What are SEZs?

Breaking it down

SEZs are geographical regions that have economic laws that are different from a country’s typical economic laws. They are, most often, focused on exports.

They allow export-oriented businesses and services to work in duty-free enclaves with distinct trade operations, duties and tariffs.

The world’s first SEZ came up in China, the country that has been impacted the most by the idea. It has also been tried out in the US and Australia. India is following the Chinese model.

The India story: The Kandla export processing zone in Gujarat, set up in 1965, was the forerunner to India’s SEZs. Exports here have risen from less than Rs10 lakh in 1966 to more than Rs1,000 crore in 2005.

In India, 25% of a SEZ is used for industrial and business purposes, and 75% for real estate and commercial complexes.

Businesses in a SEZ get a complete tax holiday for the first five years and 50% for the following five; they do not need licences to import material and machinery.

SEZs can be developed only in partnership with the central or state governments.

There are four kinds of SEZs in India: for multiple products; for multiple services; for specific sectors (auto, for instance); and for special categories (IT, biotechnology, non-conventional energy, and gems and jewellery).

Arguments for: SEZs will ensure high growth and remove regional imbalances as the government can develop them according to the economic and regional requirements.

Will boost a host of ancillary sectors.

Will create an internationally competitive and hassle-free environment for exports.

Farmland will be protected. No double-crop land can be acquired for a SEZ; the 75,000 hectares of land waiting for SEZ development constitutes only 0.000625% of the 120 million hectares of cultivable land in India.

...and against: Tax sops and other incentives could divert industrial activity from the rest of the economy, fuelling inequitable and uneven development.

Acquisition of agricultural land could cause large-scale displacement of farmers in the name of industry, and spark a variety of social problems.

Forest and tribal lands are in danger as property developers eye vast tracks of land to set up SEZs.

Lack of transparency in the way the land is procured from farmers; inadequate compensation. 

Loss of revenue due to tax incentives and exemption of duties.

SEZs will benefit only real estate and property developers since merely 25% of the land has to be used for industries or manufacturing.

The SEZ Act does not include labour laws; this could lead to the exploitation of workers.