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India’s special economic zones boost foreign investment

August 1, 2018
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Why this is important to Wisconsin businesses: With more liberal regulations than the rest of the country, these zones were created by the Indian government to attract investment and promote export-led growth.

With India poised to be the third-largest global economy by 2030, a key policy of the country’s Ministry of Commerce and Industry is establishing special economic zones (SEZs). These zones, part of India’s reform agenda, are geographic regions with more liberal regulations than in the rest of the country. The broad category of SEZs encompasses several more specific zone types, such as free trade zones (FTZs), export processing zones (EPZs), free zones, industrial estates, free ports and urban enterprise zones.

SEZs were established to attract foreign direct investment, create employment opportunities, develop infrastructure, and facilitate transfer of technology and access to global markets. However, their main objective is to provide an internationally competitive and hassle-free environment to encourage exports. With this goal, the government of India announced its SEZ policy in 2000, with objectives including making available goods and services free of taxes and duties, creating integrated infrastructure for export production, enabling expeditious and single-window approval mechanisms, and offering a package of incentives to attract foreign and domestic investment to promote export-led growth.

Investments in India’s SEZs have increased over the last decade, leading to increased trade and investment, job creation and more effective governance. Investment in SEZs was $590 million in 2006, and had grown to $69.3 billion as of 2018. India had 223 operational SEZs as on March 31, 2018. Employment in SEZs stood at 100,000 in February 2006, and had increased to 1.9 million by March 2018.

To encourage participation in SEZs, companies are provided with certain benefits and incentives such as tax holidays and income tax exemptions. For instance, units in SEZs enjoy a 100 percent income tax exemption on export income for the first five years, 50 percent for the next five years, and 50 percent of the ploughed back export profit for another five years. Furthermore, there is duty-free import/domestic procurement of goods for development, operation and maintenance of SEZ units—among other incentives.

Since the SEZs offer a variety of benefits to exporters, exports from SEZs rose 18 percent in 2017-18 due to progress in terms of clearance and facilities. India’s SEZs contribute over $87 billion to the country’s export basket. Data compiled by the Export Promotion Council of India for export-oriented units and SEZs (EPCES) reported total merchandise and software exports of $80 billion in fiscal year 2018, up from $68 billion the previous year. From the period April 2017 through February 2018, the major SEZ zones that witnessed significant growth in product exports were FALTA, Cochin, Vizag, Kandla, DC SEEPZ, MEPZ and Noida. SEZs export a wide range of products and services: computer/electronic software, chemicals and pharmaceuticals, gems and jewelry, textiles, garments, plastics, rubber products and more.

Says Vinay Sharma, officiating chairman of EPCES, “For any foreign investor looking for 500 acres or even more to set up a plant, only an SEZ can allot the land quickly—without any encumbrance, litigation or disruption. A single-window clearance helps the investor start construction in four to six weeks. Investors from other countries may choose to locate their production facilities for export to other countries or to sell in domestic markets, based upon their preference. This is a boon for anyone looking to get into production mode very quickly. The ease of doing business, coupled with the availability of clean and dependable power, water and other resources, as well as educated and trained personnel, are available across SEZs in India.”

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