Roadmap for Answer Writing

1. Introduction

• Define SEZs: Briefly explain what Special Economic Zones (SEZs) are, focusing on their purpose to foster trade and investment by providing special regulatory conditions.
• Link to the question: State that despite their potential, SEZs in India have faced several issues that have led to their decline and underutilization. Mention that the Development of Enterprise and Service Hubs (DESH) Bill, 2022 aims to address these problems.

2. Factors Contributing to the Decline in SEZs’ Growth and Underutilization

• Inadequate Infrastructure and Services:
  • SEZs suffer from poor infrastructure such as inadequate roads, power supply, and water, which makes them less attractive to investors.
  • Fact: Poor infrastructure has been one of the leading causes of underutilization.
• Land Acquisition and Rehabilitation Issues:
  • The land acquisition process for SEZs has been slow, with many land disputes and protests.
  • Fact: Over 1 lakh acres of land within current SEZs remain unused due to land acquisition challenges.
• Complex Regulatory Procedures:
  • The complex bureaucracy and regulatory requirements create delays in setting up and operating SEZs.
  • Fact: Delays in obtaining clearances discourage investors, as businesses seek simpler processes.
• Global Economic Factors:
  • Economic slowdowns and global market fluctuations have affected demand for goods produced in SEZs, leading to underutilization.
  • Fact: Only 5,576 units are operational out of 272 SEZs, accounting for less than 20% of India’s exports.
• Lack of Connectivity to Domestic Markets:
  • Many SEZs are located far from key domestic markets, limiting their access to consumers and hindering industrial growth.
  • Fact: SEZs in remote areas face difficulties in attracting industries due to poor connectivity.
• Labour and Skill Challenges:
  • SEZs face a shortage of skilled labor, particularly in areas that are less developed or have fewer training facilities.
  • Fact: SEZs employ just 28 lakh people, indicating low labor utilization compared to their potential.
• Sunset Tax and Policy Changes:
  • Introduction of taxes such as minimum alternate tax (MAT) and sunset clauses has reduced the attractiveness of SEZs.
  • Fact: Tax changes have caused many businesses to reconsider operating in SEZs.
• Outdated Legislation:
  • The SEZ Act, framed over 17 years ago, is no longer suited to the current global economic and trade environment.
  • Fact: The existing SEZ Act was not designed to address the current challenges of global trade.

3. How the Development of Enterprise and Service Hubs (DESH) Bill, 2022 Resolves These Issues

• Paradigm Shift from Export-Centric to Domestic Investments:
  • The DESH Bill shifts the focus from export-driven zones to service hubs that prioritize domestic economic activity and investments.
  • Fact: DESH will allow SEZs to serve both domestic and international markets more effectively.
• Single Window Portal:
  • Introduction of a single-window online portal to streamline approval processes, reducing regulatory delays.
  • Fact: The single-window system will ease business operations and reduce bureaucracy.
• Boost to Economic Activity and Job Creation:
  • By transforming SEZs into service hubs, DESH will stimulate domestic economic growth, create jobs, and reduce underutilization of infrastructure.
  • Fact: The transformation will help increase domestic investment and enhance job creation in previously underutilized SEZs.
• State Engagement and Integration:
  • The DESH Bill empowers states to integrate SEZs with industrial parks, enhancing collaboration and boosting regional development.
  • Fact: This state engagement will lead to better alignment between central and state policies for industrial development.
• Tax Incentives for Developers and Companies:
  • The DESH Bill continues tax benefits similar to those in SEZs but without the export obligations, making them more attractive for developers.
  • Fact: Tax incentives will encourage companies to invest in hubs without the burden of export-centric requirements.
• Transformation of Infrastructure into Development Hubs:
  • The bill focuses on transforming infrastructure like ports, airports, and depots into development hubs, creating both processing and non-processing zones.
  • Fact: This transformation will increase the utility of existing infrastructure, making SEZs more versatile.

4. Conclusion

• Summary of Key Points: Recap the challenges facing SEZs and how the DESH Bill, 2022 is designed to address these issues by shifting focus, improving infrastructure, streamlining processes, and fostering domestic investment.
• Long-Term Impact: Highlight how the successful implementation of DESH can lead to economic growth, better utilization of SEZs, and help India move towards its goal of becoming a USD 5 trillion economy.