India: Special Economic Zone (Amendment) Bill 2019: A Stimulant For Economic Growth

Last Updated: 9 August 2019
Article by Krrishan Singhania

DEVELOPING ECONOMIES AND SEZ'S (SPECIAL ECONOMIC ZONES)

From the time of its inception in 1950's Special Economic Zones (SEZs) have found a fundamental space within the economic policies of numerous developing economies1 including India. Based on the ingenuity of an Export-oriented marketing model and an easing of trade restrictions, they have been instrumental in attracting the coveted Foreign Direct Investments (FDI) and have aided in the creation of infrastructure, employment and regional development2.

Similarly, in India, an absence of world class infrastructure and fiscal instability can be more than compensated for with the SEZ policy which has been acting as an economic stimulant3. The fundamental idea of the policy being that the establishment of export production zones within the country, working with operational flexibility and which are free from all governmental trade restrictions and custom duties4.

In light of such an understanding, the Parliament has cleared the SEZ (Amendment) Bill 20195 in a bid to boost India's economic activities and employment.

THE AMENDMENT

The Minister of Commerce and Industry in this monsoon session introduced the amendments to the Special Economic Zone Act, 2005 which is an ambitious step taken by the Indian government towards the realization of the full potential of SEZ units in India as well as increasing the ambit of the eligibility for setting up units within the SEZ framework.

The Bill has amended Section 2 clause (v) of bearing the definition of 'person'. The bill has added two more entries to the definition by incorporating 'trust or any other entities' as persons under the act. As per the new amendment in Section 2 (v)-

'"person" includes an individual, whether resident in India or outside India, a Hindu undivided family, co-operative society, a company, whether incorporated in India or outside India, a firm, proprietary concern, or an association of persons or body of individuals, whether incorporated or not, local authority and any agency, trust or any entity as may be notified by the Central Government, office or branch owned or controlled by such individual, Hindu undivided family, co-operative, association, body, authority, company, trust or entity'

Prior to the amendment, a 'person' as per the act was understood to be only an entrepreneur being eligible to be given the permission for setting up a unit in the Special Economic Zone'. In India, trusts or entities are the most common form of body incorporate in the financial sector and it has became necessary to amend clause (v) of section 2 of the Act enabling trusts to procure permission to setup business in SEZ.

A STEP TOWARDS ECONOMIC GROWTH

The primary objectives of introducing the amendments by the government are 'employment generation' as well as infusing a relative 'ease in the doing of business process in India. Amalgamations of factors are needed to be analyzed in order to assess the financial achievability of the objectives set.

DIVERSE AVENUES OF EMPLOYMENT

Straight-forwardly, the amendment will lead to inclusion of different types of trusts, ranging from the public charitable trusts with their social missions, as well as the business and private trusts engaged in real estate investments (REITs) and infrastructure investments (InvITs). The inclusion of the above trusts will increase a wide range of eclectic activities such as healthcare, skill development programs, education and numerous other activities resulting into various employment opportunities in the country. The aforementioned inclusions have the potential to open up diverse avenues of employment for the local population where the SEZs fall as well as instill in them a much-needed skill development.

RISE OF THE BUSINESS TRUSTS

Analysts have always referred to the unrealized potential of India's business trusts, particularly the Infrastructure and Real Estate Investment Trust. These trusts are still in a relatively undeveloped stage, however the offering of financial incentives originally set aside for the SEZs could inject a much-needed push for the units as well as strengthen India's capability to mobilize funds from the private sector as well as from the overseas.

Economic analysis suggests that infrastructure as well as real estate trusts are a vital underutilized asset which operate like a mutual fund, thereby raising finance directly from the investors to invest in domestic projects. Consequently, such a linkage could also make commercial objectives of SEZs compatible with a comparatively socialistic mission of trusts6.

USAGE OF VACANT LAND

One of the issue with the SEZ Policy is a considerable portion of land allotted to the SEZ units are apparently non-operational. The existence of non-operational units not only points out to the massive unserviceability of the existing economic enclaves but also points out the glaring policy gap and a misalignment between the state's vision on one hand and the actual state of affairs on the other. Another reason why the amendment is a welcome step is that the unused land would now become productive.

REPAIRING FAULTY LINES, THE NEED OF THE HOUR.

Even though the Amendment has a significant impact on SEZ, the government has completely ignored the SEZ units in the budgets and no conducive policy has been introduced to facilitate any such growth. Despite its lofty ambitions and ideals, the SEZs still suffer from the ills of corruption and political manipulations which has curbed them from turning into the manufacturing powerhouse that they were meant to be.

Therefore, merely relying on the freshness of the proposed amendment would be a fatal mistake. The amendment has an enormous potential to change things for the better which makes it even more imperative for India to realize that 'several additional policy initiatives are necessary to get these going' otherwise the divergence between the ideal and the real economic scenario shall again remain elusive.

[The authors recognize the efforts put by Anish Lakhanpal, 5th year student, Jindal Global Law School, Sonipat for the assistance]

Footnotes

1. Special Economic Zones, Performance, Lessons Learned, FIAS, World Bank Documents, April 2008, pg 1-83. Available at: http://documents.worldbank.org/curated/en/343901468330977533/pdf/458690WP0Box331s0April200801PUBLIC1.pdf.

2. Special Economic Zones, Performance and Opportunities, PHD Research Bureau, Chamber of Commerce and Industry   pg 1-48, April 2017.  Available at: https://www.phdcci.in/wp-content/uploads/2018/11/Research-Study-on-Special-Economic-Zones-in-India-April-2017.pdf.

3. Yunus, Nobel laureate, SEZ policy sustainable, Tribune News Service and UNI, January 30, available at: https://www.tribuneindia.com/2007/20070131/biz.htm#3

4. Kumar, R. Shashi Kumar. "SEZs In India: Concept, Objectives and Strategies." (2008).

5. The Special Economic Zones (Amendment) Bill 2019, Ministry of Commerce and Industry, Piyush Goyal, 24 June 2019. Available at: https://www.prsindia.org/billtrack/special-economic-zones-amendment-bill-2019

6. Zairi, Mohamed, and John Peters. "The impact of social responsibility on business performance." Managerial Auditing Journal 17.4 (2002): 174-178.

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