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Govt. mulls allowing SEZ occupants to sell locally

Context:

The government is considering a proposal to allow producers in Special Economic Zones (SEZs) to sell their output to the domestic market without treating them as imports. It is also reviewing the exclusion of export-oriented units (EOUs) and SEZs from the recently notified tax refund scheme for exports.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Government Policies and Interventions)

Dimensions of the Article:

  1. Special Economic Zones (SEZ)
  2. Special Economic Zones (SEZ) in India
  3. Who can set up SEZs?
  4. Other points regarding functioning and application of laws

Special Economic Zones (SEZ)

  • Special Economic Zones (SEZ) is a territory within a country that is typically duty-free (Fiscal Concession) and has different business and commercial laws chiefly to encourage investment and create employment.
  • SEZs are created also to better administer these areas, thereby increasing the ease of doing business.
  • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation and effective administration.

Special Economic Zones (SEZ) in India

  • The Indian government began to establish SEZs in India during the 2000s under the Foreign Trade Policy to redress the infrastructural and bureaucratic challenges that were seen to have limited the success of EPZs.
  • Asia’s first EPZ (Export Processing Zones) was established in 1965 at Kandla, Gujarat and these EPZs had a similar structure to SEZs.
  • The Special Economic Zones Act was passed in 2005 and with this India’s SEZs were structured closely with China’s successful model.
  • More than 350 SEZs are notified in India, out of which 265 are operational.
  • About 64% of the SEZs are located in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.
  • The Baba Kalyani led committee was constituted by the Ministry of Commerce and Industry to study the existing SEZ policy of India and had submitted its recommendations in 2018.

Major Incentives and Facilities Available to SEZ

  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
  • Exemption from various taxes like Income Tax, minimum alternate tax, etc.
  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
  • Single window clearance for Central and State level approvals.

Impact of having SEZs notified so far

SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy) and since then:

  • Exports of around Rs. 22,000 Crore (2005-06) has increased to almost Rs. 8,00,000 Crore (2020-21).
  • Investment of Rs. 4,000 Crore (2005-06) has increased to more than Rs. 6,00,000 Crore (2020-21).
  • Employment from just over 1,30,000 persons (2005-06) has increased to more than 23,00,000 persons (2020-21).

Who can set up SEZs?

Any private/public/joint sector or state government or its agencies can set up an SEZ. Even a foreign agency can set up SEZs in India.

Role of state governments in establishing SEZs

  • State governments will have a very important role to play in the establishment of SEZs.
  • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
  • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.
  • In all SEZs, the statutory functions are controlled by the government.
  • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

Other points regarding functioning and application of laws

  • Normal labour laws are applicable to SEZs, which are enforced by the respective state governments.
  • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.
  • To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations.
  • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
  • The performance of the SEZ units are monitored by a unit approval committee consisting of a development commissioner, custom and representative of state government on an annual basis.
  • Business units that set up establishments in an SEZ would be entitled for a package of incentives and a simplified operating environment.
  • Besides, no license is required for imports, including second-hand machinery.

-Source: The Hindu

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October 2022
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