Special Economic Zone (SEZ)

Contents :
  • Concept of Special Economic Zone (SEZ).
  • Objectives of SEZs.
  • Progress of SEZ.
  • Problems Faced Due to SEZ.

What is Special Economic Zone (SEZ) ? 

In India, the government has been proactive in the development of SEZs. They have formulated policies, reviewed them occasionally and have ensured that ample facilities are provided to the developers of the SEZs as well as to the compnies setting up units in the SEZs. Despite all the efforts, Special Economic Zone has become the most controversial issue for India today.
India's Ministry of Commerce and Industry has released new statistics that highlight the positive impact of special economic zones (SEZs) on economic growth and development since the enactment of the SEZ Act in 2005, formal approval has been granted to 565 SEZ proposals and a total of 185 SEZs have successfully begun exporing Trom India. Companies operating in Indian Special Economic Zones are eligible to take advantage of several incentives including the duty free procurement of goods for the development, operation and maintenance of SEZ activities alongside exemptions from service, income'and sales taxes.

Objectives of SEZs 

The objective behind an SEZ is to enhance foreign investment, increase exports, create jobs and promote regional development. To put in the government’s own words, the main objectives of the SEZs are : 
(a) Generation of additional economic activity; 
(b) Promotion of exports of goods and services; 
(c) Promotion of investment from domestic and foreign sources; 
(d) Creation of employment opportunities; 
(e) Development of infrastructure facilities. 

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Progress of Special Economic Zone 

1) Performance of SEZ in Export :
According to the Ministry of Commerce and Industry, SEZs' share of Indian exports rose from 24.86 percent in 2011-2012 to 26.10 percent in 2013-2014. This means that over the same period SEZ exports accounted for US$60.76 billion and US$82.37 billion, respectively. SEZs also served India's economy well in terms of employment generation. Between 2011 and 2014, SEZ employment rose more than 51 percent-from 844,916 in 2011 to 1,283,309 in 2014.

Financial Years (s)


Total Exports of the Country* (RS. Crore)

Total SEZ Exports  (RS. Crore)

% Share of SEZ exports in the Total exports of the country

Employment in SEZs

2011 - 2012















*calculated on cumulative basis.
*Data source DGCIs, Kolkata.

In an attempt to augment this positive track record, the Department of Commerce is reportedly considering a comprehensive package of investment incentives to boost Indian SEZs' international competitiveness. "It could not be included in the [2014] budget since the government is working on a package of sorts for SEZs. We will take up the issue with the finance ministry," a senior tax department official commented.

2) Industrial Development and SEZs :
SEZs have direct implications for the industrial development of the economy. The industrial units in the SEZs have easy access to the vitally needed inputs both to indigenous and imported. with fast expanding domestic and export markets the industrial units can grow to their optimum level and reap the economies of scale. With assured infrastructure in the areas of power, transport, communication, finance and trained man power industrial units in the SEZs have great potential of growth transmission not only within the zone but also in the economy at large. They transmit the multuplier and growth acceleration process in the economy. The SEZS have proviIded employment to 1.97 lakh persons of which 37 percent are women. The current investment and employment created by the SEZs is Rs. 83,450 crore and 1, 13,426 persons respectively.

3) Technological Advancement :
SEZs are exposed to world economy through their export trade. They are instrumental in the process of globalization and economic interdependence. The units in the SEZs try to assimilate the latest technology in their production process and marketing management. This assimilation of modern technology both imported and indigenously developed lead to technological upgradation in the production and marketing areas not only among the units in the SEZs but also among the units outside these zones. Thus the technological advancement achieved by the SEZs has an indirect implication on the economic development of the economy.

Problems Faced Due to Special Economic Zone 

1) Lack of Proper Rules:
We all know that subsidy of food, petrolium and fertilizers has been getting lower day by day whereas SEZdevelopers are getting more and more concessions in taxes.
a) The government has approved that SEZ will have 100% concession for first 5 years and 50% concession for the next 5 years in the tax.
b) The businessmen who don't export the products which are depend on or related to SEZ, those also get all these benefits.

As the government is giving more and more benefits to SEZ, there are many other projects which are meant for public, are incomplete due to insufficient funds. It is not compulsory for the SEZ developers to provide employment to the local people (E.g. Navi Mumbai SEZ). But SEZ in West Bengal is an exception to this. If the local people are not literate, they won't get good posts jobs in SEZ. And due to that, they will force themselves to displace from their motherland.

2) Diversity in Development:
If there won't be a proper distribution of SEZ in the country, it may lead to the diverse distribution of development across the country which won't be a good sign as far as the economic growth of the country is concerned. If there will be diversity in development, it will lead the industrial centralization in a certain area and the problem of unemployment in the other parts of the country won't be solved.

3) Threat to Water Security :
There are three kinds of impacts that SEZ can have on access to water for the people in the SEZ area.First would be due to the diversion of water for use within the SEZ. Second impact would be the impact of release of effluents from the SEZ. Here the situation at locations like Ankleshwar in Gujarat and Patancheru in Andhra Pradesh, among scores of other places is illustrative. At these places, the release of untreated effluents form the industrial estates has created a hell for the residents of the area. Our past performance in achieving effective pollution control is dismal, to put it most benevolently. And there is absolutely no movement to change that situation. 
Thirdly, the conservation of land to for SEZ would mean destruction of ground water recharge systems. Moreover, it should be remembered here that in India, right to extract ground water continues to be connected with the ownership of land. Hence SEZs even in relatively small area can pump out huge quantity of water, drying up the wells of the surrounding areas. I here could be conflicts between the zones and the local residents, as could be seen at Plachimeda in Kerala, as also in Varanasi and Jaipur. he impact of all these could be quite serious in most areas, and could precipitate crisis in the water scarce areas.lf such a situation continues, many parts in the country may have to face a serious water problem for agricultural development in the future.

4) Threat to Food Security: Mangroves Destruction :
There is large scale Mangrove destruction in Gujarat. In the 13,000 ha Mundra SEZ in Kutch in Gujarat, 3000 ha area is covered with Mangroves, which are already being destroye for the SEZ. Gujarat Forest Department has raised an alarm over this destruction.Mangroves are also facing destruction at a number of other locations in Gujarat due to industrial expansion along the cost in Kutch, Saurashtra and South Gujarat. If SEzs go on grabbing mangrove and fertile lands, it will lead to a reduction in a cattle field which will cause a problem to the farmers animals and it will create a survival problem to them. Utimately it to will affect the product and businesses related milk and milk products.

5) Fertile Land Destruction :
If SEZ developers want to spread the area of his zone according to his requirement, then the government can help them to grab the fertile land around it and nobody can oppose it If SEZs go on grabbing fertile lands,it willead to the reduction in yieldinga good quality crops and it may lead to have a food shortage and hike in the food product's prices.

6) Land Requirements :
According to the website of the C ommerce Ministry,totally about 41,700 ha of land is to be taken for the formally approved and notified SEZs.This looks like a gross under estimate if we consider just a few large SEZs like the Nandigram SEZ (5,600 ha) in W Bengal (this has been cancelled by the W state government but the Chief Minister has said that it will come up elsewhere), Maha Mumbai (10, 000 ha) and Navi Mumbai (5,000 ha) SEZs in Maharashtra, the Mundra SEZ (13,000 ha) in Gujarat, the Gurgaon SEZ of reliance (10,000 ha), the Pune SEZ (840 ha) and the POSCO SEZ (1,600 ha) in Orissa, to name a few known examples. When land is acquired on such massive scale, the water requirement for such SEZS would have very large impact on water access for the surrounding areas. The SEZs at such locations will also have impact on irrigation and agricultural development.

Special Economic Zone (SEZ)