The new SEZ policy allows supplies made by units in the SEZ to Domestic Tariff Area (DTA) units to be counted towards their total export obligation if the buyer pays for it in foreign exchange. A unit in SEZ has only to have a net export of one dollar qualify for the concessions. Clearly, then the units in the SEZ's are not expected to work hard trying to earn foreign exchange. However, the Act also says that SEZ's must be forex positive within 5 years of being set-up.

Units in the SEZ in India need not have a certain component of FDI, which is otherwise for countries like China, where units in SEZ's are expected to have a certain FDI component necessarily.

Services like trading, warehousing and other related activities have also been included to be set-up in SEZ's. This enhances the concept of "manufacturing", and thus, lowers the 'tax net' for the government.

Another clause in the SEZ Act allows units in the existing Domestic Tariff Area (DTA) to relocate to the SEZ with old plant and machinery, and thus, allowing them to avail tax concessions as well. Since the idea behind SEZ's is to attract new investments, this clause seems to be inconsistent with the objectives of the SEZ policy.

SEZ Act is unclear about flexible labor laws. While no such flexible labor laws have been framed, state governments have been granted permission to adopt flexible labor laws. Clarity on labor laws is necessary to compete globally and get investors. Even countries like China have made specific labor reforms for SEZ's.

3) Issue of Revenue Loss: SEZ's are expected to generate zero direct tax revenue for the government for at least the first 10-12 years due to the fiscal incentives being offered. A finance ministry estimate indicates the loss in revenue owing to the new SEZ policy to be as much as Rs. 90,000 crores in case of direct taxes and another Rs. 20,000 crores by way of indirect taxes.

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Gaurav Aggarwal,
Master of Business Economics (MBE),
University of Delhi, South Campus,
Delhi.