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Special Economic Zones

A new policy has been introduced in the Exim Policy effective from 1.4.2000 for setting up of Special Economic Zones in the country with a view to provide an internationally competitive and hassle free environment for exports. Units may be set up in SEZ for export of goods and services. The units in the Zone have to be a net foreign exchange earner but they shall not be subjected to any pre-determined value addition or minimum export performance requirements. Sales in the Domestic Tariff Area by SEZ units shall be subject to payment of full Custom duty and import policy in force.

There is, no proposal for the Central Government to set up any new SEZ in the country. The policy, however, provides for setting up of SEZs in the public, private, joint sector or by State Governments. It was also envisaged that the existing Export Processing Zones may also be converted into Special Economic Zones.

Government has since converted all the eight existing Export Processing Zones located at Kandla and Surat (Gujarat), Santa Cruz (Maharashtra), Cochin (Kerala), Chennai (Tamil Nadu), Noida (U.P), Falta (West Bengal) and Visakhapatnam (Andhra Pradesh) into Special Economic Zones.

Approvals have also been given for setting up of 24 Special Economic Zones at Positra, Dahej and Mundra (Gujarat), Navi Mumbai and Khopta (Maha Mumbai) (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Greater Noida and Moradabad (U.P.), Kakinada and Visakhapatnam (Andhra Pradesh), Indore (Madhya Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan and Baikampadi (Karnataka), Jaipur and Jodhpur (Rajasthan), Ranchi (Jharkhand) and Greater Noida by Export Promotion Council for Handicrafts (EPCH) on the basis of proposals received from the State Governments/private promoters. These SEZ are at various stages of implementation.

Product Coverage

While the SEZ operating units broadly fall under the product groups of electronic, engineering items, chemicals and allied products, gem and jewellery, textiles, garments, plastics and rubber products, EOUs are mainly concentrated in textiles and yarn, food processing, electronics, chemicals, plastics, granites and minerals/ores. Majority of units are located in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat.


Each of the Zones provides basic infrastructure such as developed land for construction of factory sheds, standard design factory buildings providing ready-built sheds, roads, power, water supply and drainage. In addition, Customs clearance is arranged within the Zones at no extra charge. Provision is made for locating banking/post office facilities and officers of clearing agents in the Service Centre located in each of the Zones. EOUs have on the other hand, to put up their own infrastructure.

Institutional Framework

All pre and post approval matters related to units in SEZ are looked after by the Development Commissioner of SEZ. The policy framework of SEZ is contained in Chapter 7 of Export & Import Policy year 2002-07 and Appendix 14-II of Handbook of Procedure, Volume-I.

Central Special Economic Zone Bill, 2004

Cabinet has approved the proposal of the Department of Commerce for enactment of a Central legislation on Special Economic Zone to provide internationally competitive duty free environment for promotion of exports. Supported by quality infrastructure, complemented by a competitive fiscal package, both at the Central and State level with minimum regulatory regime, SEZ would become engine for economic growth. The Bill would be presented in ensuing session of the Parliament. 

Policy Package so far announced for SEZs

Ø Setting up Off-shore Banking Units in SEZs.

Ø Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs and SEZ units.

Ø Sales from DTA to SEZ to be treated as physical exports under Custom Act.

Ø Exemption from Central Sales Tax to sales made from DTA to SEZ units.

Ø Exemption from Service Tax to SEZ units and SEZ developers.

Ø Extension of Income Tax benefit under Section 80 IA of Income Tax Act to SEZ developers for a block of 10 years in 15 years as per the choice of the developers.

Ø 100% Income Tax exemption (10A)for first 5 years and 50% for 2 years thereafter and not exceeding 50% of ploughed back profit for next 3 years.

Ø 100% income tax exemption for three years and 50% for two years thereafter is availble to Off Shore Banking Units set up in SEZs.

Ø Supplies from DTA to SEZ units are treated as exports and made eligible for income-tax exemption under 80HHC of the Income-Tax Act.

Ø External commercial borrowings by SEZ units upto US $ 500 million in a year without any maturity restriction through recognised banking channels.

Ø To permit non-polluting and foreshore activities within Coastal Regulation Zone.

Ø 100% foreign investment to develop townships within the SEZs with residential, educational and recreational facilities on a case to case basis.

Ø Freedom to make over-seas investment out of Export Earners Foreign Currency (EEFC) Account.

Ø Flexibility to keep 100% of export proceeds in EEFC account.

Ø 100% Foreign Direct Investment in manufacturing sector through automatic route barring a few sectors.

Ø Announcement of policy guidelines on generation, transmission and distribution of power in SEZs.

Exports from the SEZs during 2003-04 were of the order of Rs. 14,003.89 crores as compared to the export of Rs.10056.62 crores during 2002-03, representing a growth of 39% over the previous year.

At present there are 711 units are in operation in Special Economic Zones as on 31st March, 2004.

Export Oriented Units

The Export Oriented Units (EOUs) scheme introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. 1764 units are in operation under the EOU scheme as on March, 2004.

Exports during 2003-2004 from EOUs were of the order of Rs. 27364.15 crores as compared to the export of Rs.22615.59 cores achieved during 2002-2003, representing a growth of 21%.


Export Performance

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