A special economic zone (SEZ) is an area in which business and trade laws differ from the

rest of the country. SEZs are located within a country's national borders, and their aims
include: increased trade, increased investment, job creation and effective administration.

Special economic zone or SEZ refers to a totally commercial area specially established for
the promotion foreign trade.

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000.
The prime objective was to enhance foreign investment and provide an internationally
competitive and hassle free environment for exports.

SEZ model, through foreign direct investment (FDI) in export-oriented manufacturing.

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be
deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

Who can set up SEZs? Can foreign companies set up SEZs?

Any private/public/joint sector or state government or its agencies can set up an SEZ.

Yes, a foreign agency can set up SEZs in India.

What are the special features for business units that come to the zone?

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 machineries.

The main objectives of the SEZ Act are:

(a) generation of additional economic activity

(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;

Special economic zone or SEZ refers to a totally commercial area specially established for
the promotion foreign trade

Basic Difference between EPZs and SEZs

The main difference between an EPZ and a SEZ is that the former is just an industrial enclave
but the latter is an integrated township with fully developed infrastructure

Background of SEZ India.

During late 1990s the then Union Commerce Minister Murasoli Maran visited the high tech
SEZs in China and got impressed by their contribution to the rapid growth of GDP of the
country. He then thought about taking measures to do the same in India. However by that
time India was already introduced with the first export processing zone in Kandala.

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Some Important Provisions of the Act[11]
1. SEZs can be established mainly for manufacturing of the goods, for providing specified
circumstances and as a free trade and warehousing zone.
2. SEZs will include three types mainly. They are multi-product SEZ, sector specific SEZ,
port or airport based SEZ and free trade and warehousing zone.
3. They will have their own adjudicating, enforcing and administering agencies. Therefore
absolute non interference by the state.
4. There will be 100% tax exemption and relaxation from strict labour laws.
5. They will not have any burden to comply with any sort of minimum obligation to export.
6. Except for certain kind of offences the no investigation or inspection can be carried out in
any of the SEZs without prior approval from the development commissioner.
7. The Development Commissioner will be entrusted to the overall administration and
supervision of the SEZ and exercise all necessary controls and co operations to foster speedy
and effective development of the SEZ concerned. The development commissioner shall be
appointed by the central government.

Developer means a company that develops the infrastructure and other facilities on land
earmarked as SEZs[14]. The incentives under this policy given to the developers are:
# Items imported for setting up, operation and maintenance of SEZs will be exempted from
customs duty.
# Exemption from excise duty for the goods required for abovementioned purposes.
# Income tax exemption for a period of 10 years in the first 15 years operation.
# Exemption from central sales tax for the goods used for development and maintenance of
SEZs.
# Exemption from service tax with reference to the services required in connection to the
development and maintenance of the SEZs.
# Drawbacks and any other benefits are admissible from time to time.
 Apart from the developers it also preserves certain incentives for the enterprises also. Let’s
have a look on them.
# 100% income tax exemption for a considerable period of time.
# 100% FDI permitted to the manufacturing sectors except for some specified.
# External maturity borrowings through recognized banks with any hard regulation.
# Requirements of no import license.
# Exemption from licensing regulations for the items reserved under SSI sector.
# No routine examinations by Customs for export and import cargo.
# Exemption from Central Sales Tax and Service Tax.
# Exemption from customs duties, Central Excise duties and the like.

Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and received
Presidential assent on the 23rd of June, 2005. The act envisages that the SEZs would attract a
large flow of foreign and domestic investment in infrastructure and productive capacity
leading to generation of additional economic activity and creation of employment
opportunities.

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Salient Features

 A SEZ is a designated duty free enclave to be treated as foreign territory for the
purpose of trade operations and duties and tariffs.
 A SEZ does not require a license for imports. Other notable features are as follows:
 The units must become net foreign exchange earners within 3 years
 SEZ are allowed manufacturing, trading and service activities.
 Full freedom for subcontracting.
 The domestic sales from the SEZ are subject to full custom duties and import policy is
in force, when they sell their produce to domestic markets.
 There was no routine examination by the custom authorities.
 The corporation in SEZs will not have to pay any income tax on their profits for the
first five years and only 50% of the tax for 2 more years thereafter.
 If half of the profit is reinvested in the corporation, the concession of 50% tax is
extendable for next 3 years.
 For SEZ developers , the raw material from cement to steel to electrical parts are
subject to zero tax and duty.
 For the SEZ, the Government acquires vast land tracts and gives to the developers.
The basic condition involves that 25% of the area of the SEZ must be used only for
export related activities. Rest 75% area can be used for economical and social
infrastructure. However, all SEZ benefits are applicable over the entire SEZ area.
 There were provisions for sector specific SEZs and Multiproduct SEZs.
 The Sector specific SEZ may have 7500 houses, hotels with 100 rooms, 25 bed
hospital , schools and other institutions, a multiplex in 50000 sq. meters.
 Multiproduct SEZ are allowed to build 25000 houses. 250 room hotel and 100 bed
hospital along with a multiplex with 2 lakh sq. meters.

How a SEZ is created?

There is a well defined approval mechanism for SEZ. The developer submits the
proposal for establishment of SEZ to the concerned State Government.

 The net worth of the applicant is to be Rs. 50 crore minimum and investment criterion
of Rs. 250 Crore for sector specific SEZ. Net worth for Multiproduct SEZ was fixed
Rs. 250 Crore and investment of ` 1000 Crore.

The State Government has to forward the proposal with its recommendation within 45 days
from the date of receipt of such proposal to the Board of Approval. However, the applicant
also has the option to submit the proposal directly to the Board of Approval. The Board of
Approval has been constituted by the Central Government in exercise of the powers
conferred under the SEZ Act. All the decisions are taken in the Board of Approval by
consensus. The Board of Approval has 19 Members. The Chairman of the BoA is Secretary,
Department of Commerce. The Board may approve as such or modify and approve a proposal
for establishment of a Special Economic Zone, in accordance with the SEZ Rules, subject to
the requirements of minimum area of land and other terms and conditions indicated in the
SEZ Rules. Once the BOA gives formal approval and the concerned Development
Commissioner gives an inspection report certifying the contiguity and vacancy of the area,
the area is notified as SEZ.

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Minimum Land Area Requirements

Minimum area requirements for setting up a SEZ are as follows:

Type of SEZ Minimum Area Requirements

Multi Sector SEZ 500 hectares*
Sector Specific
50 hectares*
SEZ

Current Number of Special Economic Zones in India

The Special Economic Zones (SEZs) scheme has been a key instrument for promoting
exports from India. At present, 389 SEZs have been notified of which 170 are functional and
they employ over one million persons. India has received investment of over Rs. 2.36 lakh
crores in SEZs and exports from SEZs have seen a dramatic jump from Rs. 22,840 crores in
2005-06 to Rs. 4.76 lakh crores in 2012-13, a growth of over 2000% over the 7 year period.
Exports from SEZs during the last financial year have registered a growth of over 31% over
the previous year. Undoubtedly, these are significant achievements, but the SEZ scheme has
not been able to realize its full potential so far.

State wise Distribution of SEZ in India

SEZs : State wise Distribution  

In-principle
Sectors Formal approvals Notified SEZs
approvals
Andhra Pradesh 109 6 76
Maharashtra 103 16 64
Tamil Nadu 69 6 53
Karnataka 62 1 41
Haryana 46 3 35
Gujarat 47 7 32
Uttar Pradesh 34 1 21
Kerala 29 0 20
West Bengal 20 3 11
Rajasthan 10 1 10
Madhya Pradesh 19 2 6
Orissa 10 1 5
Goa 7 0 3
Chandigarh 2 0 2
Punjab 8 0 2
Chattisgarh 2 1 1
Dadra & Nagar Haveli 2 0 1
Jharkhand 1 0 1

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Nagaland 2 0 1
Uttarakhand 2 0 1
Delhi 3 0 0
Pondicherry 1 1 0
GRAND TOTAL 588 49 386*
In April 2013, this number stands 389

Name of the SEZ Location Type of SEZ

MEPZ Special Economic Chennai, Tamil Nadu Multi product
Zone
Mahindra City SEZ (IT), T. Tamil Nadu IT/Hardware and
Nadu Bio-informatics
Mahindra City SEZ (Auto Auto
ancillary ), T. Nadu
Mahindra City SEZ Apparel and
(Textiles), fashion accessories
Flextronics Technologies Sriperumbudur, Electronics Hardware and
(India) Private Limited related services
tata Consultancy Services Siruseri and Egattur, , IT/ITES
Limited Chennai
IG3 Infra Limited (ETL Pallikkarani Village, ‘’
Infrastructure Services
Limited)
Hexaware Technologies SIPCOT IT Park, Old ‘’
Limited Mahabalipuram Road,
Siruseri,

ETA Techno park Private Old Mahabalipuram Road,

limited Navallur Village,
Chengalpet

Syntel International Private Kancheepuram,

Limited
Estancia IT Park Pvt. Ltd. Vallancheri and Potheri Electronic
(Formally L&T Arun Villages, Hardware &
Excello Chengalpet Taluk, software including
Infrastructure Pvt. Ltd.) ITES

DLF Infocity Developers Manapakkam &

(Cheenai) Ltd. Mulivakkam
Vill.,Kancheepuram Distt.

Electronics Corporation of Coimbatore

Tamil Nadu Ltd.

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 Shriram Properties and Perungalathur village
Infrastructure Private
Limited

Activities allowed:

Manufacturing, trading and service activities are core of any SEZ.

Special Economic Zones may be sector-specific or multi-product and the following

categories of SEZs have been defined as per the SEZ Act No. 16 of 2014:

 "Industrial Development Zone" means a purpose built industrial estate that

leverages domestic and foreign fixed direct investment in value-added and export-
oriented manufacturing industries and services;
 "Free Port" means a duty free area adjacent to a port of entry where imported goods
may be unloaded for value-adding activities within the Special Economic Zone for
storage, repackaging or processing, subject to customs import procedures;
 "Free Trade Zone" means a duty free area offering storage and distribution facilities
for value-adding activities within the Special Economic Zone for subsequent export;
 "Sector Development Zone" means a zone focused on the development of a specific
sector or industry through the facilitation of general or specific industrial
infrastructure, incentives, technical and business services primarily for the export
market.

Basic Difference between EPZs and SEZs

The SEZs are the new classification of modified earlier Export Promotion Zones or EPZs.
The first EPZ in India was set up in 1965 Kandala. They were created as privileged zones
with the facilities of liberal tax and labour laws. They were to attract the foreign investors to
import materials for use and export the manufactured commodities. In this way jobs would be
created and export got enhanced. The main difference between an EPZ and a SEZ is that the
former is just an industrial enclave but the latter is an integrated township with fully
developed infrastructure.

Some Important Provisions of the Act[11]

1. SEZs can be established mainly for manufacturing of the goods, for providing specified
circumstances and as a free trade and warehousing zone.
2. SEZs will include three types mainly. They are multi-product SEZ, sector specific SEZ,
port or airport based SEZ and free trade and warehousing zone.
3. They will have their own adjudicating, enforcing and administering agencies. Therefore
absolute non interference by the state.
4. There will be 100% tax exemption and relaxation from strict labour laws.
5. They will not have any burden to comply with any sort of minimum obligation to export.
6. Except for certain kind of offences the no investigation or inspection can be carried out in
any of the SEZs without prior approval from the development commissioner.
7. The Development Commissioner will be entrusted to the overall administration and
supervision of the SEZ and exercise all necessary controls and co operations to foster speedy

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and effective development of the SEZ concerned. The development commissioner shall be
appointed by the central government.