Manya Rathore
Research expert covering India
Special Economic Zones in India - statistics & facts
Special Economic Zones (SEZs) are geographically earmarked areas to promote investments, export-oriented manufacturing, and improve the ease of doing business. Business units in these areas receive special regulatory and fiscal incentives such as tax exemptions, duty-free exports, and infrastructure investments, among others. The predecessor of SEZs in India were EPZs or export processing zones to promote exports. To address the infrastructural and bureaucratic challenges faced by EPZs, the Special Economic Zone Act of 2005 converted EPZs into SEZs.
As per the Ministry of Commerce and Industry, there are 272 operational SEZs in India, recording a growth of 27 percent over the previous financial year. The investments in SEZs rose from 40 billion Indian rupees in 2006 to around six trillion rupees in 2022. SEZs across the country employ over two million people. Despite these optimistic figures, the Indian SEZs have been losing their competitive advantage in the past years.
Withdrawal of tax concessions under the sunset clause, lack of consistent policies, imposition of the minimum alternate tax, and ASEAN countries attracting businesses with relaxed regulations have put the future of SEZs in India into question. Wide areas of land under the SEZs remain under-utilized or vacant due to sector-specific restrictions. Even though the purpose of the SEZs was to push the manufacturing industry, over 60 percent of the SEZs are in IT, ITes, electronic hardware, and similar areas.
As per the Ministry of Commerce and Industry, there are 272 operational SEZs in India, recording a growth of 27 percent over the previous financial year. The investments in SEZs rose from 40 billion Indian rupees in 2006 to around six trillion rupees in 2022. SEZs across the country employ over two million people. Despite these optimistic figures, the Indian SEZs have been losing their competitive advantage in the past years.
Are SEZs in India losing their sheen?
Initially, the units in SEZs enjoyed a 100 percent income tax exemption on profits from exports in the first five years, followed by 50 percent for the next five years. However, the World Trade Organization (WTO) raised concerns about the policies since it aims at ensuring a level playing field for all countries engaging in international trade, in this case implying that a government cannot offer excessive tax concessions and subsidize production resulting in cheap goods and services shipped across the world. As a signatory to WTO, this led India to reconsider its SEZ policies.Withdrawal of tax concessions under the sunset clause, lack of consistent policies, imposition of the minimum alternate tax, and ASEAN countries attracting businesses with relaxed regulations have put the future of SEZs in India into question. Wide areas of land under the SEZs remain under-utilized or vacant due to sector-specific restrictions. Even though the purpose of the SEZs was to push the manufacturing industry, over 60 percent of the SEZs are in IT, ITes, electronic hardware, and similar areas.
From SEZ to DESH
With the implementation of the Development Enterprise and Services Hub (DESH) Bill 2022, the Indian government is moving from the idea of export-oriented production and orienting focus toward domestic markets and manufacturing. The new legislation is aimed at making SEZ rules more WTO-compliant. The bill is expected to bring a paradigm shift by integrating multiple models of economic zones such as SEZs, coastal economic zones, and food and textile parks. It will focus on transforming the SEZs into comprehensive ‘development hubs’, allowing integration with other industrial hubs and global supply and value chains. Currently, the Ministries of Finance (Revenue Department) and Commerce are in a tussle over the provisions related to corporate tax breaks and other key provisions of the draft Bill. The position of primary stakeholders i.e., the role of central and state governments within these new ‘development hubs’ remains to be decided.
