the government replaced the old EPZ regime by a new scheme of "Special Economic Zones" (SEZs) with several lucrative incentives/benefits that were not available in the earlier scheme. And in 2005, it enacted the SEZ Act and the SEZ Rules were notified in February 2006. The policy was expected to give a big push to exports, employment and investment in SEZs. The Ministry of Commerce and Industry claims that these zones will attract investment of about Rs 1,00,000 crore including FDI of Rs 25,000 crore and create additional 5,00,000 direct jobs, by December 2007.
The promotion of SEZs is an attempt to deal with infrastructural deficiencies, procedural complexities, bureaucratic hassles and barriers raised by monetary, trade, fiscal, taxation, tariff and labour policies. These structural bottlenecks affect the investment climate adversely by increasing production and transaction costs. Since country-wide development of infrastructure is expensive and implementation of structural reforms would require time, due to given socio-economic and political institutions, the establishment of SEZ is seen as an important strategic tool for expediting the process of industrialisation. The zones offer numerous benefits such as, (i) tax incentives, (ii) provision of standard factories/plots at low rents with extended lease period, (iii) provision of infrastructure and utilities, (iv) single window clearance, (v) simplified procedures, and (vi) exemptions from various restrictions that characterise the investment climate in the domestic economy.
These benefits definitely help businesses for conducive environment to attract local and foreign investment. The competitive advantages of zones may also be explained within the framework of the "cluster approach". Zones are industrial clusters where external economies of scale and other advantages help the operating firms in reducing costs, developing competitive production systems and attracting investment, in particular, FDI. As a result of these benefits, India started promoting SEZ with the expectation that they will provide the engine of growth to propel industrialisation.
Keywords: India SEZ, SEZ India, Indian SEZ, India Special Economic Zones
JEL Classification: D6, E00, F
Suggested Citation: Suggested Citation