Special Economic Zones in India

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's domestic economic laws. The category 'SEZ' covers a broad range of more specific zone types, including, but not limited to:

• Free Trade Zones (FTZs)
• Export Processing Zones (EPZs)
• Free Zones (FZs)
• Industrial Estates (IEs)
• Free ports
• Urban enterprise zones

SEZs in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Accordingly, SEZs in India are a popular investment destination for many multinationals, particularly exporters.

While India’s SEZs are similar to those, found in other parts of Asia, business leaders should seek to understand how different SEZ work as many have unique features. Many business leaders conduct market entry studies that compare site, resources, tax incentives, and costs before making site visits.

Incentives for setting up a business in an Indian SEZ

Some incentives for setting up a sourcing or manufacturing platform within an Indian SEZ include:

• Duty free import and domestic procurement of goods for the development, operation, and maintenance of your company/SEZ unit
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for the next 5 years thereafter 2for Units will become effective from 01.04.2020)
• Income tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. (Sunset Clause for Developers has become effective from 01.04.2017)
• Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA
• Exemption from the Goods and Service Tax (GST) and levies imposed by state government (supplies to SEZs are zero rated under the IGST Act, 2017, meaning they are not taxed)
• Exemption from Minimum Alternate Tax (MAT)
• Single window clearances for all state and federal government approvals
• Exemption in electricity duty and tax on sale of electricity by certain states in India
• Presence of customs officer in the SEZs to facilitate and expedite the trade processes
• Some states also offer land to SEZ developers at concessional rates to promote industries in accordance with the state’s prevailing Industrial Policy

After making a shortlist of SEZs for further examination, investors may find that specific SEZs offer other advantages that complement their business plans in India.

Ultimately, however, the benefits of India’s SEZ policy have been substantial. It is one of the reasons why there is an increase in the number of foreign firms operating in India.

Exports, employment, and investment in SEZs

As per data from the Ministry of Commerce and Industry, from 2018-19 to 2020-21, 1096 units were registered in special economic zones in India. Exports by units in select SEZs are shown below.

Export Performance of Select SEZs in India

According to the Ministry of Commerce and Industry:

• SEZ exports increased from INR 228.40 billion (US$3.07 billion) in 2005-06 to INR 7595.24 billion (US$102.24 billion) in 2020-21
• Investment in SEZs increased from INR 40.355 billion (US$0.54 billion) in 2005-06 to INR 6174.99 billion (US$83.12 billion) (cumulative basis) by 2020-21
• Operations in SEZ units provided jobs to 134,704 persons in 2005-06 – which increased to 2,358,136 persons (cumulative basis) by 2020-21

Choosing a location for a SEZ 

There are many SEZs for your company to choose from (a list of which can be obtained from the Department of Commerce’s website) and so deciding on which is best for you can often be a thorough process.

For companies directly sourcing from or manufacturing in India, the site should be well placed to acquire the raw materials needed for production, while at the same time being in an area suited for export.

SEZ and warehousing clusters in India

1. Special Economic Zones and Warehousing Clusters in Delhi NCR

   The Delhi National Capital Region (NCR) hosts about 14 SEZs, which are primarily located in satellite cities like Gurugram (formerly Gurgaon, Haryana state) and Noida.

2. Special Economic Zones and Warehousing Clusters in Mumbai

   The Mumbai area hosts at least seven SEZs across Mumbai and nearby cities like Navi Mumbai, and Thane.

3. Special Economic Zones and Warehousing Clusters in Bengaluru

   The Bengaluru (formerly Bangalore) area hosts at least 18 SEZ, which are mostly located on the city’s outskirts.

   Meanwhile, Tamil Nadu has the highest number of operational SEZs (40), followed by Karnataka (31), and Maharashtra (30).

List of operational SEZs in Gujarat

• Dahej SEZ Limited
• Gujarat Industrial Development Corporation
• Reliance Jamnagar Infrastructure Limited
• Kandla SEZ
• Surat Apparel Park
• Surat Special Economic Zone
• Zydus Infrastructure Private Limited

List of operational SEZs in Karnataka

• Biocon Limited
• Cessna Business Park Pvt. Ltd
• GV Techparks Pvt. Ltd.
• Karnataka Industrial Area Development Board (KIADB)
• Manyata Embassy Business Park
• RMZ Ecoworld Infrastructure Pvt. Ltd

List of operational SEZs in Maharashtra

• Infosys Technologies Limited
• Maharashtra Industrial Development Corporation Limited (MIDC)
• SEEPZ Special Economic Zone
• Serum Bio-pharma Park
• Syntel International Private Limited
• Wokhardt Infrastructure Development Limited

List of operational SEZs in Tamil Nadu

• Coimbatore Hitech Infrastructure Pvt. Ltd.
• Electronics Corporation of Tamil Nadu (ELCOT)
• Mahindra World City Developers Limited
• MEPZ Special Economic Zone
• Shriram Properties and Infrastructure Private Limited
• Tata Consultancy Services Limited

How to start operating in a SEZ?

Any individual, partnership firm, company or co-operative society can apply for setting up of Special Economic Zone. Special Economic Zones can be established jointly or separately by Central Governments, State Governments or any person for the purpose of manufacturing of goods or for rendering of services or for both or as a Free Trade and Warehousing Zone.

Procedures for obtaining SEZ approval

Procedures for the setting up a SEZ are provided under Section 3 of the Special Economic Zone Act, 2005.

The following are the procedures for the setting up a SEZ in India:

1. Any person willing to set up an SEZ has to make a proposal to the State Government. The application for proposal for setting up of a SEZ is to be made in Form A as per SEZ Rules, 2006. The proposal can be made only after identifying the area for setting up of the SEZ. A proposal for setting up a SEZ can even be made directly before the Board.
2. In case the proposal is made directly before the Board, the person, after getting approval, is required to obtain the concurrence of the State Government.
3. On receipt of the proposal, the State Government needs to forward the same to the Board along with its recommendation.
4. The Central Government has the right to prescribe various requirements for setting up a SEZ.

   Examples of some of the various requirements that can be prescribed by the Central Government are:

   • minimum area of land required for the setting up of a business
   • terms and conditions for various authorized operations

5. Currently the minimum area requirement for setting up of SEZ is:

   Particulars	Area requirement
   Multi sector SEZ	1000 hectares
   Sector Specific SEZ	100 hectares
   FTWZ	40 hectares
   IT/ITES/handicrafts SEZ Biotechnology/ non-conventional energy/gems and jewellery Sector	10 hectares

6. The Board, on receipt of the proposal, may either approve the proposal subject to such terms and conditions as it may deem fit or may even modify or reject the proposal.
7. Final action of the Board on receipt of proposal:
• When the Board approves the proposal without any modification: they are required to communicate the approval to the Central Government.
• When the Board approves the proposal with modification: The Board is required to communicate the modification to the person or the State Government of the concerned person. Further, if the modification as proposed by the Board is accepted by the person or the State Government, the Board is required to communicate it to the Central Government.
• When the Board rejects the proposal: The Board is required to record the reason for rejection and communicate it to Central Government. The Central Government in turn would initiate the same to the person or the State Government.
8. If everything goes well, the Central Government on receipt of the communication would issue a letter of approval on such terms and conditions and obligations and entitlements as may be approved by the Board, to the Developer, being the person or the State Government concerned.

Documents required to apply for setting up of Special Economic Zone

The bellow list indicated the required documentation that must be submitted in order to propose the establishment of a new SEZ. 

• Name of the Applicant
• Proposed area of the Special Economic Zone
• Status of recommendation of the proposal by the State Government, if available
• Whether the proposal is for formal approval or in-principle approval
• Whether it is a multi-product SEZ
• Whether it is a sector specific SEZ. If yes, the details of sector thereon
• Projected investment
• Projected export from the project
• Projected employment generation from the project
• Source of funds
• Net worth of the Applicant
• Extent of FDI, if any
• Source of FDI

The bellow fact sheet shows the number of approvals granted to date and the number of notified SEZ in India.

Source: Ministry of Commerce & Industry, Department of Commerce, Government of India