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

existing infrastructure, (b) exploiting natural locational and cultural affinities, such as proximity to Taiwan and Hong
Kong, and (c) unbundling infrastructure development from the development of the SEZ, ensured that investments were
market-oriented, reduced the risk of stranded investments as a result of special locational privileges and ensured that the
growth was more reflective of China’s underlying comparative advantage. This market-orientation, coupled with China’s
high savings and investment rate, has made it the success it is today.
4.10.8 Indian SEZs
India also had similar models of EPZs and EOUs. These were located at various places including Cochin, Falta, Kandla,
Chennai, NOIDA, Santa Cruz, Visakhapatnam and Surat. But these eight zones failed to achieve their export targets.
Thus, a policy was introduced on April 1, 2000 to set up Special Economic Zones in the country with a view to
providing an internationally competitive and hassle-free environment for exports. This was supplemented by the
comprehensive SEZ Act of 2005. Units may be set up in an SEZ for manufacture of goods and rendering of services.
All the import/export operations of the SEZ units will be on a self-certification basis. The units in the Zone have to be
net foreign exchange earners but they shall not be subjected to any pre-determined value addition or minimum export
performance requirements. Sales in the Domestic Tariff Area by SEZ units shall be subject to payment of full customs
duty and import policy in force. Further, offshore banking units may be set up in the SEZs.
The policy provides for setting up of SEZs in the public, private, or joint sector, or by state governments. It was also
envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.
Accordingly, the government has converted Export Processing Zones located at Kandla and Surat (Gujarat), Cochin
(Kerala), Santa Cruz (Mumbai-Maharashtra), Falta (West Bengal), Madras (Tamil Nadu), Visakhapatnam (Andhra
Pradesh) and Noida (Uttar Pradesh) into Special Economic Zones. In addition, three new Special Economic Zones
approved for establishment at Indore (Madhya Pradesh), Manikanchan – Salt Lake (Kolkata) and Jaipur (Rajasthan)
have commenced operations.
4.10.9 Characteristics of the Indian SEZ Model
The distinct characteristics of the Indian SEZ model are described below:
SPECIAL ECONOMIC ZONES (SEZS) AND FDI IN INDIA
� International experiences show that the government has largely developed special economic zones and has invested
the necessary funds to create zone infrastructure.
� As an extension, the government has also taken the principal responsibility for marketing these zones internationally.
Unlike this, the primary thrust of the Indian SEZ model is to facilitate ‘private sector-led’ SEZs. This has opened
up possibilities for developing SEZs in the private sector and joint sector.
� Keeping in view the learnings from other countries, the Indian SEZ model also envisages a minimum size of 1,000
hectares for all greenfield SEZs. As highlighted earlier, a minimum critical mass or size is necessary to create the
desired economic multiplier. The combined utilised area under all EPZs and FTZs in India is 2,100 acres, i.e., less
than 1,000 hectares, which is the minimum size stipulated for greenfield SEZs. The simultaneous conversion of
existing EPZs and FTZs into SEZs provides an opportunity to test and fine-tune the SEZ policy before it is applied
to greenfield SEZs.
� The experience of comparable countries shows that decisions such as location selection, number of SEZs to be
promoted and the focus for investment attraction have largely been influenced by the national government. In the
Indian SEZ model, states are being encouraged to take these choices, while the central government largely focuses
on policy-making and facilitation. This has resulted in a number of proposals from states for developing SEZs. Since
much of the funding for SEZs is envisaged through the private sector/ banks, the soundness of the business model,
competitive differentiation and market forces would be key determinants of the bankability of these projects.
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