Special Economic Zone Act, 2005 | Labour and Industrial Law - CLAT PG PDF Download

Objectives

• Special Economic Zones (SEZs) are created by host countries to attract foreign direct investment (FDI). These zones offer benefits that allow companies to produce and trade goods at lower prices, enhancing global competitiveness.
• SEZs in India provide incentives such as competitive infrastructure, duty-free exports, and tax benefits to make business operations easier.

• The SEZ policy in India was introduced on April 1, 2000, with the aim of boosting foreign investment and creating a competitive environment for exports.
• Initially implemented through various laws and executive orders, the SEZ policy was formalized with the enactment of the SEZ Act in 2005.
• SEZs are designated duty-free enclaves considered foreign territory for trade purposes, aiming to attract foreign investments.
• Countries like China, India, Jordan, Poland, Kazakhstan, the Philippines, and Russia have established SEZs, with the goal of facilitating foreign trade and investment.
• Normal labor laws apply to SEZs, enforced by state governments, which are encouraged to simplify procedures and introduce a single-window clearance mechanism.

Incentives for Setting Up in an Indian SEZ

• Duty-Free Imports: Goods for development, operation, and maintenance can be imported duty-free.
• Income Tax Exemption: 100% exemption on export income for the first five years, followed by 50% for the next five years. Additionally, 50% of export profit reinvested in the business is exempt for five years.
• GST Exemption: Exemption from goods and services tax (GST) and state government levies.
• Single Window Clearances: Streamlined approvals from state and federal governments.
• Electricity Duty Exemption: Exemption from electricity duty and tax on electricity sales in certain states.
• Customs Facilitation: Presence of customs officers in SEZs to expedite trade processes.
• Land Incentives: Some states offer land to SEZ developers at concessional rates to promote industrial development.

Impact of the COVID-19 Outbreak

• The telecom department and software technology parks of India (STPI) allowed IT and BPO employees in SEZs to work from home until April 30, 2020.
• The COVID-19 pandemic may enhance Indian competitiveness and capital inflows if the government provides incentives for foreign investors.
• With supply chain disruptions from China and economic downturns in the US and Europe, multinational companies may seek cheaper alternative manufacturing destinations, with India being a potential option through SEZs.
• China, the world’s largest exporter since 2009, has faced supply chain halts during the pandemic, prompting countries to recognize the importance of local manufacturing.

Relaxations and Opportunities

• India is being positioned as a potential global manufacturing hub, with COVID-19 creating opportunities for domestic manufacturing and exports.
• Despite a slow global economy, SEZs in India achieved USD 100 billion in exports by mid-February FY 2019-20.
• During the pandemic, Indian SEZs faced challenges like logistics and supply chain disruptions, but there is potential for SEZs to become robust investment hubs.
• The government’s proposed amendments for SEZs post-lockdown aim to boost investments in manufacturing and increase export volumes.
• India plans to tap into the potential of warehousing, logistics, and transportation to create a superior trading infrastructure.
• SEZs are expected to become global manufacturing and distribution hubs, with improved ease of doing business attracting more international trade and investments.
• SEZs have shown positive impacts through increased investments, exports, and employment, contributing to the country’s economic growth.
• Continued government and local authority support is crucial for maintaining investor interest and improving the growth of the SEZ sector.