Time to Review the Special Economic Zones Act

Aping the success of China, a new regulatory framework was announced in April 2000 as a part of the export import (EXIM) policy, which eventually led to the enactment of the Special Economic Zones (SEZ) Act 2005 in India to promote exports, attract investment, create employment opportunities and give momentum to the manufacturing sector and growth in the economy. The act has provisions in the form of income tax holidays, indirect tax exemptions and other benefits to incentivise economic activities in the SEZs. However, it is time to re-evaluate the effectiveness of the SEZ Act in achieving its defined objectives, particularly in the context of the Comptroller and Auditor General (CAG) report released in November 2014 on the performance of the SEZs and tabled in Parliament.

The SEZs in India have not been successful among other factors, due to their complexity, size and the critical lack of motivation of the local stakeholders. Around 60% of them are in the area of information technology and the remaining smaller share in the manufacturing sector. Therefore, policy measures to invigorate the manufacturing sector and enhance the performance of SEZs should include proper design, monitoring and operation of the SEZs as clusters of specific products (Sahoo et al 2013). Post the enactment of the act, the country has witnessed several protests resisting land acquisition initiatives for SEZs, pointing towards a need for their social evaluation in addition to the defined objectives. To do this, the government needs to rethink and re-evaluate the effectiveness of the SEZ Act. The audit reports and the recommendations therein serve the purpose of measuring and reporting on the quality of policy implementation with consequent leads for policy improvisation.