Special economic zones as growth engines

Actual investment and employment have fallen short of initial projections by 59 per cent and 92 per cent respectively. Even though 60 per cent of zones are in the IT sector, almost 85 per cent of SEZ land is used in manufacturing.

Still, uncertainties did take their toll. But SEZ policy must be designed to address institutional challenges that pose major obstacles to growth, and it needs to be supported by a transparent legal framework. But the government dealt a significant blow to SEZs in when it rolled back key tax incentives, including the minimum alternate tax MAT and dividend distribution tax DDToffered to investors.

Still, by Marchthe number of newly approved SEZs had swelled towith of these already notified.

Special economic zone

Reviving manufacturing is one of the biggest development challenges that India faces today. The share of SEZs in total exports including service exports increased from around 3 per cent in —06 to The Ministry of Commerce, which had conceived and implemented the scheme, also seems to have moved on.

In future, any change in the Act should be introduced through amendments passed by the parliament. This must be accompanied by an intense focus on institutional learnings, policy experimentation, institution building and belief in the SEZ strategy, as well as knowledge of the necessary and sufficient conditions for the success of SEZs, and clarity about the vision and objectives.

The Act evoked immense interest among investors as it provided confidence, stability and the correct incentives. So what can be done to revive SEZs? The most important thing is to build investor confidence by restoring the original tax benefits to SEZs with a clear timeline outlining when they will be phased out.

Special Economic Zones in India: growth engines or missed opportunity?

The first year of production should be used as the first year of tax exemptions, rather than the first year after the project is approved, particularly for technology-intensive and risky industries.

The first wave of export zones started in and ended in with little success. But, the Act was soon caught up in controversies related to land acquisition, tax incentives and other socio-economic issues.

Special Economic Zones in India: The government should act fast to revive them otherwise SEZs will become another missed growth opportunity. Finally, strong political commitment is necessary.

Tax incentives must be rationalised and tailored to promote industries of strategic importance. In the contemporary world, where global firms are organising their production and trade in increasingly complex global value chains and scout the globe for the least cost locations, SEZs provide a platform for countries to reap the benefits of these opportunities.

They can be effective instruments in encouraging private investment.

The current policy targets private investment in SEZ development and offers several lucrative incentives and features that were not available in previous initiatives.

Second, tax incentives matter. Special legislation, the SEZ Act, was enacted for the first time in They offer an enabling investment climate to attract both offshoring and outsourcing activities. Firms producing in SEZs must further be allowed to sell in domestic markets, after paying the taxes that they had been exempted from.

So how have SEZs actually performed in India? SEZs have the potential to be a major growth engine for India. They have also given a major thrust to the engineering and pharmaceutical industries. SEZs are strategic locations which address structural and institutional bottlenecks arising from infrastructural deficiencies, procedural complexities, bureaucratic hassles and other restrictive policies common in developing countries like India.

Fearing the loss of popular votes, the government started diluting the benefits and rolling back the incentives for investors. What lessons can be learned from this experience? The entry and integration of its firms into global value chains can help create the industrial dynamism that India needs.

The prospects are better this time. Policymakers appeared unprepared to respond to the widespread criticism, and the government seemed to be a house divided.

The debate led to anti-SEZ protests throughout the country. These early initiatives were also not supported by any legislative framework.

SEZs have been instrumental in promoting new industries such as biotechnology, renewable energy, aviation, electronics and sports shoes.numerous special economic zones (SEZs) and industrial clusters that have sprung up since the reforms are undoubtedly two important engines for driving the country’s growth.

Building Engines for Growth and Competitiveness in China: Experience with Special Economic Zones and Industrial Clusters (Directions in Development).

“Zeng, Douglas Zhihua. Building Engines for Growth and Competitiveness in China: Experience with Special Economic Zones and Industrial Clusters. A Special Economic Zone(SEZ) is an economic region in a country which is created for the purpose of promoting manufacturing exports and economic development through a wide variety of special exemptions, relating to taxes, quotas, customs and even labor.

Special Economic Zones (SEZs), are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country.

They are growth engines towards government's strategic. Building Engines for Growth and Competitiveness in China Experience with Special Economic Zones and Industrial Clusters Douglas Zhihua Zeng Editor.

Special economic zones as growth engines
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