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"In opening up to the outside world, we must actively make use of things from developed Western countries... but we must be careful not to take the decadent things for miracles, or ulcers for treasures."

- Jiang Zemin,
President of the PRC,
1997.

SEZs Definition and History

Special Economic Zones (SEZs) have become a buzzword among advocates of liberalization in recent years; Are they heroic attempts to create world-class exporting zones, or just tax havens and land grabs? What basically are these SEZs?

They are modeled on the Export Processing Zones (EPZ). The original idea behind the creation of EPZs was to allow employers to import materials to be worked on and then re-exported without having to pay duty. However, from the beginning, this tempting idea had a major drawback. It requires the sealing off of the zone or of designated factories, to prevent untaxed goods being smuggled into the rest of the economy.

EPZs and SEZs in India

In India, the first zone was set up in Kandla as early as 1965. The idea of the so-called Special Economic Zones (SEZs) was first mooted by the Ministry of Commerce's Export - Import Policy, 2000, in an attempt to copy the model evolved in China. In 2005 the SEZ Act was passed by the Indian parliament and came into force from February 10, 2006.

According to the Indian Ministry of Commerce's website, the SEZ is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purpose of trade operations, duties and tariffs. With time all existing EPZs were converted into SEZs.

SEZs as Revenue Drainers

The Indian SEZ/EPZ experience

EPZ exports increased in India from less than Rs.1 million in 1966 to over Rs. 97727 million in 2002. Over the same period, total employment increased from 70 to around 89,000, net foreign exchange earnings increased from Rs. 0.16 million to Rs. 43195 million and value addition increased from 21% to 44%.

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* Contributed by: -
Rarul Abrol & Saurabh Nanda,
MBA - IInd Year,
Institute of Management Technology, Ghaziabad.