Purpose of setting up of EPZs in India
India has been trying to increase the volume of exports since a long back. In recent years, India has also undertaken number of measures for increasing its exports. Accordingly, India was one of the first country in Asia which recognized the effectiveness of the Export Processing Zones (EPZs) model for promoting its exports and accordingly set up Asia’s first EPZ at Kandla in 1965.
However, the EPZS were not able to emerge as effective instruments for export promotion on account of multiplicity of controls and clearances, lack of world class infrastructure and unstable fiscal regime.
With a view to overcome these shortcomings and attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy was intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package both at the Centre and the State level, with minimum possible regulations.
To instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZS, the Special Economic Zones Act, 2005, was passed by Parliament in May, 2005. The SEZ Act, 2005, supported by SEZ Rules, came into effect on February 10, 2006.
The main objectives of the SEZ Act are generation of additional economic activity, promotion or exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities and development of infrastructure facilities.
Various incentives and facilities are offered to both units in SEZs for attracting investments into SEZs (including foreign investment) as well as for SEZ developers.
It is expected that these incentives and facilities will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
During 2005-06, exports from functioning SEZs, which are mainly the former EPZs were around US $5 billion. At present 1,016 units are in operation in these SEZs providing direct employment to over 1.79 lakh persons (about 40 percent of whom are women). Private investment by entrepreneurs for establishing units in these SEZs if of the order of about Rs. 3,163 crore.
After the SEZ Act and SEZ Rules came into effect on February 10,2006, formal approval has so far been granted to 439 SEZ proposals and in-principle approval has been granted to 163 SEZ proposals. Out of the 237 formal approvals, notifications has already been issued in respect of 63 SEZS.
In these 63 new generation SEZs which have come up after February 10,2006, investment of the order of Rs. 11,194 crore has already been made in less than one year. These SEZs have so far provided direct employment of 61,015 persons. It is expected that total investment in these SEZs would be around Rs. 64,347 crore and 8,90,700 additional jobs will be created by December, 2009. It is also expected that if all the 439 SEZs become operational, investment of the order of Rs. 3,00,000 crore may take place and 4 million additional jobs may be created.
The main purpose to establish SEZ is for promoting exports through concentration of resources into a pocket area known as SEZ. Under a SEZ, units producing goods and rendering services can be up. These units must be a net foreign exchange earner. SEZ can be set up both in public sector, private sector or joint sector and also by state governments in collaboration with a corporate house which offers equal opportunity to both Indian and foreign private developers.
