[Answered] “Reforming the 16-year old SEZ Act will boost exports, enhance competitiveness and remove anomalies in Special Economic Zones”. Comment.

Comment directive requires writing about all of the aspects given in the statement. 
Introduction: Write a brief note about Special Economic Zones. 
Body: Provide brief description of SEZ act, 2005. Highlight issues in SEZ act in few points. Provide a brief note on the new proposed act and provide a few recommendations to boost economic growth.
Conclusion: Write down a brief way forward 

Special Economic Zones (SEZ) are enclaves within the territory of a country, in which business, trade and tax laws are different from the rest of the country.  

In India the SEZs are governed as per the provisions of the SEZ act of 2005, which aimed to achieve the following objectives 

  • To boost exports of goods and services. 
  • To create additional economic capacity. 
  • To generate employment. 
  • To attract domestic and foreign investments. 
  • To create a conducive administrative and business environment. 
  • To develop infrastructure facilities. 

To achieve the above aims, various incentives/facilities are provided to the units in SEZ 

  • Simplified procedures for development, operation, and maintenance of the SEZ. 
  • Duty free imports or domestic procurement of goods and services. 
  • Tax incentive for units in the SEZ, both central and state taxes. 
  • Single window clearance for state and central approvals.  

However, the SEZ act is now more than 16 years old and several issues have emerged in the functioning SEZs in India. In India the SEZs have not been as successful as the SEZs in countries like Singapore and China. 

  • New generation firms in SEZs, used incentives to avoid taxes rather than creating exporting capacity. 
  • Manufacturing SEZs have underperformed because of poor linkages with the rest of the economy 
  • Many states did not sync state level laws with central SEZ act, which created barriers in the single window clearance regime. 
  • There are multiple models for economic zones apart from SEZ like NIMZ, Coastal economic zone etc, which creates problems in integration of various models. 
  • Number of SEZs in India is over 375, while China has about 20. This large number makes administration complicated. 
  • Other Asian countries, like Thailand, have tweaked their SEZ laws to attract investment at the cost of Indian SEZs.  

To address the underlying issues in the functioning of SEZs, the Union government has announced that it will bring a new legislation to govern the SEZs to create ease of doing business and enhance competitiveness. The new legislation will ensure  

  • States become partners in development of SEZs. 
  • Custom administration is hassle free and fully IT driven. 

The new proposed law needs to be in line with the recommendation of Baba Kalyani Committee, to effectively address the present challenges of SEZs, which include 

  • Shift in approach from export growth to broad-based Employment and Economic Growth. (Employment and Economic Enclaves- 3Es) 
  • Separate rules and procedures for manufacturing and service SEZs. 
  • Shift from supply driven to demand driven approach for 3Es development. 
  • Creation of enabling ecosystem development by funding high speed multi modal connectivity, business services and utility infrastructure. 

If governed effectively SEZs can function as growth engines for development of Indian economy and address the challenges faced by the Indian economy specially in the COVID years. The new SEZ legislation will be a good step in the right direction. 

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