India’s special economic zones: A primer

Tempo de leitura: 2 minutos

Special economic zones (SEZs) in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Accordingly, SEZs in India are a popular investment destination for many multinationals, particularly exporters.

While India’s SEZs are similar to those found in other parts of Asia, business leaders that are considering setting up in a SEZ should seek to understand how SEZs work in India. Each SEZ is unique. Many business leaders conduct market entry studies that compare sites, resources, incentives, and costs before making site visits.

The Indian government had long used export processing zones (EPZs) to promote exports. In fact, Asia’s first EPZ was established in 1965 at Kandla, Gujarat state. While these EPZs had a similar structure to SEZs, the government began to establish SEZs in 2000 under the Foreign Trade Policy.

The government sought to use SEZs to redress the infrastructural and bureaucratic challenges that were seen to have limited the success EPZs. The government’s SEZs are structured closely on China’s successful model. They are designed to encourage domestic and foreign investment, boost India’s exports, and create new employment opportunities.

The Special Economic Zone Act, 2005 further amended the country’s SEZ policy. Many EPZs were converted to SEZs, with notable zones in Noida (Uttar Pradesh state), Falta (West Bengal state), Visakhapatnam (Andhra Pradesh state), Chennai (Tamil Nadu state), Cochin (Kerala state), Santa Cruz (Maharashtra state), Indore (Madhya Pradesh), as well as Kandla and Surat (Gujarat).

Since the Act’s promulgation, the Indian government has also accepted proposals for additional, far smaller SEZs, which must be proposed by developers to the Indian Board of Approval. The SEZ Rules, 2006 lay down the complete procedure to develop a proposed SEZ or establish a unit in an SEZ.

At least 221 SEZs are in operation, and by January 2018, a massive 423 have received formal approval for operation. While some observers argue that India’s SEZs have not become as successful as those in China, India’s SEZs remain an important sourcing and manufacturing destination for foreign investors.

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