SEZs in India a Catalyst or An Obstacle for Development?


In a last-ditch effort to contain the spate of criticisms from all over the scheme of creating SEZs (Special Economic Zones), the Government came out in September 2006, with detailed guideline the development of social infrastructure in areas like schools, houses hospital, besides a set of investment norms for SEZ developers.

All these news norms, it has been laid down that only those developer now qualify for tax exemption, who will be involved in building infrastructure, water and sewage treatment plants, office space, shop areas, schools, houses, hospitals, recreational and sports facilities, restaurants, and power and gas connection. It has also been categorically clear that developers must have a net worth of at lee 250 crores and invest a minimum of Rs. 50 crores.

Subsequently, d his visit to South Africa during the first week of October 2006, Minister Dr. Manmohan Singh stated that “SEZs have come to stay,but they need to operate in a manner in which the concerns that have expressed can be dealt with”. He added that they need not be per as a weakness of the system.


Despite all attempts by the Union Government to set things in direction, there are some serious differences even within the regarding the issue of promoting SEZs. It has already stirred unrest across the country starting from farmers, whose lands are being acquired for SEZ projects, to trade and industrial bodies and different Mini the Government. Let us make an attempt to probe into the salient of SEZs and the bottlenecks as well as controversies facing their pr in India today.

Considering the need to enhance foreign investment and exports from the country and realizing the need that a level playing field must be made available to the domestic enterprises and manufactures to be competitive globally, the Government of India had announced on April, 2000 the introduction of SEZ policy in the country, deemed to foreign territory for the purposes of trade operations, duties an closely followed the Chinese model.

This policy provided for se SEZs in the public, private, joint sector or by State Government also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.

An SEZ is a geographical region that has economic laws that are more liberal than a country’s typical economic laws. Usually the goal of setting up an SEZ to broaden the foreign investment base. SEZs have her established in several countries, including China, India, Iran, Jordan, Kazakhstan, the Philippines and Russia. In the US, they are referred to as “Urban Enterprise Zones”.


In China, the central government gives SEZs  special policies and flexible measures, allowing SEZs special policies and flexible measures, allowing SEZs to utilize a special economic management system. Some of the major policy initiatives launched in China focuses on special tax incentives and greater independence in terms a zonal trade activities.

The SEZ Act was passed in 2005 in the hope that it would help build up infrastructure, promote exports, and enhance employment generation. The Commerce and Industries Ministry, which piloted the Act, stated in its official documents that “SEZs are about infrastructure creation” and that infrastructure is not only roads, ports and airports but also workplaces like industrial parks and IT parks”. The Ministry’s note stated that an extremely critical element is that of social infrastructure, which would constitute housing facilities and entertainment, etc.”

According to the Finance Ministry, the promotion of SEZs in the manner  in which the Commerce and Industry Ministry is doing now would  cause a revenue loss of over Rs. 1,60,000 crores by 2012. The Commerce Ministry, on the other hand, says that the SEZs would actually bring in investments amounting to Rs. 1, 00,000 crores it also added that there would be a net revenue gain of Rs. 44,000 crores and the creation of five lakh additional jobs. Based on its own assumptions, the Ministry projects that the government’s tax collections would increase by Rs. 1,37,000 crores.

The Commerce Ministry’s calculations, unlike the Finance Ministry’s, include software exports. It is well known that Information Technology (IT) and Information Technology-Enabled Services (ITES) companies are gravitating towards the SEZs because the current tax-free regimes governing this sector will mid 2011-12.


In effect, these companies intend moving into the SEZs merely to prolong their tax breaks. Moreover, since the sector is growing at 30 percent per annum, fresh investments would have come in the normal course. According to one recent report, SEZs meant for the are and pharmaceutical industries account for more than 50 percent SEZs approved.

The Centre’s directive that farmland should not be acquired for SEZs has not had any effect on the State Governments. Lakhs of people from States as far-flung as Haryana, Orissa and Maharashtra are engaged in attained agitation against the “unjust” acquisition of their land for many SEZ projects. These agitations focus attention on the potential massive displacement of people from agricultural areas.

They have raised questions about the kind of land that is being acquired for SEZs and whether the displaced are getting adequate compensative Across Maharashtra, farmers have organized huge protests against forcible acquisitions. Around 3,000 farmers protested against the RII outsided the Commissioner’s office in Navi Mumbai in September 2. In Pune, cultivators who are going to be displaced by three SEZs organized a rally in October 2006.

Andhra Pradesh, regarded as front-runner in the SEZ promo’ business, has laid down rules that apply significantly more pressure workers in the SEZs. Moreover, the SEZs enjoy the status of “public utility’ services”; this will significantly reduce the scope for collective bargaining The provisions also enable the deployment of contract labour, with being hindered by relevant legislation.


Industrial lobbies have been ca for the repeal of “draconian” and outdated” labour laws. The demand for mainstreaming the policy regime that is now operational in se enclaves can have important consequences for not only those working in these enclaves but outside as well. Once that demand is fulfilled, the SEZs will no doubt prove to be “models” to be emulated on a country- scale.

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