Special Economic Zone, Objective, Feature, Importance & Challenges

Special Economic Zone

The designation of a special area or enclave within a country’s national boundaries is known as a special economic zone (SEZ). These designated zones differ from the rest of the areas in that they have more lenient economic laws. The governments of several nations established this special economic zone in order to encourage exports from their own nations. Exclusive Economic Zone In the economics segment of the IAS syllabus, UPSC is a crucial subject. Numerous Special Economic Zones in India, like Kandla, Noida, and others, continue to generate a lot of excitement.

Special Economic Zone Meaning

A Special Economic Zone, often known as a SEZ, is a duty-free area with a variety of economic branches and commercial rules that exists within a nation. It greatly encourages investment and produces employment for a nation. The establishment of Special Economic Zones promotes exports.

They go beyond simply fostering employment possibilities and enticing investment; they also offer a solid foundation for the management of diverse firms in the relevant areas, which will further support the smooth operation of the businesses. In order to address the issues faced by enterprises, the Special Economic Zone policy was established in 2000.

Before beginning an endeavour, a number of controls and clearances must be obtained. India followed China’s lead when adopting the SEZ under the Foreign Trade Policy because China had great success in doing so. The Special Economic Zone Act of 2005 is in charge of regulating laws and policies throughout India.Currently, India has 379 SEZs, with 64% of them concentrated in the states of Karnataka, Andhra Pradesh, Tamil Nadu, Telangana, and Maharashtra.

Special Economic Zone Objective

As developers are only granted certain exemptions if they export them, one of the SEZ’s main goals in India is to increase exports of goods and services. In rural and semi-rural sections of the nation, it generates a lot of employment opportunities.

Infrastructure is built in and around the locations where SEZs are located. This promotes the expansion of trade and industry within national borders. Foreign investments rise because SEZ developers place a strong emphasis on exports of goods and services. Additionally, this assists in generating significant foreign reserves for the nation, which is quite advantageous for it.

Special Economic Zone Importance

The following a few points serve as a concise summary of the significance of a Special Economic Zone in India. The fact that a Special Economic Zone attracts investments from a variety of sectors, including foreign ones, is one of the key reasons why it is significant for India. It encourages the nation’s economic expansion and development, which raises the nation’s Gross Domestic Product.

Another factor in India’s enhanced growth of foreign exchange income is the existence of a Special Economic Zone. Additionally, it promotes the creation of new employment opportunities for locals. As a result, people’s quality of life improves.

Special Economic Zone Features

The establishment of Special Economic Zones, or SEZs, was done primarily to draw foreign investment to the nation. As a result, the economy of the nation’s business and GDP will grow automatically. The infrastructure of the Special Economic Zones is among the greatest in the world.

The businesses or organisations located in these SEZs are given access to all the necessities, such as a steady supply of water, free power, a reduction on the cost of the necessary land, etc. Some companies established in these Special Economic Zones might also not be required to pay service and sales taxes.

Special Economic Zone Challenges

Unused property in Special Economic Zones: The pandemic’s disruption and low demand for space have made the SEZs difficult to use. Different models already in existence: The market currently offers a variety of Special Economic Zone models. Coastal Economic Zone, Food Park, Textile Park, Delhi-Mumbai Industrial Corridor, Manufacturing Zone, etc. are a few examples. This makes combining different models difficult.

Competing ASEAN Nations: Over the past few years, ASEAN nations have pursued a variety of measures to draw large or international investors to their special economic zones (SEZ). These nations have also engaged on projects to develop skills. Additionally, the Special Economic Zone in India has lost its standing or edge in the international market. Therefore, now is the ideal time to implement newer rules that would lure foreign investors to the Indian SEZs.

Special Economic Zone in India

The first export processing zone (EPZ) in Asia was established in Kandla, Gujarat, in 1965. Although the foundation of these EPZs was similar to that of SEZs, the government began creating SEZs in 2000 as part of the Foreign Trade Policy to address the infrastructure and administrative barriers that were seen to be restricting EPZ performance. The Special Economic Zones Act was adopted in 2005. The Act and the SEZ Rules became effective in 2006.

SEZs, on the other hand, ran from 2000 to 2006 in India. The design of India’s SEZs closely resembled China’s highly effective model. Currently, 265 of the 379 SEZs that have been notified are open for business. Five states—Tamil Nadu, Telangana, Karnataka, Andhra Pradesh, and Maharashtra—comprise about 64 percent of the SEZs. The Board of Approval, which reports to the Secretary of Commerce (Ministry of Commerce and Industry), is the highest authority.

In order to assess India’s current SEZ policy, the Ministry of Commerce and Industry assembled a committee under the direction of Baba Kalyani. In November 2018, the group presented its recommendations. Its main objectives are to assess SEZ policies to ensure that they are WTO (World Trade Organisation) compliant and to introduce international best practises to maximise SEZ capacity utilisation and potential output.

Special Economic Zone UPSC

A special economic zone is defined differently by each nation. Above all, businesses may also be provided with tax holidays, in which case, following their establishment in a zone, they are granted a period of lower taxes. Companies may also benefit from tax holidays, which allow them to pay less tax after establishing themselves in a zone. The government needs it desperately. The benefits of a SEZ, however, vastly exceed the almost inconsequential disadvantages.

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