Special Economic Zones In Globalised Economy Of India

What is a Special Economic Zone?

A special economic zone (SEZ) refers to specifically appointed areas in countries with special economic regulations that are distinct from other areas in the country. These regulations contain measures that are encourage foreign direct investment. Conducting business in a SEZ generally means a company receives tax incentives and the chance to pay lower tariffs.

Special Economic Zones are area intended to promote rapid economic growth by influencing tax incentives to attract foreign currency and technological advancement. While many countries have set up Special Economic Zones, China has been the most successful in using Special Economic Zones to attract foreign capital. In fact, China has even announced an entire province, Hainan, to be an SEZ, which is quite different, most Special Economic Zones are cities.

It should come as no shock that China first instigated the idea of Special Economic Zones by creating four of them in 1980. The first four Special Economic Zones were all based in southeastern coastal China and consisted of Shenzhen, Zhuhai, Shantou and Xiamen. China allowed these areas to offer tax incentives to foreign investors and to develop their own infrastructure without any prior approval. The Special Economic Zones essentially acted as a  liberal environment that promoted innovation and advancement within the Chinese borders. The Special Economic Zones continue to exist with great success.

Read – Privatization – A Symbol Of Harbinger Or A Policy Of Retrograde

Since 1980, China has expanded the count of the Special Economic Zones to more than 38. The additional Special Economic Zones followed the same path as the first four and realized fast growth. Shenzhen, for example, grew from 30,000 people in 1979 to more than 1 million at the turn of the century.


During late 1990s the then Union Commerce Minister Murasoli Maran visited the Special Economic Zones in China and was impressed by their contribution to the rapid growth of  the GDP of the country after which he thought of taking measures to do the same in India. However by that time India was already initiated to the first export processing zone in Kandala. But the main difference therein was that it was not a SEZ but an Export Processing Zone. India was not very happy with the EPZs[1] because they were falling short due to various reasons. As a result, the expectation rose high and the Special Economic Zones were perceived to be far more efficient, calculated and advanced than the EPZs. In light of the experiences drawn from internationals level it is evident that these zones have added tremendously to the growths of employment and foreign direct investment. Their role has been remarkable in the growth of the economy of the country it has been set up in. In New Delhi, the International Convention on Special Economic Zone was conducted on March 21, 2002. In his speech there, Maran pointed out that for a long period of time that foreign trade in India has been viewed suspiciously rather than an optimum potential to charge a high growth rate of the economy. The time has come when the country is moving towards export fatalism to export apathy. This change of notion would definitely lead to an incentive to the economic progress of the country and for this the need of SEZs is inevitable. The Special Economic Zones would act as carriers of production and the FDI would increase remarkably. As a result India will attain a considerable place in the world economy.


The Act was introduced to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.[2]

Some Important Provisions of the Act

  1. “Special Economic Zones can be established mainly for manufacturing of the goods, for providing specified circumstances and a free trade and warehousing zone. “
  2. “Special Economic Zones will include three types mainly. They are multi-product SEZ, sector specific SEZ, port or airport based SEZ and free trade and warehousing zone.”
  3. “They will have their own adjudicating, enforcing and administering agencies. Therefore, absolute non interference by the state.”
  4. “There will be 100% tax exemption and relaxation from strict labour laws. “
  5. “They will not have any burden to comply with any sort of minimum obligation to export.”
  6. “Except for certain kind of offences the no investigation or inspection can be carried out in any of the Special Economic Zones without prior approval from the development commissioner.”
  7. “The Development Commissioner will be entrusted to the overall administration and supervision of the SEZ and exercise all necessary controls and co operations to foster speedy and effective development of the SEZ concerned. The development commissioner shall be appointed by the central government.”

The main underlying purpose behind the creation of Special Economic Zone is to create a hassle-free environment for the promotion of exports. These zones are regarded as duty free enclaves and for the purpose of trade operations they are deemed to be foreign territories. The SEZ policy offers various fiscal and regulatory incentives to the developers within the zone along the incentives available with central SEZ policy. They are to emerge as zones of excellence.[3] The basic presumption behind Special Economic Zones is that they will bring large scale investment of global funds into the manufacturing and service sectors and pump the economy to its top. As a result the infrastructure conceived is world class. There will be easily available marketing initiatives and from them Indian industry is expected to gain benefit. The setting up of the Special Economic Zones will allure investment from within India and abroad. This will also lead to the development of the concerned area, ensuring better quality of goods and services, large scale employment and many other elements highly expected to boom the already growing market economy of India. According to the government it will lead a total forwarding of Indian economy.[4]
To develop Special Economic Zones there has to be someone who needs to improve the basic infrastructure. Upon that infrastructure the superstructure of Special Economic Zones will function. The infrastructure will play one of the key roles behind the success of each and every SEZ.

The government is also in the same footing of common sense with that of an ordinary prudent person and after a cautious observation of the main objectives of the SEZ policy it has came to this opinion that there shall be no lack of efforts in the infrastructural development of the Special Economic Zones. As a result the role of developer has been conceived with due care and attention.

Developer means a company that develops the infrastructure and other facilities on land earmarked as Special Economic Zones.

[1] The Special Economic Zones Act, 2005

[2] Referred from: http://www.navimumbaisez.com/overview.htm

[3]  Special Economic Zones: Boom or Bust, retrieved from: http://www.indiamap.com/comment/blog/index.htm

[4] Export Processing Zone

Aayushi Bana

Aayushi Bana, Content Writer, Law Corner Student of 7th Semester, Jamia Millia Islamia, New Delhi

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