Special economic zones in India: Problems and prospects

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's domestic economic laws. SEZ is a trade capacity development tool, with the goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. Today, there are approximately 3,000 SEZs operating in 120 countries, which account for over US$ 600 billion in exports and about 50 million jobs. It has been recognized as an important mechanism for creation of infrastructure, employment generation, promotion of regional development, increase in foreign exchange earnings, improving export competitiveness and transfer of skills and technology.

In India, the enactment of the SEZ Act 2005 and the subsequent implementation of SEZ rules in 2006 have evoked immense interest amongst the investors’ community for establishment of SEZs as a business proposition in order to reap the benefits of globalization. At the same time, large scale acquisition of land for SEZ development in different sectors has also invited criticism that the SEZs are one of the land grabbing activities, and are providing undue advantages to the real estate business at the expense of revenue earnings of the Government due to provision of excessive tax concessions and other incentives. The first segment of the paper provides an overview of the concept of SEZ with special reference to India. The author has tried to put forward some major problems concerning the SEZs with the help of descriptive approach in the second segment. The last segment of the paper threw light upon the future prospects as well as some valuable suggestions for the success of the SEZs in India. The author concluded that a balancing strategy, however, needs to be adopted to safeguard the interest of all the stake-holders without hindering the basic objectives of SEZ proposition. The desired objectives could be achieved through restricting the proliferation of zones by limiting sector-specific zones, encouraging multi-product zones, creating conducive environment for private investments and Greenfield FDI.