Page 277 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes
Table 13.2: How SEZs Drive Foreign Investments in India

Financial Year Amount of FDI inflows (in US$ million)
1991-1992 167
1996-1997 2,770
2000-2001 2,908
2003-2004 2,634
2004-2005 3,755
2005-2006 5,549
2006-2007 14,400
2007-2008 24,600
3
2008-2009 32000
1. Total investment in Special Economic Zones as of 30.6. 2008: Rs 81093 crores
`
2. Incremental investment since February, 2006: Rs 77058 crores
`
The role of state governments in SEZ legislation got enhanced as it was decided that land would
often be provided for SEZ purposes by state governments at concessional rates, and both developer
and operating units are entitled to tax exemption up to 15 years subject to the condition that they
are export-oriented and net foreign exchange earners. Red tape and inspector raj regulations
were cut short as the provisions in the SEZ Act ensured the single window clearance mechanism
for the units located in the zone.

13.1 Scenario Comparison of SEZs in India and China

SEZs have been very successful in export promotion, improving economic and investment
climate and employment generation in China as well as in India. India has adopted the Chinese
model of SEZs but its benefits cannot be expected to be the same as in China’s case, because of the
following vital differences in the Indian model of Special Economic Zones:
1. Special Economic Zones in China or Free Zones in the UAE are mostly state-funded with the
objective of enhancing economic gains and prospects for foreign investment, improving
industrial climate and do not suffer from worries regarding financial viability. The Chinese
model is based on the communist approach of state planning and the UAE model is based on
immense wealth generated from oil exports. Free Zones in the UAE are largely developed
as Service Centres or Trading Centres. In China as well as in the UAE, it is the respective
governments that are responsible for marketing and promoting these zones so as to invite
and attract tenant industries for the purposes of manufacturing trading and services. On the
other hand, the Indian model is largely based on market forces such as the interest of private
players based on viability of the project and it is mostly private sector that has to shoulder
the responsibility or risk of financing, marketing and promoting these zones for attracting
possible tenants or units. Unfortunately, Indian industry is still naive, inexperienced but is
learning fast for developing Special Economic Zones in the country.

2. India is a democracy, with a weak federal government and plenty of regional disparities.
The Central Government, in practice, does not command the Indian economy, as there are
regional aspirations, petty politics, and peasant movements. SEZs in India are very small
as compared to China. Foreign investment is also not confined only to SEZs but is also
moving in domestic tariff areas unlike in China, which has developed SEZs mainly to
channelise foreign investment into the country for capacity enhancement realizing that
Taiwan and Hong Kong no more have the scope for such capacity enhancement in trading,
services and manufacturing. It seems China has successfully banked on the constraints of
the Taiwanese and Hong Kong economies for attracting investors in SEZs.

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