Definition of SEZ
India was one of the first country in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model. Therefore, India went on to set up Asia’s first EPZ at Kandla in 1965 certainly with a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances. Most importantly absence of world-class infrastructure an unstable fiscal regime were also factors to attract larger foreign investments in India.
In view of the above mentioned points, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.
To instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose.
The Special Economic Zones Act, 2005
the Honourable Parliament of India passed “The Special Economic Zones Act, 2005” in May 2005 which received Presidential assent on 23rd of June, 2005. The Parliament discussed the draft of SEZ Rules widely and displayed the discussions on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are:
- generation of additional economic activity
- promotion of exports of goods and services
- promotion of investment from domestic and foreign sources
- creation of employment opportunities
- development of infrastructure facilities
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended by the respective State Governments/UT Administration are considered by this BoA periodically. All decisions of the Board of approvals are with consensus.
The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created.
The SEZ Rules provide for:
- Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs;
- Single window clearance for setting up of an SEZ;
- Setting up of a Single window clearance for a unit in a Special Economic Zone;
- Single Window clearance for matters related to Central as well as State Governments;
- Simplified compliance procedures and documentation with an emphasis on self certification
Approval mechanism and Administrative set up of Special Economic Zones
Approval mechanism
The developer submits the proposal for the establishment of SEZ to the concerned State Government. Consequently the State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval.
Besides this the applicant has the option to directly submit the proposal to the Board of Approval.
The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members. Its constitution is as follows:
| S.No. | Department | Members |
|---|---|---|
| (1) | Secretary, Department of Commerce | Chairman |
| (2) | Member, CBEC | Member |
| (3) | Member, IT, CBDT | Member |
| (4) | Joint Secretary (Banking Division), Department of Economic Affairs, Ministry of Finance | |
| (5) | Joint Secretary (SEZ), Department of Commerce | Member |
| (6) | Joint Secretary, DIPP | Member |
| (7) | Joint Secretary, Ministry of Science and Technology | Member |
| (8) | Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries | Member |
| (9) | Joint Secretary, Ministry of Home Affairs | Member |
| (10) | Joint Secretary, Ministry of Defence | Member |
| (11) | Joint Secretary, Ministry of Environment and Forests | Member |
| (12) | Joint Secretary, Ministry of Law and Justice | Member |
| (13) | Joint Secretary, Ministry of Overseas Indian Affairs | Member |
| (14) | Joint Secretary, Ministry of Urban Development | Member |
| (15) | A nominee of the State Government concerned | Member |
| (16) | Director General of Foreign Trade or his nominee | Member |
| (17) | Development Commissioner concerned | Member |
| (18) | A professor in the Indian Institute of Management or the Indian Institute of Foreign Trade | Member |
| (19) | Director or Deputy Sectary, Ministry of Commerce and Industry, Department of Commerce | Member Secretary |
Administrative set up
The functioning of the SEZs is governed by a three-tier administrative setup. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zone level deals with the approval of units in the SEZs and other related issues. There is a Development Commissioner, who is an ex-officio chairperson of the Approval Committee.
Secondly, Once an SEZ has been approved by the Board of Approval and Central Government has notified the area of the SEZ, consequently units are allowed to be set up in the SEZ. All the proposals for setting up units in the SEZ are approved at the Zone level by the Approval Committee consisting of the Development Commissioner, Customs Authorities and representatives of the State Government.
In the case of Special Economic Zones, it is the Development Commissioner who is authorized to give approval clearances including the grant of the importer-exporter code number, change in the name of the company or implementing agency, broad banding diversification, etc. at the Zone level.
Moreover, The performance of the SEZ units is periodically monitored by the Approval Committee and units are liable for penal action under the provision of the Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval.
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