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While these big figures seem impressive a closer look at the details reveals several serious problems. First of all the average annual growth rate of value addition in the EPZs was as low as 2.9% which means that the companies operating in these zones were basically exporting out almost as much as they imported without significant addition to the value of goods produced.
The EPZs thus contributed little to improvement of skills or transfer of technical know - how in the domestic market.

Again despite the overall growth of exports from EPZs in absolute terms their actual share in total national exports and manufactured exports increased from .07% and .14% respectively in 1973 to just 4.3 % and 5.6% respectively in 2001.

On the employment front too after an initial spurt in numbers of people getting jobs in the EPZs there has been a general decline and even stagnation. So for example while employment in the EPZs grew at the rate of over 50.2 percent between 1966 and 1970 it declined to a mere 5.2 percent between 2000 and 2002. Even assuming that the EPZ / SEZs do result in an increase in exports and even hard currency earnings their real performance can be measured only by taking into account the amount of revenues foregone by the government in the form of various incentives. According to an internal assessment of the Union Finance Ministry in 2005, the government had to forgo about Rs 90,000 crore in direct and indirect taxes over a period of four years on account of the SEZs.

If one takes into account the money spent by the government on actual construction and maintenance of these EPZ / SEZs the situation is even worse. The 1998 Comptroller and Auditor-General Report on EPZs, stated that "customs duty amounting to Rs.7,500 crore was forgone for achieving net foreign exchange earnings of Rs.4,700 crore and the government does not seem to have made any cost benefit analysis."

The tax rebates in respect of exports is around 16572 crores & with the new SEZs, it would be mind boggling. All other exemptions can be understood, but not IT exemption, which is subsidy & keeps exports subsidy dependent & perpetuates inefficiency. If Income Tax exemption is actionable subsidy in WTO then why it should be given & risk taken. The DGFT is reportedly concerned with saving Advance Authorization scheme but ready to jeopardize the SEZ scheme, WHY???

Tax rebate for investment in specified savings instruments is Rs. 6568 Crores & the FM wants to bring EET regime on this. Why they should be made to bear the brunt of SEZ like schemes?

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