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Unit 13: Special Economic Zones

3. China has offered several additional tax sops and incentives with favourable working Notes
environment, world-class infrastructure and liberal labour legislation. China, being an
authoritarian communist state has successfully tamed its labour unrest. On the contrary,
India being a democracy is has to contend with trade and labour unions. The Congress-led
UPA coalition government, buckling under the supporting Left parties’ pressure was
compelled to withdraw Section 50(b) of SEZ Act, which empowered the state government
to liberalize labour laws for SEZs located in their states. India has strong labour unions,
usually affiliated to political parties. A small unrest becomes a national issue unlike
China, which uses liberal and simple labour laws as economic levers to attract investments
and industries from the global marketplace.
4. SEZs in the services sector have been very successful in India and in case of manufacturing,
in China. As compared to China, India has some advantages that include significantly, a
very large English-speaking workforce, skilled manpower for the IT and IT-enabled sectors,
biotechnology, drugs and pharmaceuticals and immense untapped potential for agro-
based industries. It is expected that India will eventually become a global services hub
with large scale high-tech exports. India will derive benefits from SEZs in capacity
development, forward integration and skill under process, unlike China, which has focused
on undifferentiated production of commodities with a clear cut strategy of mass production
and mass consumption so as to tap the economies of scale.
5. China has been ahead of India in its economic engagements with the global economies,
particularly with ASEAN and Africa. It has far deep economic relations with almost all
countries in East, South East, Middle East and South Asia and a major chunk of investment
has flown into China from these regions. India on the other hand, has focused on developed
countries, particularly in the EU and NAFTA Regions and has been late in deepening its
relationship with its immediate neighbours for investment attraction and exports.

13.2 Special Economic Zones

As discussed, the policy of SEZs was adopted by the Government of India in order to instil
confidence among foreign investors and to ensure a one-window clearance under a stable central
legislation for the prospective investors, developers and units to be located in the SEZs. The SEZ
Act has ensured clarity, stability and consistency regarding the various benefits/incentives
offered by the government for promoting exports from the country, thereby generating greater
economic activity and employment through the establishment of SEZs in all areas of
manufacturing, services and logistical value chain. An umbrella and comprehensive draft SEZ
Bill was prepared after extensive discussions with the various stakeholders in order to improve
the country’s economic growth, environment and regime in the LPG & M era. The Ministry of
Commerce, Government of India planned a number of visits and interaction with various
stakeholders throughout the country so as streamline the SEZ bill as per industry and investor
aspirations and give momentum to exports. The draft of the SEZ Bill received around 800
comments/suggestions from economic and trade experts, Industry associations, investors,
agriculture farmers and chambers of commerce. Finally, the Special Economic Zones Act, 2005,
was passed by Parliament and the SEZ Act, 2005, supported by SEZ Rules 2006, came into force
on February 10, 2006, opening a new chapter in India’s economic liberalization history and
paving the way for drastic simplification of procedures and for single window clearance on
matters relating to central as well as state governments. The main objectives of the SEZ Act are:
1. Ensuring that SEZs may act as generator of additional economic activity for quicker
economic development.
2. Looking forward to SEZs becoming the centres of excellence in India‘s efforts for promotion
of exports of goods and services.

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