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• The SEZ Policy of India came in to existence because the economic reforms promulgated and implemented in the early 1990s did not resulted in the overall growth of the Indian economy. • The First SEZ Policy of India was drafted to act as a catalyst to fuel the economic growth in the early 1990s. • The economic reforms of 1990s did not produce desired results, especially the Indian manufacturing sector witnessed slump in the second-half of the decade. • Bottlenecks like red tape, lengthy administrative procedures, rigid labor laws and poor physical infrastructural facilities had detrimental effects on the flow of Foreign Direct Investments (FDI). • Further, the Indian markets were not mature enough to embrace Foreign Institutional Investors (FIIs) in the system. • Moreover, the legal framework of Indian economy was not binding enough to prevent overexploitation of Indian markets by the foreign investors. • Thus, there was no congenial environment for investments in India in spite of implementation of liberal economic policy by the Government of India.
The main objectives of the First SEZ Policy of India are as follows - • Generation of additional economic activity across all the states • Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities • Promotion of investment from domestic and foreign sources • Creation of employment opportunities across India • Development of world class infrastructural facilities in these units • Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities • Single window clearance cell for the establishment of Special Economic Zone • Single window clearance cell within each and every Special Economic Zones • Single window clearance cell relating to formal requirements of Central as well as all State Governments • Easy and simplified compliance procedures and documentations with stress on self certification
The SEZ's were supposed to be Chinese-style, self-contained industrial enclaves aimed at turning India into a powerhouse of manufacturing for exports, but things haven’t quite gone according to plan. Reasons for the failure of sez policy • Incentives offered under the foreign trade policy to exporters outside of the zones and disincentives arising out of free-trade agreements (FTA). The commerce ministry provides incentives to exporters outside SEZs through the duty drawback scheme, and focus market and focus product schemes, among others. • The duty drawback scheme allows manufacturers to seek a refund of duty paid on imported materials used in the manufacture of goods which are exported; the focus market and focus product schemes incentivize exports to specific geographical regions and specific products. Ideally such benefits should also have been extended to SEZs to ensure a level playing field. • The situation further aggravated with the global economic downturn of 2008-09 when demand for Indian goods fell drastically and duty-free sale of SEZ products within the country was not allowed • SEZ's failed to achieve their intended objective of encouraging manufacturing exports from India and instead became attractive centres for information technology firms to avail of tax incentives by shifting to the zones from domestic tariff areas. • SEZs have access to duty-free imports of manufacturing inputs because technically they are considered to be outside of the country’s domestic tariff area. But, with India signing free-trade agreements with countries where duties on many products are eliminated or reduced substantially, the advantage accruing to SEZs was negated. • There is a difference between the models followed by China and India— while China created a limited number of large, self-sustainable, confined enclaves near port facilities to boost exports, India opted to license a large number of SEZs without ensuring proper infrastructure outside the zones. • There is another hurdle that SEZs face. Tax incentives granted to SEZs are seen as breaching World Trade Organization rules that bar financial contributions by a government or public body. • SEZs were supposed to be areas where government provides state-of-the-art technology and infrastructure facility. However, later they were left to private developers. We should go back to the original idea and develop such zones as pockets of excellence SEZs should provide better infrastructure facilities, which in turn will reduce the cost of operations and act as an incentive for exports
By: Deepak Garg ProfileResourcesReport error
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