Apache SEZ (Adidas Group) in Andhra Pradesh (Footwear SEZ):

• Physical exports worth Rs.172.03 crore effected in three years (2006-07 to 2008-09)

• Direct employment provided to 5342 persons, out of which 1453 are women employees.

• Investment of Rs.227.15 crore has already been made in this SEZ, out of which FDI is Rs. 16.77 crore.

• Projected direct employment of 20000 persons.

Infosys Tech Ltd. –Mahindra World City

Wipro Limited, Andhra Pradesh (IT SEZ):

• Physical Exports worth Rs. 586 crore was effected in two years (2007-08 to 2008-09)

• Direct employment provided to 4437 persons.

• Investment of Rs. 371.701 crore has already been invested in this SEZ.

• Projected investment of Rs.223 crore and projected direct employment of 7000 persons.

Mundra Port and Special Economic Zone, Gujarat (Multi product SEZ):

5. Physical Exports worth Rs. 768.44 crore was effected in two years (2007-08 to 2008-09)

6. Direct employment provided to 870 persons.

7. Investment of Rs.5219.009 crore has already been made.

8. Projected investment of Rs.25545 crore and projected direct employment of 2,08,869 persons.

Reliance Jamnagar Infrastructure Ltd., Gujarat (Multi Product):

• Physical Exports in 2008-09 was Rs. 9882.28 crore.

• Direct employment provided to 2385 persons.

• Investment of Rs. 32082 crore has already been invested in this SEZ.

• Projected investment of Rs.36274 crore.

5. Employment, Investment and Exports in SEZs:

The details of employment and investment generated in the Special Economic Zones are given in Box 6.1 and 6.2 below:

Export Performance

As on 31.3.2009, 91 SEZs have commenced exports. The exports in the current year i.e 2008-09 from the SEZs as a whole have been to the tune of Rs.99689 crore. Exports from the functioning Special Economic Zones during the last six years are as under:

Table: 6.3

Exports from the functioning SEZs during the last six years

Source: Department of Commerce

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M/s Deltmal Safety Shoes Ltd., a unit in Falta SEZ

Foreign Direct Investment in SEZs:

In the Special Economic Zones notified under the SEZ Act, 2005 and SEZ Act, 2006 substantial amount of FDI has already been invested.

Some SEZs with major FDI component of investment are:-

• Apache SEZ Development India Private Limited, Andhra Pradesh

• Brandix India Apparel City Private Limited, Andhra Pradesh

• Emaar Hills Township Private Limited, Andhra Pradesh

• Zydus Infrastructure Private Limited, Gujarat

• Essar Hazira SEZ Limited, Gujarat

• DLF Limited, Haryana

• Tanglin Development Limited, Karnataka

• M/s Information Technology Park Ltd, Karnataka

• Quarkcity India Pvt. Ltd., Punjab

• Flextronics Technologies (India) Private Limited, Tamil Nadu

• SIPCOT SEZ, Tamil Nadu {Foxconn & Motorola (as co-developer) - Dell (unit)}

6. Studies on Special Economic Zones:

According to a study conducted by the Institute of South Asian Studies (SAS), the fiscal environment available to SEZ developers and units have played a vital role in attracting export oriented foreign investment in areas such as hardware, apparel and shoes, which would have normally headed for other Asian destinations in its absence. This study also points towards the relief and rehabilitation packages in poor areas where people’s lives have improved as a result of SEZ activity. The study has showcased some of the successful SEZs in manufacturing sectors in some of the investor friendly states of India and also made suggestions on areas which need to be focused for the smooth execution of the SEZ Act in its spirit.

The Indian Council for Research on International Economic Relations has also undertaken a study on Special Economic Zones which concludes that if the opportunities thrown open by globalization are to be grabbed, policies ensuring a business environment that is predictable and is in tune with the needs of the private sector need to be the top priority of the policy agenda. The SEZ policy has been described as an attempt by the Government to turn around the domestic economy and find a niche in the global economy. According to this study, if implemented successfully, it can play a crucial role in promoting the manufacturing sector. While highlighting the incremental benefits in terms of employment, the study goes on to state that the SEZ policy will make a positive impact on regional employment and human development by creating economic opportunities, especially for those without high levels of schooling. The fact that the SEZ Policy has encouraged many of the Developers such as Nokia, Apache etc. for setting up of their operations in India has been brought out in the study. SEZ Policy has also encouraged Indian companies like Mahindra, Wipro, Infosys etc. to set up SEZs and units.

Another study by the CUTS International has revealed that the new generation SEZs have created a tremendous local area impact in terms of direct employment, emergence of new activities, changes in consumption pattern and social life, human development facilities (such as for education, healthcare).

Yet another report of CLSA states that SEZs will help build up local infrastructure and reduce the burden on urban areas by housing 12.5% of the growth in the urban population. It projects generation of 14 million new jobs and support annual exports of US $ 350 billion on a cumulative investment of US $ 213 billion.

7.  Misapprehensions about issues on SEZs

There have been several misapprehensions on issues relating to Special Economic Zones, such as misuse of land in SEZs, diversion of domestic industries, tax losses on account of fiscal incentives given to SEZs etc., which have been raised from time to time. Misuse of land while creating infrastructure in the non-processing area such as housing, commercial and shopping complexes etc is often quoted. The concept of developing a non-processing area in SEZs is to provide support facilities to the SEZ processing area and the employees working therein. The authorized activities are to ensure that world class infrastructure is set up to facilitate the operation of manufacturing and service units in the SEZ. The scheme envisages that the SEZ Developer would be responsible for providing all civic amenities and infrastructure including roads, sewerage systems, open spaces, green spaces, education facilities, power, water supply and housing etc. At the zone level, the Approval Committee headed by the Development Commissioner which has representatives of State Government officials and Revenue Department approves the activities of the Developer and the units. Only those authorized operations approved by the Board of Approval would be eligible for tax exemptions. In order to regulate usage of SEZ area by the developers, precautions have been taken by way of assessing the size requirement of infrastructural facilities like housing, commercial spaces, recreational amenities etc. based on the employment generation potential of the SEZ and granting approvals by the Board of Approvals. In respect of housing, it is allowed only in phases depending on the progress made in allotting/occupancy of the Units in the SEZs.

Another area of concern often cited was on shifting of domestic industries into SEZs. The objective of the Special Economic Zone Policy being generation of fresh investment and employment, conversion of any DTA unit or even 100% EOU or STPI unit is not allowed. In order to ensure that such conversions do not occur, the SEZ Act and Rules stipulate that SEZs can be set up only on vacant land. Further, the use of second hand capital goods from the DTA has also been made in line with the provisions of the 10AA of the Income Tax Act, which allows only 20% of used plant and machinery. Studies on SEZs have revealed the fact that there are no evidences to support the view that such relocation of units from other schemes or DTA to SEZs is actually happening.

That the Government would be incurring tax losses on account of the direct and indirect tax incentives being given to SEZs is yet another apprehension expressed from time to time. However, evidences of employment and investment generated by the private sector SEZs in the short time span of two years of operation of the Act show that in the long run, the benefits accrued from SEZs would far outweigh the tax losses to the Government which are notional in nature. Since there are duty remissions provided for all exports and tax exemptions are available for infrastructural projects outside the SEZ, the loss of revenue cannot be attributed to only due to the fiscal incentives given under the SEZ Scheme. Unless suitable incentives are given, no developer would come forward to invest in such mega projects without any return. In any event, the direct and indirect tax income accruing to the Central/State Governments in times to come due to the increased economic activities in the SEZs and the surrounding areas would be far higher than the estimated tax loss.

8.  Land acquisition and purchase of land for setting up SEZs

In the wake of controversies on land acquisition, the Ministry of Commerce and Industry has advised all the State Governments that in case of land acquisition for setting up of Special Economic Zones, first priority should be for acquisition of waste and barren land and if necessary single crop agricultural land could be acquired for the SEZs. If perforce a portion of double cropped agricultural land has to be acquired to meet the minimum area requirements, especially for multi-product Special Economic Zones, the same should not exceed 10% of the total land required for the SEZ.

Subsequent to this, in pursuance of the decisions taken by the Empowered Group of Ministers, the State Governments have been informed on 15th June, 2007 that the Board of Approval will consider only those cases where the land has been allotted by the State Government or its undertakings out of the land acquired by them for industrial purposes before 5th April, 2007 or where the land was acquired by the State Government/ its undertakings pursuant to SEZ in-principle approval and the land acquisition proceedings are over on or before 5th April, 2007 and there are no disputes relating to such land; or where no land acquisition is involved and the applicant is in possession of the land. The State Governments were informed that the Board of Approval will not approve any SEZs where the State Governments have carried out or propose to carry out compulsory acquisition of land for such SEZs after 5th April, 2007. The Board of Approval only approves those proposals which are duly recommended by the State Governments.

Export Oriented Units (EOUs)

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. As on 31st March, 2009, 2546 units are in operation under the EOU scheme.

Table: 6.4

State-wise distribution of Functioning EOUs (as on 31.3.2009)

Source: Department of Commerce

Table: 6.5

Export performance of the EOUs (as on 31.3.2009)

 

	(Rs. Crores)
Year	Value of Exports
2005-06	49,462.35
2006-07	69,964.60
2007-08	1,62,265.60
2008-09 (P)*	1,62,647.82

*(P) – Provisional data
Source: Department of Commerce

Exports during 2008-09 from EOUs were of the order of Rs.1,62,647.82 crores as compared to the export of Rs.1,62,265.60 cores during 2007-08 registering a growth of 0.24 %.

EOUs are mainly concentrated in textiles and yarn, food processing, electronics, chemicals, plastics, granites and minerals/ores. Chapter 6 of the Foreign Trade Policy and Handbook of Procedure, (Vol-I) spells out the policy frame work for Export Oriented Units.