Role of SEZ s in Indian Economy

Role of SEZ s In Economy

• To provide internationally competitive environment

• To increase share in global exports

• To encourage FDI and enhance GDP

• To Generate Employment opportunities

Overview

• SEZ are delineated duty-free enclaves treated as a foreign territory for the purpose of trade operations, Duties and tariffs

• Developed in the public, private or joint sectors, or by the State Governments or any person for manufacture of goods or rendering services or both or as a FTWZ

• Import / export operations of the SEZ units on self-certification basis.

• SEZ units have to be a net foreign exchange earner

• EOU/EHTP/STP/BTP

• Covered by Chapter 6 of Foreign Trade Policy (2004-09)

• Can be located anywhere in the India

• FTZ/EPZ/SEZ

• Earlier Covered by Chapter 7 and 7A of Foreign Trade Policy (2004-09)

• Chapter 7 and 7A relating to SEZ and FT&WZ are deleted w.e.f 07/04/2006

• Can be Located in India at those locations notified by Government of India

ABOUT SEZ

History

All 8 EPZs converted into SEZs :-

• Kandla ( Gujarat) : 1965 (625 Acres)

• Seepz( Maharashtra) : 1975 (110 Acres)

• Noida (U P) : 1986 (310 Acres)

• Madras ( T N) : 1986 (262 Acres)

• Cochin ( Kerala ) : 1986 (103 Acres)

• Falta ( W B) : 1986 (280 Acres)

• Visakhapatnam( AP) : 1994 (360 Acres)

• Surat ( Gujarat ) : 1998 (103 Acres)

Future SEZs

• Petroleum, Chemicals & Petrochemicals investment regions

• Manufacturing Investment Regions

Statistics

• Currently there are 948 units in operation in the 15 functional SEZs.

• The SEZ units provide employment to about 1.10 Lakhs persons (out of which 40% are Females)

• Exports from SEZ

• Year Export ( Rs Crores)

• 2003-04 13,854

• 2004-05 18,309

• 2005-06 22,309

Free Trade Warehousing Zones

• Special category of SEZ with a focus on trading and warehousing

• Aims at creation of world class infrastructure for warehousing of various products

• These Zones operate on the same lines as SEZ

• The country’s First FTWZ at Haldia in West Bengal has already received in-principle clearance from centre as joint venture between IL&FS and MMTC

SEZ as ‘Port’

Central Government is empowered to notify a Special Economic Zone as

• port

• inland container depot

• land station

• land customs stations

• under section 7 of the Customs Act, 1962: (Section 53(2) of SEZ Act , 2005)

Customs Act,1962

• As per section 7(a) of Customs Act ,1962 Central Government can appoint ports or airports for Loading of imported goods and loading of exported goods

• As per section 29(1) of Customs Act ,1962 vessel or aircraft entering India from place outside India must land only at custom port or a Custom Airport

Self Certification

• All inward or outward movement of goods into or from the Zone by the Unit or Developer shall be based on self declaration

• No routine examination of these goods shall be made unless specific orders of the Development Commissioner or the Specified Officer are obtained.-( Rule 75 of SEZ Rules 2006)

A Director can be non-resident

• As per Schedule XIII Part I clause (e) of Companies Act,1956 one of the condition for appointments as a Managing or Whole Time director is that he should be resident In India

• This is not applicable to Companies in SEZ Provided they enter in India after obtaining proper Employment visa from the concerned mission abroad and

• Such Person is required to furnish along with visa application form Profile of the company ,Principal Employer and terms and conditions for such employment

Definition of Resident as per Schedule XIII of Companies Act,1956

Resident in India includes a person who has been staying in India for a continuous period of not less than 12 months immediately preceding the date of employment as a managerial person and who has come to stay in India

i. For taking up employment in India

ii. For carrying on a business or vocation in India

Maximum Limit of remuneration raised in case of SEZ Companies

• In Schedule XIII Part II section II of Companies Act,1956 there are maximum Limits for Maximum managerial remuneration in case of companies having no profit or inadequate profit depending on effective capital of the company with prior approval of Central government

• Maximum Limit is Rs.4,00,000 p.m for companies

• This limit is raised to Rs 20,00,000 p.m in case of companies in SEZ provided these companies have not raised money by public issue and not made default in repayment of debt or interest

Laws applicable to SEZ

• Concept of SEZ was first introduced in EXIM Policy

• ( now termed as Foreign Trade policy) announced on 31st March 2000 by Government of India

• Chapter 7 of Foreign Trade policy and Chapter 7 of Handbook of procedures ( as amended on 07/04/2006 w.e.f 01-04-2006) state that policy relating to SEZ is governed by SEZ 2005 and rules framed there under

• The SEZ Act 2005 and SEZ Rules, 2006 came into effect from 10th February 2006

• Foreign trade (Development and Regulation) Act,1992

• Foreign Exchange Management Act,1999

• Special Economic Zones Act, 2005

• Special Economic Zones Rules, 2006

Note: An amendment has been made in the Special Economic Zones Rules by way of -The Special economic Zones (Amendment) Rules, 2006 which came into force on 10.08.2006

Special Economic Zones Act,2005

Chapter Sections Title

I 1-2 Preliminary

II 3-7 Establishment of SEZ

III 8-10 Constitution of Board of Approval

IV 11-12 Development Commissioner

V 13-25 Single Window

Clearance

Overriding Effect (Section 51 of Special Economic Zones Act,2005)

The provisions of the Special Economic Zones Act ,2005 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act

This was emphasized in the Instruction Number 6/2006 dated 03/08/2006 issued by SEZ Section Department of commerce

Certain Provisions not to Apply to SEZ

After introduction of Special Economic Zones Rules,2006 following are not applicable to SEZ

• Chapter X-A Of The Customs Act, 1962

• Special Economic Zones (Customs Procedure) Regulations, 2003

• Special Economic Zones Rules,2003

Section 52 states that these will be withdrawn by issue of Notification.

State SEZ Policy

• Some States have also come out with their own SEZ Policy and /or SEZ Act

• SEZ Policy Provide inter alia provide for

• Exemption from state sales tax /VAT and other state levies

• Exemption from electricity duty

• Single window approval for state level clearances

• Declaration of Development Commissioner as Labour Commissioner under the Industrial Disputes Act.

• Simplification of returns and inspection systems.

Definition of Developer and DTA

“Developer” means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer ( Section 2(g) of Special Economic Zones ACT ,2005)

“Domestic Tariff Area” means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones ( Section 2(i) of Special Economic Zones ACT ,2005)

Services

“Services” means such tradable services which,-

(i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement

establishing the World Trade Organisation

concluded at Marrakesh on the 15th day of April,

1994

(ii) may be prescribed by the Central Government for the purposes of this Act and

(iii) earn foreign exchange

(Section 2(z) of Special Economic Zones Act, 2005)

Services-Rules 76

1. Trading

2. warehousing

3. research and development services

4. computer software services, including information enabled services such as back-office operations

5. call centers

6. content development or animation,

7. data processing, engineering and design,

8. graphic information system services

9. human resources services,

10.insurance claim processing

11.legal data bases

12.medical transcription,

13.Payroll

14.Remote Maintenance

15.revenue accounting,

16.support centers and web-site services

17.off-shore banking services

18. professional services (excluding legal services and accounting)

19.rental/leasing services without operators

20.other business services

21.courier services,

22.audio-visual services

23. construction and related services (excluding retail services)

24.educational services,

25.Distribution services

26.environmental services

27.financial services

28.hospital services

29. other human health services

30. tourism and travel related Services

31.recreational

32.cultural and sporting services

33.transport services

34.services auxiliary to all modes of transport

35.entertainment services,

36. pipelines transport .

SEZ Amendment Rules,2006

In Rule 76, the following Explanation shall be inserted at the end:

The expression “Trading”, for the purposes of the Second Schedule of the Act, shall mean import for the purposes of re-export.”

Definition of Export

Export means –

(i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or

(ii)supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or

(iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone (Section 2(m) of Special Economic Zones Act ,2005)

Definition of Import

Import means-

(i) bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or

(ii) receiving goods, or services by, Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone; (Section 2(o) of Special Economic Zones Act ,2005)

Administrative set up for SEZs

1) Board of approval is apex body in department

2) Each Zone is headed by Development Commissioner who is also heading approval committee

3) Approval Committee at the Zonal Level dealing with approval of units in SEZ and other related issues

Board of approval

Board has the duty to promote and ensure orderly development of SEZ Special secretary to Government of India in Ministry of Commerce and

industry, Department of Commerce is chairperson of Board It consists of 18 members and a nominee of each state government

concerned ( Notification No SO(195(E) dated 10/02/2006 and 314(E) dated 13/03/2006)

Address of Board of approval

Board of Approval

SEZ Section

Department of Commerce

Ministry of Commerce and Industry

Udyog Bhavan

New Delhi – 110011

Approvals for Special economic zones

Up to the end of October, 2006 the Board of Approval has given formal approval to 237 special economic zones and in principle approval to 166 special economic zones.

CAP ON SEZs

The empowered Group of Ministers on Special Economic Zones, headed by the Defence Minister, Mr Pranab Mukherjee, decided on 23.08.2006 to remove the existing cap on the number of SEZs that can be established within the country.

Decided that approvals for new SEZs would resume only after 75 SEZs were made operational

Major Functions of Board-Sec 9(2) Granting of approval or rejecting proposal or modifying such proposals for

establishment of SEZ; granting approval of authorised operations to be carried out in the SEZ by

the Developer granting approval to the Developers or Units for foreign collaborations and foreign direct investments,in the SEZ for its development, operation and maintenance granting approval or rejecting of proposal for providing infrastructure facilities in SEZ

Development Commissioner

• The Central Government may appoint any of its officers not below the rank of Deputy Secretary to the Government of India as the Development Commissioner of one or more Special Economic Zones.-Sec 11 of Special Economic Zones Act ,2005

• Every Development Commissioner shall take all steps in order to discharge his functions under this Act to ensure speedy development of the Special Economic Zone and promotion of exports there from.-Sec 12(1) of Special Economic Zones Act ,2005

Major functions of Development Commissioner- Sec 12(2)

• Guide the entrepreneurs for setting up of Units in

• the Special Economic Zone;

• Ensure and take suitable steps for effective promotion of exports from the Special Economic Zone

• Ensure proper co-ordination with the Central

• Government or State Government Departments concerned or agencies with respect to, or for the purposes specified above

• monitor the performance of the Developer and the Units in a Special Economic Zone ;

Approval Committee

Every SEZ has one approval committee

Approval Committee has 9 members

Development commissioner is Chairperson of Approval Committee

Major functions of approval committee-Sec 14(1)

• Approve the import or procurement of goods from the Domestic Tariff Area, in the SEZ for carrying on the authorised operations by a Developer

• Approve the providing of services by a service provider, from outside India, or from the Domestic Tariff Area, for carrying on the authorised operations by the Developer, in the SEZ

• Monitor the utilisation of goods or services or warehousing or trading in the SEZ

• Approve, modify or reject proposals for setting up Units for manufacturing or rendering services or warehousing trading in the SEZ

Monitoring of performance

Performance reports- Rule 22(3) and (4)

• The unit shall submit Annual performance reports in Form I to the development commissioner

• The Developer shall submit Quarterly Report on import and procurement of goods from the Domestic Tariff Area, utilization of the same and the stock in hand, in Form E to the Development Commissioner and the Specified Officer

Form I

• Form I contains inter alia following details

• Cumulative value of exports for the five year period.

• Total outflow of foreign exchange

• Net Foreign Exchange Earning position at the end of previous year.

• Cumulative Net Foreign Exchange Earning for the

• five year period

• Details of DTA Sales and Capital Structure

• Performance of the Unit shall be monitored by the

Monitoring of performance

• Approval Committee as per the guidelines given in Annexure appended to the rules.

• In case the Approval Committee come to the conclusion that a Unit has not

• achieved positive Net Foreign Exchange Earning

• failed to abide by any of the terms and conditions of the Letter of Approval or Bond-cum-Legal Undertaking

• the said Unit shall be liable for penal action under the provisions of the Foreign Trade (Development and Regulation) Act, 1992 ( Rule 54 of SEZ Rules 2006

Identity Cards

• The entry of persons to the processing area of the Special Economic Zone shall be regulated by the Development Commissioner through issue of identity cards.

• The identity card shall be valid up to a period of five years and shall be issued,in the format given in Form K, to the entrepreneurs and regular employees of the Units:

• Temporary identity card may be issued by the Development Commissioner to the casual visitors and contractors- (Rule 70 of Special Economic Zones ,2006)

Books of Accounts Rule 22(2)

Every Unit and Developer shall maintain proper accounts, financial year wise, and such accounts should clearly indicate in value terms

• the goods imported or procured from DTA

• consumption or utilization of goods

• production of goods, including by-products, waste or scrap or remnants

• Exports

• sales or supplies in the DTA

• Transfer to SEZ or EOU or EHTP or STP or BPU

• Balance in stock

Sub Contracting

Sub Contracting-Rule 41

• A Unit, may subcontract a part of its production or any production process, to

a unit(s) in the Domestic Tariff Area or

in a Special Economic Zone or

Export Oriented Unit or

a unit in Electronic Hardware Technology Park or

Software Technology Park unit or

Bio-technology Park unit

with prior permission of the Specified Officer to be given on an annual basis

Conditions for sub-contracting –Rule 41

(a) the finished goods requiring further processing or semi-finished goods including studded jewellery, taken outside the Special Economic Zone for sub-contracting shall be brought back into Unit within 120 days or extended time

(b) Wastage shall be permitted as per the wastage norms admissible under the Foreign Trade Policy read with the Handbook of Procedures

(c) the value of the sub-contracted production of a Unit in any financial year shall not exceed the value of goods produced by the Unit within its own premises in the immediately preceding financial year:

Conditions for sub-contracting abroad –Rule 41(2)

(a) sub-contracting charges shall be declared in the export declaration forms and invoices and other related documents;

(b) the export proceeds shall be fully repatriated in favour of the Unit.

Conditions for sub-contracting in another unit within same SEZ –Rule 42(4)

(i) the movement of goods shall be under serially numbered challans and record of such movement of goods shall be maintained by the Unit;

(ii) raw material imported or procured by the Unit for manufacture of capital goods may be transferred to another unit for the purpose of manufacture or fabrication of capital goods for use by the Unit which had imported or procured the raw materials.

Conditions -Sub-contracting for Domestic Tariff Area unit for export. Rule 43

(a) all the raw material including semi-finished goods and consumables including fuel shall be supplied by Domestic Tariff Area exporter;

(b) finished goods shall be exported directly by the Unit on behalf of the Domestic Tariff Area exporter

(c) export document shall be jointly in the name of Domestic Tariff Area exporter and the Unit

(d) the Domestic Tariff Area exporter shall be eligible for refund of duty paid on the inputs by way of brand rate of duty drawback

.

Exit of Units

• The SEZ Unit may opt out of Special Economic Zone with the approval of the Development Commissioner

• Such exit shall be subject to payment of applicable duties on the imported or indigenous capital goods, raw materials, components, consumables , spares and finished goods in stock

• If the unit has not achieved positive Net Foreign Exchange, the exit shall be subject to penalty that may be imposed under the Foreign Trade (Development and Regulation), Act, 1992

• The Unit shall continue to be treated a unit till the date of final exit.(Rule 74 of Special Economic Zones, 2006)

About World export processing zones Association ( WEPZA)

• Founded in 1978 by the United Nations

• WEPZA is the private non-profit World Association of Economic Processing Zones and Free Trade Zones.

• It is an independent association dedicated to the improvement of the efficiency of all Economic Processing Zones (EPZs)

WEPZA aims at improving the efficiency of the EPZs through

• Periodic exchange of information at WEPZA Conferences and Workshops

• Recruiting and training EPZ Management

• Research on markets and trade flows supplied to members as the WEPZADB database

• Creation and maintenance of the WEPZA Website on the Internet

• Cooperative Transport arrangements to reduce costs

• Networks of subcontracting and purchasing among zone factories

• Cooperative promotion of EPZs to manufacturers and services providers worldwide

• Periodic discussions between EPZs and the manufacturing/services community

• Representing Free Zones and EPZs before international bodies in defense of their interests and their freedoms

•