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The existence and effectiveness of Special Economic Zones (SEZs) in India has become a topic of significant discussion as the country's economic landscape is undergoing transformation. Originally introduced in 2005 to accelerate industrialization, promote exports, create employment, enhance access to global market and attract foreign investment, SEZs have yielded mixed results across the nation.
SEZ performance & development
India's economic trajectory, alongside global trade dynamics and technological advancements, necessitate a critical reevaluation of efficacy of SEZs. Despite the existence of 2781 operational SEZs with investments exceeding INR 6,699 billion1 and employing over 2.98 million people1 under 5,713 SEZ units1, concerns have been raised regarding their competitiveness. While some have flourished, others have encountered hurdles such as bureaucratic formalities, infrastructure deficiencies, regulatory complexities, underutilization of land etc.
The presence of vast patches of vacant land within SEZs underscore the need for ecosystem development. Attracting anchor investors and incentivizing high-tech sectors are vitally important, which would serve as catalysts, stimulating demand and fostering growth in ancillary industries. While SEZs have policy on operating under a single window mechanism, reports indicate persistent inefficiencies, with manufacturers navigating through multiple departments for approvals. Issues like restrictive lease structures and cumbersome entry-exit processes hinder ease of business operation. Providing high-value services and amenities can enhance operational efficiency and improve the quality of life for workers, an aspect where Indian SEZs often fall short. Last-mile connectivity issues impede timely delivery and inflate logistics costs. Addressing these challenges can boost capacity utilization and probable output of SEZs. Ease of doing business, regulatory transparency, and administrative efficiency play critical role in attracting investment for SEZs. Streamlining bureaucratic processes and improving business environment can also strengthen the survival prospects of SEZs.
Indian Government has acknowledged the current issues and is working to create greater flexibility for SEZs. Same has been reflected by their recent announcement to overhaul India's SEZ law, which is expected to play a key role in streamlining practices and increasing operational efficiency in SEZs. A revamped policy framework as Development Enterprise and Services Hub (DESH) Bill 2022, aligned with economic needs and global trends, holds promise for bolstering India's economic competitiveness on the global stage. Driven by evolving dynamics, the decision has garnered support from industry stakeholders. In the interim, amendments in SEZ rules, including partial denotification of SEZ area, aim to inject new life into the sector. This move would unlock potential for IT/ITeS businesses and likely resolve underutilization of space in SEZs. Recently, SEZs have been included under Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which will further provide a competitive edge and level playing field to Engineering, Textiles, Chemicals, Pharmaceutical, Food Processing and several other sectors. To enable efficient RoDTEP disbursement, a phase wise implementation is in progress for integration of ICEGATE to SEZ Online portal.
It is imperative to note the exceptional growth of SEZs during their nearly two-decade existence in India, which has been enumerated below:
| Indicators | As of Feb' 2006 | Incremental | As of Dec' 2023 | Increment in % |
| Investment (INR - crores) | 4,035.51 | 6,65,944.49 | 6,69,980.002 | 16,502% |
| Employment(No. of employees) | 1,34,704 | 28,49,973 | 29,84,6773 | 2,116% |
(Value in INR crores)
| Year | Total India Exports4 | Export from SEZ5 | Contribution of SEZ (%) |
| 2014-15 | 18,96,348 | 4,63,770 | 24.46% |
| 2015-16 | 17,16,384 | 4,67,337 | 27.23% |
| 2016-17 | 18,49,434 | 5,23,637 | 28.31% |
| 2017-18 | 19,56,515 | 5,81,033 | 29.70% |
| 2018-19 | 23,07,726 | 7,01,179 | 30.38% |
| 2019-20 | 22,19,854 | 7,96,669 | 35.89% |
| 2020-21 | 21,59,043 | 7,59,524 | 35.18% |
| 2021-22 | 31,47,021 | 9,90,747 | 31.48% |
| 2022-23 | 36,21,550 | 12,63,578 | 34.89% |
Global scenario
It is to be noted that countries across Africa, from Egypt in the North to South Africa in the South, have been establishing SEZs to reap the benefits bestowed in the SEZ framework. Numerous SEZs around the world such as Shenzhen SEZ, Pomeranian SEZ, Coyol Free Zone, Sharjah's Hamriyah Free Zone Authority etc. have turned out to be a vehicle for global trade benefits.
Conclusion
Despite facing global headwinds, SEZ exports in India have exhibited resilience, particularly in sectors like IT, pharmaceuticals, and automotive, amounting to $157.38 billion6 in the fiscal year 2023-24, which is about 20.2 % of India's total exports. In conclusion, the future of SEZs in India depends on addressing these challenges and seizing opportunities for growth, which is under due consideration by the Government. Globally, SEZs have played a pivotal role in driving economic growth, and India seeks to align its policy with both domestic economic imperatives and global best practices. If the revamped policy adapts to new trends and addresses prevailing challenges, SEZs may be the key to reconfiguring global value chains.
Contributed by: Sakshi Pahwa (Manager) and Priyanka Dhamija (Consultant) at Grant Thornton Bharat
This article first appeared in Taxmann on 29 May 2024.
