fdi in india and its growth linkages - Department Of Industrial Policy ...

FDI IN INDIA AND ITS GROWTH LINKAGES
3. Poor infrastructure in areas surrounding the zones (e.g., unpaved roads and poor physical security);
4. Government ambivalence and red tape regarding inward foreign direct investment;
5. Unclear incentive packages governing inward investment; and
6. Lack of interest and authority of state and local governments, and the private sector, compared with the central
government, in the design, set up, and functioning of the zones.
With the intention to emulate the Chinese model of promoting exports, India decided to replace its EPZ model with
an SEZ model in the Export and Import (EXIM) Policy announcement made in 2000-01 (with effect from April 1,
2000). This was done with a view to providing an internationally competitive and hassle-free environment for exports.
A comparison of EPZs with SEZs in India is provided in Annex I. The other objectives included earning foreign
exchange, attracting foreign investment, generating employment, attracting the latest technology into the country,
backward and forward linkages by way of sourcing of raw materials from and supply of finished goods to DTAs
(Domestic Tariff Areas), upgrading skills and creating a source of skilled manpower, and developing backward areas.
4.3 Definition and Key Features
The Special Economic Zone is a special export promotion scheme and therefore has a specific definition. A Special
Economic Zone (SEZ) is defined as a deemed foreign territory with special rules for facilitating FDI for exportoriented
production, and for purposes of trade and custom duties. The key implication of being deemed foreign
territory is that individual units within the SEZ are allowed operational freedom in routine activities and not
supervised by customs authorities.
Units may be set up in an SEZ for the manufacture of goods and rendering of services. All import/ export operations of
the SEZ units would be on a self-certification basis. The units in a SEZ would have to be net foreign exchange earners,
but these shall not be subject to any pre-determined value addition or minimum export performance requirements. Sales
in the DTA by SEZ units would be subject to payment of full customs duty and the import policy in force.
The Indian SEZ Policy has the following distinguishing features:
i. The zones would be set up by the private sector or by the state government in association with the private sector.
The private sector is also invited to develop infrastructure facilities in the existing SEZs.
ii. The state governments would play a lead role in setting up the SEZs.
iii. Creating special windows under the existing rules and regulations of the central and the respective state governments
for the SEZs being set up.
All existing eight EPZs have now been converted into SEZs, and another 27 EPZs have already been approved and are
under the process of establishment. In fact, the EPZ Scheme was discontinued with effect from April 1, 2003. Further,
after the SEZ Act, 2005 came into force, 439 formal approvals have been granted for setting up SEZs, of which 201
SEZs have been notified and were in various stages of operation till February 10, 2006. The fact that the approved SEZs
are spread over 19 States and three Union Territories indicates that these are not concentrated in any particular region.
The land area involved in the 439 formally approved SEZs is about 60,168 hectares, of which approximately 20,000
hectares are for the 97 approvals given to State Industrial Development Corporations/State Government Ventures. In
all these cases either the land was already available with the State Industrial Development Corporations (SIDCs) or was
in the possession of the private companies setting up the SEZs.
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