DR Ambedkar IAS Academy

Special Economic Zone (SEZ)

A Special Economic Zone or SEZ is a specially marked territory or enclave within the national borders of a country that has more liberal economic laws than the rest of the country. 

Special Economic Zone – Definition

An SEZ is an enclave within a country that is typically duty-free and has different business and commercial laws chiefly to encourage investment and create employment.

Apart from generating employment opportunities and promoting investment, SEZs are created also to better administer these areas, thereby increasing the ease of doing business.

SEZ Background

An SEZ Policy was announced for the very first time in 2000 in order to overcome the obstacles businesses faced. 

There were multiple controls and many clearances to be obtained before starting a venture.

Infrastructure facilities were shoddy and well below world standards in India.

The fiscal regime was unstable as well.

In order to attract huge foreign investments into the country, the government announced the Policy.

The Parliament passed the Special Economic Zones Act in 2005 after many consultations and deliberations.

The Act came into force along with the SEZ Rules in 2006.

However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).

Note:- A precursor to the SEZs, the Export Processing Zones were set up in India well before. The first EPZ came up in Kandla in 1965 to promote exports. This was the first EPZ not only in India but in all of Asia as well.

Special Economic Zones Act, 2005

“It is defined as an Act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.”

The chief objectives of the SEZ Act are:

To create additional economic activity.

To boost the export of goods and services.

To generate employment.

To boost domestic and foreign investments.

To develop infrastructure facilities.

SEZ Rules

The Rules provide for:

Simplified procedures to develop, operate and maintain SEZs and also to set up units and conduct businesses in the SEZs.

Single-window clearance to set up a Special Economic Zone, and also to set up a unit in an SEZ.

Single-window clearance for matters connected to the Central and State governments.

Simplified compliance procedures and documentation with a focus on self-certification.

Different minimum land requirements for different classes of Special Economic Zones.

SEZ Approval Mechanism

The SEZ approval mechanism is a single-window process provided by a 19-member inter-ministerial SEZ Board of Approval (BoA).

The developer has to submit the proposal to the state government.

The state government forwards this proposal to the BoA along with its recommendation within forty-five days.

The developer or applicant can also directly submit the proposal to the BoA.

The Board, which has been constituted by the Central Government, and is a 19-member Board takes the decision considering the merits of the proposal. All decisions taken by the Board are by consensus.

The Board is chaired by the Secretary of the Dept. of Commerce, Ministry of Commerce and Industry.

The other members are from various bodies and ministries such as the Central Board of Excise and Customs (CBEC), the Central Board of Direct Taxes (CBDT), Department of Economic Affairs, Dept. of Commerce, Ministry of Science and Technology, Ministry of Home Affairs, Ministry of Law and Justice, Ministry of Urban Development, etc.

Once the BoA gives its approval, and the central government notifies the area of the SEZ, units are allowed to be established inside the SEZ.

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