Parthapratim Pal

Performance of SEZs

The performance of the SEZs in India is widely debated and often misreported. To begin with, there is no clear benchmark to measure performance, and second, there is a lack of disaggregated data to support any analysis. This chapter therefore assesses the performance of SEZs in India against the objectives laid down by the SEZ Act 2005 using secondary data and information from a primary survey.

Challenges Faced by SEZs in India and the Way Forward

The discussions in the previous chapters suggest that SEZs in India have not been very successful, and several of the approved SEZs have failed to take off. This chapter focuses on some of the key barriers faced by the SEZ developers and units. These include barriers related to the institutional and regulatory mechanism, land acquisition, and changes in fiscal regime, among others. This chapter then suggests certain policy recommendations to turn Indian SEZs into a success story.

SEZs in Select Countries: A Comparison with India

The concept of special economic zones has evolved across the globe. Several developing countries have policies for the establishment of industrial zones that focus on exports and countries have set up strong regulatory and administrative frameworks to support them. Since different countries have different starting points and experiences in developing special economic zones, each country imparts important lessons for India. Using select country cases in Asia, this chapter compares their SEZ policy objectives, administrative structure, incentives, and contribution with those in India and makes recommendations for Indian SEZs.

SEZs and Other Industrial Clusters: Why Incentives Have Not Been Successful in Developing Manufacturing in India?

The central and the state governments in India have enacted over 300 policies and schemes, most of them for promoting the growth of the manufacturing sector. The majority of the cluster-based schemes can be dovetailed with incentives under the SEZ policy, implying that an investor can avail of the benefits under more than one scheme and/or policy. However, despite subsidies, grants and other incentives, manufacturing has not grown as expected. This chapter examines some of the cluster-based schemes and how these can be dovetailed with the SEZ policy. It also makes policy recommendations on how to support the growth of the manufacturing sector in India.

Quality of the Business Environment: SEZs Versus DTA

SEZs should be instrumental in creating a conducive and quality business environment. The success of SEZs would depend on their ability to attract units that are internationally competitive, which in turn would depend on the quality of infrastructure and the overall business environment that the SEZ provides. This chapter, based on a primary survey, assesses the quality of the business environment in SEZs and compares it with that in the DTA. The chapter makes broad recommendations to improve the quality of the business environment in SEZs for the long-term viability of SEZs in India.

Special Economic Zones and Regional Trade Agreements

SEZs and regional trade agreements (RTAs) can help to liberalise and facilitate trade. While both of them focus on the removal of trade barriers, their objectives are different. SEZs focus on improving a country’s export competitiveness, while RTAs focus on removing barriers to trade between trading partners. Hence, the two polices can be in conflict. This chapter discusses how India can synergise its SEZ policy with its bilateral and regional trade agreements and maximise the benefits for its industries.

SEZs in India: Evolution, Policy Framework and Current Status

India was among the first few countries in Asia to adopt the concept of export processing zones (EPZs), but they were not backed by formal legislation. Almost four decades later, India adopted the SEZ policy backed by a regulatory framework to develop special economic zones across the country. Since then, there have been several developments in the incentive structure, state-wise distribution, sectoral coverage and number of SEZs in India. This chapter presents the evolution of special economic zones in India, describes the policy framework and presents the current status of SEZs in the country.

Special SEZs for Services: India’s Experiences and the Way Forward

Globally, countries are focusing on services SEZs, since services play a key role in establishing GVCs and the WTO is yet to develop a discipline on subsidies in services. India’s growth has been propelled by the services sector, and India enjoys a positive trade balance in services, as opposed to trade in goods. It is, therefore, prudent for the country to promote services SEZs to enhance exports and create employment. The chapter focuses on some sector-specific services SEZs, which have been approved, and some potential services SEZs, which India can experiment with. The chapter recommends how to diversify the export base and create employment by supporting such SEZs through the right policies.

SEZs in the Multilateral Trading System

Export-linked subsidies given to the manufacturing units under the Indian SEZ policy can be actionable under the WTO subsidies and countervailing measures (SCM) agreement. Until recently, India was allowed to give certain prohibited subsidies under Annex VII of the SCM Agreement. However, since India may soon graduate from the list of the least Annex VII countries, there is an urgent need to review the subsidies. The WTO is yet to develop a discipline on subsidies in services; therefore, India can continue to subsidise services. Given this scenario, this chapter suggests subsidies and policies that can benefit SEZs without drawing retaliatory actions under the present WTO rules.