Subject: Economy

Answer:

Special Economic Zones (SEZs), introduced through the SEZ Act 2005, have emerged as crucial instruments for promoting export-led growth and industrial development in India. However, despite their potential to attract investments and boost manufacturing, these economic zones face multiple challenges that require immediate attention and policy intervention.

Taxation Related Issues

• Complex Tax Structure: The Goods and Services Tax (GST) implementation has created confusion regarding tax benefits for SEZ units, affecting their operational efficiency and cost competitiveness.
• Minimum Alternate Tax (MAT): The imposition of MAT at 18.5% on SEZ developers and units has significantly reduced the tax advantages, making them less attractive for investors.
• Dividend Distribution Tax: The burden of DDT has increased the overall tax liability of SEZ units, impacting their profitability and investment decisions.

Governing Laws Challenges

• Multiple Regulatory Bodies: The existence of various authorities like Development Commissioners, Approval Committee, and Board of Approval creates bureaucratic hurdles and delays in decision-making.
• Land Acquisition Issues: Complex land acquisition procedures under the Right to Fair Compensation and Transparency in Land Acquisition Act, 2013 often lead to project delays.
• Environmental Clearances: Stringent environmental regulations and time-consuming clearance processes affect the timely implementation of SEZ projects.

Administrative Bottlenecks

• Infrastructure Development: Inadequate physical and social infrastructure within SEZs hampers their operational efficiency and attractiveness to investors.
• Single Window Clearance: Despite provisions, the actual implementation of single window clearance remains ineffective, leading to coordination issues among various departments.
• Skill Development: Lack of skilled workforce and insufficient training programs affect the productivity of SEZ units.

Way Forward

• Implementation of Production Linked Incentive (PLI) schemes in SEZs to boost manufacturing capabilities.
• Integration with National Logistics Policy 2022 to improve connectivity and reduce logistics costs.
• Strengthening the Development of Enterprise and Service Hubs (DESH) Bill to replace the existing SEZ Act with more business-friendly provisions.

The success of SEZs is crucial for achieving India's vision of becoming a $5 trillion economy. By addressing these challenges through comprehensive reforms and policy interventions, SEZs can become powerful engines of economic growth, employment generation, and export promotion, similar to successful models like China's Shenzhen SEZ and Dubai Multi Commodities Centre.