Special Economic Zone

1. SEZs CONCEPT, STRUCTURE, PROCESS , IMPACT, FUTURE MACRO-ECONOMICS Dr. Gulnar Sharma

Yester years EPZs (Export Processing Zones) are todays SEZs

One of the earliest & most famous SEZs were founded by China under Den Xiaoping in the early1980s

Today the most prominent SEZs in China are Shenzhen & Pudong, a district of Shanghai

However, Indias first EPZ was set up in Kandla (Gujarat) in 1965 followed by Santacruz (Mumbai) in 1973

Four modernizations Liberalization of Agriculture; Rural & Town Industrialization through Defence, Urban & Area Export-oriented enterprises through SEZs.

Importance of the last in faster economic growth, modernization of Industry & Trade and export growth

Policy of preferred regions unequal growth open-door policies

Hong Kong and East Asian factors

Overriding approach based on Dengs Observation: For us to establish SEZs and adopt open-door policies, we must have a clear guiding ideology: that is, Not to constrain but to release

Starting with Kandla in 1965; SEEPZ in 1972, Based on reviews of working, Cochin, Falta, Madras (Chennai) and NOIDA in 1984 and Vizag in 1989

Very limited impact

Less than 40% of approvals fructified, rest cancelled or lapsed

Employed only 0.01% of labour force

FDI was less than 20% of total investment

Accounted for less than 4% of exports.Net export much lower as imports were over 60% of exports

Special Economic Zone (SEZ) is defined as "a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs" .

Special Economic Zone is one or more areas of a country where the tariffs and quotas are eliminated and bureaucratic requirements are lowered so that more companies are attracted to the area. The companies establishing in the area also get extra incentives for doing business.

SEZs are an acknowledgement of the potential of export-led development strategy in accelerating economic growth.

Government of India have notified Special Economic Zones (SEZs) Act 2005 and notified Special Economic Zone Rules 2006 with a view to augmenting infrastructure facilities for export production.

Setting up of Special Economic Zones are permitted in the public, private, joint sector or by the State Governments.

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.

Exemption from Central Sales Tax.

Exemption from Service Tax.

Single window clearance for Central and State level approvals.

Exemption from State sales tax and other levies as extended by the respective State Governments.

New Policy in April 2000.SEZs permitted to be set up in the public, private, joint sector or by the State Governments

Minimum size of 1000 hectares (4 sq. miles)

Simplified procedures and more incentives

Main measures were:

Conditions for automatic approval relaxed considerably

Customs procedures simplified

Units could produce items reserved for SSI units in domestic market

100% FDI investment for manufacturing

Profits could be repatriated fully

Freedom for sub-contracting

100% I.T. exemption for five years

Exemption from Central Excise Duty on capital goods, raw materials, consumable spares from domestic market

Reimbursement of CST paid on domestic purchases

Deficiencies in EPZ policy were :

Limited power of Zonal authorities

Absence of single window facility within the Zone

Rigid custom procedure for bondings & bank guarantees

Restrictive FDI policy

Procedural constraints & severe infrastructural deficiencies

During 1991-2000, wide-ranging measures were initiated by the GoI for revamping and restructuring EPZs.

This phase was thus marked by progressive liberalisation of policy provisions and relaxation in the severity of controls and simplification of procedures.

At present there are eight functional SEZs located at:

SantaCruz (Maharashtra),

Cochin (Kerala),

Kandla and Surat (Gujarat),

Chennai (Tamil Nadu),

Visakhapatnam (Andhra Pradesh),

Falta (West Bengal) &

Nodia (Uttar Pradesh) in India.

Further a SEZ at Indore (Madhya Pradesh ) is now ready for operation.

In addition 18 approvals have been given for setting up of SEZ at

Positra (Gujarat),

Navi Mumbai and Kopata (Maharashtra),

Nanguneri (Tamil Nadu),

Kulpi and Salt Lake (West Bengal),

Paradeep and Gopalpur (Orissa),

Bhadohi, Kanpur, Moradabad and Greater Noida (U.P),

Vishakhapatnam and Kakinada (Andhra Pradesh),

Vallarpadam/Puthuvypeen (Kerala)

Hassan (Karnataka),

Jaipur and Jodhpur(Rajasthan)

on the basis of proposals received from the State Governments.

Agriculture (a term which encompasses farming) is the process of producing food, feed, fiber and other goods by the systematic raising of plants and animals.

India has a labour force of 509.3 million.

60% of which is employed in agriculture and related industries.

agricultural crops include rice, wheat, oilseed, cotton, jute, tea, sugarcane, and potatoes.

The agricultural sector accounts for 28% of GDP.

Service and industrial sectors make up 54% and 18% respectively.

Agriculture accounts for 8.56 % of Indias exports. About 43 % of India's geographical area is used for agricultural activity.

Agriculture is still the largest economic sector and plays a significant role in the overall socio-economic development of India

SEZ policy is nowhere in conflict with agriculture sector. In fact its a lucrative proposition. India will have to gear-up with its modernization and reformation of agriculture sector to make it competent and profitable globally.

Wal-Marts role in Indian agriculture would be one such step to make the farmers use modern technology to make them eligible for profit sharing partnership proposal.

That depends on the efforts that government of India and its population put in. The SEZ conflict with agriculture as of now seems more like a political war fought with the help of pawns for immediate political mileage.

To Nation

World class business environment

Increased FDI

Higher economic growth

Infrastructural development

Export growth

Employment Opportunities

Exposure to technology and global markets

TO Business houses

Hassle free operating environment

Single window clearance

Simplified procedure for setting up business, compliance proc with with self certification

Duty free import

Tax exemption- VAT, CST, ST, other levies

External commercial borrowings

100% profit reptriation from export earnings

To People

Employement opportunities

Impact on lifestyle and standard of living

Business infrastructure combined with social facilities

Better work culture , good education, leadership vision

To Nation

Loss of revenue

To Business

Land acquisition

Single window actually is not

No strategic planning for electicity, water

To People

Grabbing of fertile land

Water scarcity- Threat to access

Food scarcity

Exploitation of labour

Landless farmers

To Environment

Mangrove destruction

Destruction of ground water recharge system

Pollution

" Unit"means a Unit set up by an entrepreneur in a Special Economic Zone and includes an existing Unit, an Offshore Banking Unit and a Unit in an International Financial Services Centre, whether established before or established aftercommencement of this Act (Section 2(zc) of Special Economic Zones Act ,2005)

Offshore Banking Unitmeans a branch of a bank located in a Special Economic Zone and which has obtained the permission under clause ( a ) of sub-section ( 1 ) of section 23 of the Banking Regulation Act, 1949(Section 2(u) of Special Economic Zones Act ,2005)

International Financial Services Centremeans an International Financial Services Centre which has been approved by the Central Government under sub-section ( 1 ) of section 18 (Section 2(q) of Special Economic Zones Act ,2005)

entrepreneurmeans a person who has been granted a letter of approval by the Development Commissioner under sub-section ( 9 ) of section 15 (Section 2(j) of Special Economic Zones Act ,2005)

existing Unitmeans every Unit which has been set up on or before the commencement of this Act (Section 2(l) of Special Economic Zones Act ,2005)

New UnitAny person, who intends to set up a Unit for carrying on the authorised operations in a Special Economic Zone, may submit a proposal to the Development Commissioner concerned

Existing UnitAn existing Unit shall be deemed to have been set up in accordance with the provisions of SEZ Act,2005 and such Units shall not require approval under the SEZ Act, 2005 .

(Section 15(1) of SEZ Act,2005)

What is a Letter

Validity of a Letter

The Letter of Approval shall be valid for one year within which period the Unit shall commence production or service or trading or Free Trade and Warehousing activity .(Rule 19(4) of SEZ Rules ,2006)

Foreign companies can also set up manufacturing units as their branch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Foreign exchange derivatives contracts) Regulations, 2000.

Overview of the entire project

Details of Activities proposed

Direct and indirect employment likely to be generated

Project cost and means of finance

Financial/Technical, etc. tie ups

Details of Backward and Forward integrations

Details of Past experience

Infrastructure:About the Land, Factory premises, Equipment, Office premises

Risks associated with Project

Implementation schedule

(a) Setting up of unit in a SEZ

(b) Annual permission for sub-contracting

(c) Allotment of Importer-Exporter Code number

(d) Allotment of land/industrial sheds in the SEZ

(e) Water connection

(f) Registration-cum-Membership Certificate

(g) Small Scale Industries Registration

(h) Registration with Central Pollution Control Board

(i) Power connection

(j) Building approval plan

(k) Sales tax registration

(l) Approval from inspectorate of factories

(m) Pollution control clearance, wherever required;

(n) Any other approval as may be required from the State Government

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; and

f) maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States.

Before recommending any proposal for setting up of a SEZ, the State Governmentendeavor that following are made available in the State to the proposed SEZ and Developer

exemption from the State and local taxes, levies and duties

exemption from electricity duty or taxes on sale, of self generated or purchased electric power

allow generation, transmission and distribution of power within a SEZ

providing water, electricity and such other services,

Delegation of power to the Development Commissioner under the Industrial Disputes Act, 1947and other related Acts in relation to the Unit

Declaration of the Special Economic Zone as a Public Utility Service under the Industrial Disputes Act, 1947

Providing single point clearance system to the Developer and unit under the State Acts and rules

Name of the Developer.

Proposed area of the location of the SEZ.

Status of recommendation of the proposal by the State Government (if available).

Whether proposal is for formal or in-principle approval? (In case land is in possession of the promoter, it is considered for formal approval)

Is it a multi-product SEZ?

If it is a sector specific SEZ, the sector is.

Whether it meets the area requirements.

Area of the SEZ (in hectares)

Whether Form- A has been filed?

Whether undertaking and affidavit has been submitted?

Whether project report has been submitted?

Whether land is owned/leased and is in possession of the Developer?

Does the proposal meet the area requirements of the Rules?

Whether the land has existing structures or is vacant?

Whether the land is contiguous?

Projected investment in the project.

Projected exports from the project.

Projected employment from the project.

Share capital and Reserves of the Developer Company.

Source of funds for the project.

Audited Accounts of the Developer for last 3 years (for all the constituents in case the Developer is a SPV).

Extent of FDI

Source of FDI

Whether provisions contained in the Press Note No. 5 (2005 Series), issued by the Ministry of Commerce and Industry have been followed in respect of Telecom/IT SEZ development?

The areas falling within the Special Economic Zones may

be demarcated by the Central Government as-

(a) the processing area for setting up Units for activities,

being the manufacture of goods, or rendering services; or

(b) the area exclusively for trading or warehousing

purposes; or

(c) the non-processing areas for activities other than those

specified under clause (a) or clause (b) ( Section 6 of SEZ Act,2005)

The processing area and Free Trade and Warehousing Zone shall be fully secured by boundary wall with specified entry and exit points. Rule 11(2) of SEZ Rules ,2006)

The developer holding land on lease basis shall assign lease hold right to the entrepreneur holding valid Letter of Approval.(Rule 11(6))

The lease period shall be co-terminus with the validity of the Letter of Approval.(Rule 11(5))

Developer may grant on lease land or built up space, for creating facilities such as canteen, public telephone booths, first aid centres, creche and such other facilities as may be required for the exclusive use of the Unit. .( Proviso to Rule 11(5))

The Developer may allot land in the processing area on lease basis to a person desiring to create infrastructure facilities for use by the prospective Units. (Rule 11(8))

The Developer shall not sell the land in a Special Economic Zone. (Rule 11(9))

No vacant land in the non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes, to any person except a co-developer approved by the Board :

Providedthat the developer or co-developer may lease the completed infrastructure along with the vacant land appurtenant thereto for such purposes

Provided furtherthat infrastructure for business or social purposes in the Special Economic Zone, as may be approved by the Board, shall be eligible for exemptions, concessions and drawback..

Any person, who intends to set up a Special Economic Zone, may, after identifying the area make a proposal in Form A to either of the following

a)State Government concerned

b) Board of Approval

25 Copies of Form A are to be given along with Project report outlining the economic and commercial viability of the project

Central Government may:-

(a) after consulting the State Government

concerned;

(b) without referring the proposal for setting up the

Special Economic Zone to the Board; and

(c) after identifying the area;

suo motoset up and notify the Special Economic Zone

(Proviso to sub section 4 of section 3 of SEZ Act ,2005)

Location of SEZ

Distance from the nearest Sea Port/Air Port/Rail or Road

Details of Lease of Land

Proposed investment details

Means of financing

Equity holdings

Details of areas (Processing areas and non-processing area) used for various purposes in SEZ

Activities Proposed in Processing and non-processing area

Details of employment likely to be generated

1. Minimum processing area for multi- product shall beat least thirty-five per cent of the area which may be relaxed up to twenty-five per cent by the Central Government on recommendations of the Board for the reasons to be recorded in writing

SPECIAL SECTOR

1.the area shall be ten hectares or more with a minimum built-up area as under :

( i ) forty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for bio-technology and non-conventional energy sectors including solar energy equipments/cells but excluding a Special Economic Zone set up for non-conventional energy production and manufacturing;

(ii) fifty thousand square meters in case of a Special Economic Zone proposed to be set up exclusively for the gems and jewellery sector.

FREE TRADE AND WAREHOUSING ZONES

Ina stand alone Free Trade and Warehousing Zone at least fifty per cent of the area shall be earmarked for developing processing area :

Provided furtherthat a Free Trade and Warehousing Zone may also be set up as part of a Special Economic Zone for multi-product;

Rule 5A .Infrastructure requirements relating to information technology

In case of a Special Economic Zone relating to information technology, the following facilities shall be ensured, namely :

( a ) twenty-four hours uninterrupted powersupply at stable frequency in thezone;

( b ) reliable connectivity for uninterrupted andsecure data transmission;

( c ) provision for central air-conditioningsystem and

( d ) a ready to use, furnished plug and pay facilityfor end users..

No proposal shall be considered for:

the use of any plant or machinery previously used for any purpose in Domestic Tariff Area.

1Acre= 0.404686 Hectare

1Hectare = 2.47109 Acres

1Sq.Km. = 0.38610 Sq.Mile

1Sq.Km. = 100 Hectares

1 Sq. Mile=2.58999Sq. Kms

Corporate farmingis a term that describes the business ofagriculture.

Specifically, what is seen by some as the practices of would-be mega corporations involved in food production on a very large scale.

It is a modern food industry issue, and encompasses not only the farm itself, but also the entire chain of agriculture-related business, including seed supply, agrichemicals, food processing, machinery, storage, transport, distribution, marketing, advertising, and retail sales.

Critics argue that the ultimate goal of corporate farming is to vertically integrate the entire process of food production, from the development of proprietary strains of DNA through to the distribution and sale of food to consumers.

Some corporations are considered to be well on the way to achieving this objective, and have become very large in the process, such as Archer Daniels Midland and the privately held Cargill, with 2004 revenues of $62.9 billion. citationneeded ]

"Corporate farming" is a fairly broad term that deals with the general practices and effects of a small number of large, global corporations that dominate the food industry.

It does not refer simply to any incorporated agribusiness enterprise, although most agricultural businesses today are in some way economically connected to the dominant food industry players. As such, it may be thought of as a movement, which is at times also referred to as "anti-corporate farming".

The core argument for the methods criticized as corporate farming is essentially: "This is the way to keep up with population growth, and to make inroads into feeding billions of people to developed nation standards this is the only way to feed the world ." Indeed, rapid technological development and large-scale global production management are responsible for an unprecedented abundance of inexpensive, widely available, attractive, "safe" food. By lowering the cost of raw food inputs, creating sophisticated long-distance distribution networks, producing processed convenience foods, and making food available year-round in vastly stockedsupermarkets , corporate farming has presented consumers in the wealthiest regions of the world with an immense variety of food, at relatively low cost. Today, inNorth America , only about 10% of average income is spent on food. By this measure, provided these methods aresustainable , corporate farming would appear to be a tremendous success

"Corporate farming" is a fairly broad term that deals with the general practices and effects of a small number of large, global corporations that dominate the food industry. It does not refer simply to any incorporated agribusiness enterprise, although most agricultural businesses today are in some way economically connected to the dominant food industry players. As such, it may be thought of as a movement, which is at times also referred to as "anti-corporate farming".

India to promote corporate contract farming Commodity OnlineNEW DELHI: Worried over the slow growth in agricultural sector, the government is planning for expansion in corporate contract farming.Minister of State for Food Processing Subodh Kant Sahai said the government is open to corporate contract farming.While domestic corporate bigwigs such as Reliance and Bharti have already taken up the contract farming route to feed their retail chains, global majors Wal-Mart, Tesco and Carrefour are also eyeing foray into India retail.

Corporate contract farming has taken off in states like Punjab, Haryana, Maharashtra and Gujarat. Providing the private sector a more level playing field would help raise the countrys overall farm goods processing level, the minister said.So far, 17 states have made a provision for contract farming in their respective Agricultural Produce Marketing Committee Act to provide legal framework.In seven more states, there exist no regulatory laws preventing such an arrangement.

Indias is worlds second largest producer of fruit and vegetables. Its annual post harvest loss on fresh fruit and vegetables on lack of processing facilities has been pegged at Rs 40,000 crore.The minister prescribed market-oriented farming to minimise post-harvest loss. Large-scale corporate farming will also lift the food processing sector.During the 11th Five Year Plan (2007-12), the growth target for the food processing sector is 7 per cent, while agriculture sector is seen growing only at 4 per cent.

Every bit of farm produce should be viewed as processing raw material, Sahai said. India aims at raising the level of food processing in farm products to 20 per cent by 2015 from the current 6 per cent.Underscoring the critical role of states in raising the countrys overall food processing level, the minister said that states should adopt a fresh look at their agricultural policy.The ministry has written to all chief ministers to accord high priority to food processing in a bid to raise rural income.

Development over the years

Started soon after beginning of reforms in 1978.

Four SEZs started in 1979 three in Guangdong adjacent to Hong Kong and one at Xiamen in Fujian

Heavy government investment in infrastructure.Each zone could introduce its own Regulation to grow investment, approvals and tax concessions.

Based on the success, in 1984, the SEZ benefits were extended to 14 coastal open cities.

Economic & Technology Development Zones (ETDZ) and High Tech and New Technology Industry Development Zones encouraged in coastal open cities.

In 1985, three development triangles Pearl River Delta (PRD), the Yangtze River Delta (around Shanghai) and Minum Delta (around Xiamen) were designated as coastal open areas.

Hainan Island was declared asfifthSEZ in 1988

Unique locations of the five SEZs, Shenshen, Shantou and Zhuhai are in Guangdong Province adjoining Hong Kong.Fourth, Xiamen, is in Fujian Province and nearer Taiwan.

Large size with government and local authorities providing improved infrastructure with foreign collaboration Attractive incentive packages for foreign investment.

Liberal customs procedures.

Flexible Labor Laws providing for contract appointments for specified periods.

Powers to Provinces and local authorities to frame additional guidelines and in administering the Zones.

SEZs in India

Experience with EPZs

Starting with Kandla in 1965; SEEPZ in 1972, based on reviews of working, Cochin, Falta, Madras (Chennai) and NOIDA in 1984 and Vizag in 1989

Very limited impact

Less than 40% of approvals fructified

Rest cancelled or lapsed

Employed only 0.01% of labour force

FDI was less than 20% of total investment

Accounted for less than 4% of exports.Net export much lower as imports were over 60% of exports

SEZs in India

Inadequate infrastructure

Restrictive policies

Lengthy procedures No Single Window

Locational disadvantages

Stringent labour laws

- In the 1990s, as a part of reforms, powers delegated to zone authorities, additional fiscal incentives were given, policy provisions were simplified and greater facilities were provided leading to some, not very significant, improvements.

Special Economic Zone

Education

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