SEZ Full Form

SEZ stands for Special Economic Zones. It is a concept used in international trade law. SEZs are areas of a country’s sovereign territory that are designated to be only accessible to foreign, usually military, investors and businesses. This policy was created in order to make it easier to attract foreign investments and encourage economic development outside the boundaries of the country. SEZs provide some tax incentives for companies operating within these zones which encourages them to establish operations there for long term benefits rather than heading back home at the end of their investment period.

SEZs have been used in various countries around the world. Some major areas of foreign investment have made use of these zones. India and China have used these for economic development for many years. ASEAN created the first Free Trade Zone in Asia in 1958, at that time called the Southeast Asia Free Trade Area (SEAFTA). Merchandise exports from the zone helped create strong trade links with countries outside Southeast Asia and attracted much investment. This concept of a free trade area was then followed by other countries in Asia with great success.

Importance of Special Economic Zones

The main reason why SEZs are important is that they help to attract foreign investments and promote economic growth in the locality. The reason for this can be partly attributed to the fact that SEZs tend to get more special treatment from governments due to their special status which makes them stand out from other areas in a country. There are also many areas where SEZs could be beneficial for countries due to their convenience for business and infrastructure development. 

Other Benefits of SEZs

Some other positive benefits of SEZs include the fact that they usually promote special economic growth and local development. SEZs are usually located in areas that are underdeveloped or have a lower economic output. Encouraging investment, foreign and domestic, into these areas can help in the development and expansion of existing enterprises thus creating local jobs and increasing local incomes. In China, from 1979 to 1995 many SEZs were built along the coast which helped to develop manufacturing industries thus improving trade and generating more business for the country as a whole.

Criticisms of Special Economic Zones

While analysts and economists generally agree that the SEZ concept is a good one to encourage economic development, some do criticise SEZs for failing to produce the expected benefits. Top critics of SEZs include American economist Thomas D. Hassett, who suggested in 1995 that special economic zones were primarily used by developing countries as tax shelters for foreign investors. He argued that SEZs provided tax havens for foreign investors as well as provided them with subsidies, perks and cheap land at the expense of local populations and governments.

The way in which some countries have allowed these zones to be used has also been criticised. India’s SEZ program has been criticised for corruption in the area and resulting in loss of tax revenue. Some economists also argue that these zones can actually erode local economies by pushing out local manufacturers and businesses, which causes a decrease in employment due to companies moving or shutting down. This can result in higher unemployment rates as well as problems with poverty and inequality within the area.

Need for Special Economic Zones in India

In India, the Special Economic Zones (SEZs) policy was launched in 2000. The main objectives of this policy are to promote FDI and technology transfer. So far, various States in India have been allowed to implement this concept. Since then, they have taken various steps toward their development and economic growth.

In July 2011, India entered into a new phase with the government of Prime Minister Manmohan Singh’s approval to allow foreign investment in multi-brand retailing as well as permission for foreign airlines to invest in domestic carriers.

These steps were taken so that India can be more business-friendly for foreign investors and thus attract them to invest more money into Indian businesses.

Existing List of SEZs in India

Due to India’s increasing economy and growing demand for foreign capital, investors from many countries around the world have been investing in Indian businesses. This has resulted in the signing of many investment agreements between these countries and India.

There are three categories for which these SEZs have been categorized. These include Coastal Economic Zones (CEZ), Townships and Special Economic Zones (SEZ). Some major coastal economic zones include Kakinada Economic Zone, Dholera Special Investment Region (SIR), Sagar Special Economic Zone, Visakhapatnam Port-based Multi-product SEZ etc.

Conclusion

SEZs provide an opportunity for foreign companies to invest in areas that are only accessible to them. They also provide them with many benefits such as cheap land, tax incentives, infrastructure development, jobs and opportunities for growth. These concessions usually make firms more willing to relocate or start a business which has all led to positive economic growth for the people living there.