Roadmap for Answer Writing
1. Introduction
- Purpose: Introduce SEZs as vital instruments for industrial development, manufacturing, and exports.
- Key Point: Highlight the need for augmentation of SEZs due to existing challenges.
Relevant Facts:
- SEZs aim to boost foreign investments and create jobs by offering duty-free benefits and distinct business regulations.
2. Issues Affecting the Success of SEZs
A. Differences in State Policies
- Challenge: Inconsistent state policies lead to industrial concentration in a few states.
- Relevant Fact: Approximately 64% of SEZs are located in Tamil Nadu, Telangana, Karnataka, Andhra Pradesh, and Maharashtra. (Source: Ministry of Commerce)
B. Unutilized Land
- Challenge: Land acquisition is political and complex; even acquired land often remains unused.
- Context: Low demand for SEZ space worsened by disruptions like the COVID-19 pandemic.
C. Existence of Multiple Economic Models
- Challenge: Multiple economic models (e.g., coastal economic zones, Delhi-Mumbai Industrial Corridor) create confusion and integration issues.
D. Sectoral Bias
- Challenge: Dominance of IT/ITeS sectors limits the growth of manufacturing SEZs.
- Impact: This reduces employment opportunities and restricts diversification.
E. Changes in Tax Policy
- Challenge: The winding down of tax holidays (2017-2020) has made SEZs less attractive.
- Relevant Fact: Minimum Alternate Tax was introduced in 2012, and the sunset clause has further reduced tax incentives.
F. Impact of Free Trade Agreements
- Challenge: Free Trade Agreements (2005-2015) have diminished the advantages of SEZs, as importers outside these zones benefit from zero-rated imports without DTA restrictions.
3. Recommendations for Improvement
- Policy Recommendations: Discuss recommendations from the Baba Kalyani committee, such as extending tax concessions and developing separate laws for manufacturing and service SEZs.
4. Conclusion
- Summary: Recap the key challenges facing SEZs and the importance of addressing these issues for industrial growth.
- Final Thoughts: Emphasize the need for coordinated efforts between the union and state governments, along with industry experts, to enhance the effectiveness of SEZs.
Challenges Facing Special Economic Zones (SEZs): Taxation, Governing Laws, and Administration
Introduction Special Economic Zones (SEZs) are designed to foster industrial development, manufacturing, and exports. However, their success has been impeded by several issues related to taxation, governing laws, and administration.
Taxation Issues
Governing Laws
Administration Issues
Conclusion Addressing the challenges facing SEZs requires a comprehensive overhaul of the taxation system, clearer governing laws, and improved administrative efficiency. Streamlining these aspects can enhance the effectiveness of SEZs in promoting industrial development and exports.
Model Answer
Introduction
Special Economic Zones (SEZs) are designated areas within a country that offer duty-free benefits and distinct business regulations aimed at promoting investment and employment. Despite their potential to enhance foreign investments and boost exports, SEZs in India face significant challenges that hinder their success.
Issues Plaguing SEZs
1. Differences in State Policies
2. Unutilized Land
3. Multiple Economic Models
4. Sectoral Bias
5. Changes in Tax Policy
6. Impact of Free Trade Agreements
Conclusion
SEZs are essential for industrial development and exports, yet their effectiveness is compromised by various challenges. The Baba Kalyani committee has recommended extending tax concessions and developing distinct laws for manufacturing and service SEZs. To realize the full potential of SEZs, a coordinated effort from the union and state governments, along with industry experts, is crucial.