The existing Special Economic Zone (SEZ) law in India is all set to be replaced with a new law, as per the Budget 2022-23 speech of the Finance Minister, Ms Sitharaman. Review of existing SEZ Policy has been on the agenda of the Government of India since last few years on account of various factors like changing aspirations of Indian economy, large unutilised SEZ parcels, declining SEZ attractiveness for the exporters community and ongoing dispute at World Trade Organisation challenging export linked SEZ incentives.
While very limited information has been made public till now regarding the proposed changes in the SEZ law, the announcement has been applauded by the Industry at large, which now awaits more details around the Government’s plan ahead.
Brief overview of the existing SEZ policy
Worldwide, the first instance of an SEZ was an industrial park set up in Puerto Rico in 1947 to attract investment from the US mainland. This was later joined by many countries who experimented with the concept of SEZ to drive economic growth and attract foreign investments.
India was one of the first Asian nation to accept the effectiveness of the Export Processing Zone (EPZ) model in promotion of exports and Asia's first EPZ was set up in Kandla in 1965. Subsequently, SEZ scheme was announced at the time of annual review of EXIM Policy in April 2000. The basic idea was to establish the zones as areas where export production could take place free from all roles and regulations governing imports and exports and to give them operational flexibility. Till 2006
SEZs were envisaged as tax free enclaves within the territorial borders of India with different set of regulations, fiscal incentives like tax exemptions and access to better and more efficient infrastructure. These enclaves were expected to provide a boost to the economic activity, enhance exports, attract foreign investors and create employment opportunities. After more than two decades of SEZ policy implementation, it can be safely concluded that the policy has been reasonably successful
However, with WTO dispute challenging all export incentives, decreasing attractiveness among investor community due to sunset for various incentives and complex compliances, large unutilised SEZ land parcels, excessive emphasis on export promotion have necessitated the need to have a fresh outlook on the existing SEZ policy. Industry is looking out for an SEZ policy 2.0 which is inline with the changing requirements of Indian economy and that takes into consideration global experience on SEZs
Global experience on SEZs
SEZ model has found its success in China and other South East Asian countries like Vietnam and Indonesia. With the share of SEZ exports (2019-20) to total exports reaching to around 60% for China vis-à-vis 30% for India, China has been able to push its agenda of economic growth through its SEZ policy really well. India may have been a little late in implementing its SEZ policy when compared to China, learnings from its own experience and of other neighbouring nations will be a key to the new
Expectations from the new SEZ law
In late 2018, Ministry of Commerce came out with a report on ‘Revitalising SEZs- From islands of exports to catalysts of economic and employment growth’. The report was issued by a Committee formed under the chairmanship of Baba Kalyani, MD Bharat Forge.. The strategic shift suggested by the Committee was to move away from the island of exports to more integrated hub for employment and economic activities enabled by quality infrastructure and ease of doing business.
Due to increasing unattractiveness of the SEZ policy for current and new investors in the existing scenario, and with a number of income tax benefits already having had their sunset clause, coupled with lack of certainty in compliances and the huge gap in demand and supply and unutilised land parcels, this is an opportune time to look at the SEZ policy and legislation.
Some of the factors that are expected to be considered while framing new law and that are likely to give a stimulus to the economic activity are as under:
SEZs should be in tune with Atmanirbhar Bharat Initiative - Goods imported from SEZs should be treated at par with FTA/PFTA countries to provide a level playing field.
Greater autonomy to serve both international and domestic market – This will ensure reduction in import dependency and utilisation of unused capacity.
Source Name:- Economic Times