Reviving the Indian SEZs

Tempo de leitura: 2 minutos

SEZs are industrial enclaves entitled with fiscal benefits and located within a country’s  sovereign borders and have the objective of increasing balance of trade and attract newer inward-investments into the country along with creation of newer jobs. SEZ, as a concept, started in mid-1950s in countries with larger presence in industrial sectors. Ireland was one of the earliest adopters in setting up SEZ.

The concept of labour-arbitrage which started as a competitive advantage for nations to compete with each other for global trade, saw the 1970s develop labour-intensive manufacturing-focused SEZs.. China opened up its first SEZ in 1979 in Shenzhen, and thereafter took huge strides in institutionalizing mega-SEZs as economic power-houses. 

Prior to the concept of SEZ, India relied on the Export Processing Zones (EPZs), which did not make a deep impact on foreign investors. The SEZ Act 2005 enabled private participation for infrastructure development and development of export-oriented hubs for products & services with large employment potential. The SEZ Act 2005 provided for Direct & Indirect tax exemptions by the Central Govt. and SEZ Policies of States gave concessions / waivers from the levies of State Govt.

For manufacturing SEZs, plotted development (including development of infrastructure of utilities) is necessary and for service-sector SEZs, ready-made office spaces are mandatory structures. The more popular SEZ category in India has been the service sector as fully-furnished  office premises with 24 x 7 power supply for IT units, plots with utilities (power, water, sewage, gas & fuel facilities, telecommunications, ETPs, etc.) were offered. Effectively, the tenant-IT/ITES units had negligible investment in capital assets, which suited their operations.

An interesting labour related aspect is that inside SEZs, no labour unions are allowed. That’s been a big positive for its users. Despite having skilled and educated workforce,  states insisting for trade unions have lost out on IT / ITES talent employment generation.

SEZs across India have attracted investments of over Rs 5.2 lakh crores so far and have current capacity utilisation of just over 50%; using this capacity, they employ nearly 20 lakh people (of which IT/ITES SEZs employ 80% of the head count). There are currently 355 SEZs of which 70% are IT / ITES focused. Not all of these IT / ITES units are focused in service exports. Many of these export products – IT software, electronic items, assembled parts such as Printed Circuit Boards, etc. Infact, SEZ’s account for over 26% the total exports of the country and the export value is over Rs 7 lakh crores (Fiscal 2019).

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