Introduction

A special economic zone (SEZ) is a portion of a nation that has distinct economic rules than other parts of the same nation. Foreign direct investment is often encouraged by and attracted by the SEZ economic policies (FDI). Any expenditure made by a company or person into commercial interests situated in another nation is referred to as an FDI. A nation or a person often receive significant economic benefits while doing trade in a SEZ, such as tax breaks and the chance to negotiate cheaper tariffs.

Their objectives include improved management, higher employment, a positive trade surplus, and greater investment. Financial measures are put in place to entice enterprises to locate in the zone. Investing, taxes, commerce, quotas, customs, and labour laws are frequently covered under these laws. Businesses may also be given tax holidays, which entitle them to a period of reduced taxes after locating in a zone. A firm may be able to manufacture and trade items at a reduced price as a result of the advantages of being in a special economic zone, helping it to be more internationally competitive.

The first SEZs developed in industrialized nations in the late 1950s. They were developed to entice international firms to invest abroad. Ireland’s Clare County’s Shannon Airport served as the first. SEZs were also formed in Latin American and East Asian nations in the 1970s.

Benefit of SEZ

Special Economic Zones (SEZs) are created to support the nation’s quick economic expansion. The key goals include fostering domestic and international investment as well as increasing exports of goods and services. One of the major advantages of special economic zones is the high capacity and the generation of work opportunities.

Tax incentives for local firms and entities as well as enhanced facilities are two of the key advantages of investing in SEZs in India. It encourages the expansion of foreign currency profits by creating new job possibilities through exports.

Challenges

• Since SEZs provide a variety of incentives and tax advantages, it is anticipated that many currently operating domestic enterprises would simply move their bases there.
• There is concern that the development of SEZs might come at the expense of agriculture land, compromising food security, costing the exchequer money, and leading to unequal growth with negative outcomes.
• Due to the diverted water consumption for SEZs, water security is also impacted in addition to food security.
• SEZs contribute to pollution, particularly when unprocessed wastewaters are released. In Gujarat, there seems to be extensive mangrove damage that has had an impact on the dairy and fishing industries.
• SEZs must be fostered, but not at the expense of the nation’s agricultural industry. It shouldn’t also have a harmful effect on the environment.

Need For SEZ

The main goals were to increase foreign investment and create a hassle-free, competitive situation for exports on a global scale. The goal was to increase exports while acknowledging that domestic businesses and producers needed access to equal playing fields in order to compete internationally. In order to entice international investors to engage in India, Special Economic Zones (SEZ) has been established. SEZ are equipped with top-notch infrastructure, including water, power, roads, transit, and storage. SEZs are essential to a nation’s quick economic growth. Initially in the 1990s, it benefited China, and there were expectations (though probably never very high ones) that the construction of comparable output zones in India could give similar advantages. However, this was contingent upon the zones providing enticing enough concessions.

Rules Under SEZ

Simplified processes are designed for the creation, management, and upkeep of Special Economic Zones, as well as for the establishment of units and company operations. The SEZ regulations also call for one windows approval for the creation of a Special Economic Zone, the establishment of a unit within a SEZ, and matters involving the Central and State Authorities. With a focus on self certification, streamlined compliance processes and paperwork are also put up.

Disadvantages of SEZ

• Loss of Revenue to Government

In general, businesses pay enormous taxes to the government. However, because the government grants tax vacations to some businesses, it loses the majority of the money from it. Government must thus impose more burdens on the average person. Government may not carry out its duties efficiently if it is not clearly out. Even when the government is unable to provide subsidies, the poor and middle class are affected. As a result, the government is accused of favoring the wealthy.

• Compensatory Problems

The government pays reparations. But it falls short of making up for the harm done. People who have worked hard for years to gain their lands must give them up for private individuals. Agricultural land loss as a result of SEZs is more troublesome than other land-related concerns since it affects the farmer’s income and asset. He must look for another source of income, which is difficult. He must leave his community or work as a laborer on another farm.

• Deindustrialization

Due of the exemption, SEZs draw several industrialists from different regions of India. Deindustrialization and migration might begin as a result of this process. This is not a promising sign. There should be equitable development.

• Land grabbing

Under the guise of development, land is taken from individuals in lower and middle class neighbourhoods. The land is typically seen as an asset by these people, and they labour on it all their lives. However, the government evacuates citizens with its straightforward G.O. This is the cause of the enormous population shifts that are occurring in several states.

Advantages of SEZ

• 15-year corporation tax vacation on export profit: 100% for the first five years, 50% for the following five, and up to 50% for the last five years, which is equal to earnings reinvested for investment
• No licence is necessary for imports produced in SEZ units.
• The importation of capital items, natural resources, refills, spare parts, etc. is free from customs duty.
• The sale or purchase of products is exempt from paying the national sales tax as long as the commodities are used for permitted operations.

References

https://www.investopedia.com/terms/s/sez.asp

https://byjus.com/free-ias-prep/special-economic-zone/

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