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Economic & Legal Aspects of Special Economic Zones in Gujarat

This study explores the economic and legal aspects of Special Economic Zones (SEZs) established in Gujarat under the SEZ Act, 2005. It examines their benefits, sector-wise distribution, and linkage with the domestic economy. The study also reviews relevant literature and proposes research objectives.

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Economic & Legal Aspects of Special Economic Zones in Gujarat

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  1. GNLU/Ph.D./2011/007 STUDY ON ECONOMIC & LEGAL ASPECTS OF SPECIAL ECONOMIC ZONES - SET UP IN GUJARAT UNDER THE SPECIAL ECONOMIC ZONES ACT, 2005 KALPESHKUMAR GUPTA Supervisor Dr. J T Desai Ph.D. Thesis Seminar at Gujarat National Law University, Gandhinagar, Gujarat, India February 4, 2017

  2. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  3. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  4. Introduction :- • What is Special Economic Zone ? • Aggarwal Aradhna (2004) defines Export Processing Zones (EPZs) as special enclaves, separated from the Domestic Tariff Area (DTA) • by fiscal barriers and are intended to provide an internationally competitive duty free environment for export production at low cost and benefitted usually from modern and efficient infrastructure, general fiscal and non-fiscal concession to firm and better governance due to single window facilities to ensure corruption and red tape free business environment. • SEZ is big area compared to EPZ having more benefits. • SEZ are mainly of two types Sector Specific & Multi-product. K L Gupta

  5. Introduction :- • Kandla SEZ, Kutchch is Asia’s & India’s first EPZ. (Set up in 1965). • Mr. Murasoli Maran, the then Commerce Minister visited China, impressed by Chinese SEZ esp. Shenzhen SEZ and he brought SEZ Concept in 2000 and included in EXIM policy. • 7 EPZs converted in SEZ (Kandla 1965, Santacruz 1973, Noida 1985, Chennai 1984, Cochin 1984, Falta 1984, Vishakhapatnam 1989). • New Law passed SEZ Act, 2005 and rules SEZ Rules, 2006. • Total 417 SEZs have formally been approved (Top IT 62%, Biotech 5%, Multi-product 5%, Pharma 5%), 205 Operational. • SEZs having share of around 25% in total exports of India & Gujarat SEZ having 45% share in total exports from SEZs in India. K L Gupta

  6. Introduction :- Source : www.sezindia.nic.in as on May 10, 2016 accessed on June 30, 2016 K L Gupta

  7. Introduction :- Source : www.sezindia.nic.in as on May 10, 2016 accessed on June 30, 2016 K L Gupta

  8. Introduction :- Source : www.sezindia.nic.in as on May 10, 2016 accessed on June 30, 2016 K L Gupta

  9. District wise Distribution of SEZs in Gujarat K L Gupta www.ic.gujarat.gov.in. accessed on March 5, 2013

  10. Sector-wise Distribution of SEZs in Gujarat www.ic.gujarat.gov.in. accessed on March 5, 2013 K L Gupta

  11. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  12. Literature Review :- K L Gupta

  13. Literature Review :- K L Gupta

  14. Linkage with domestic economy (Rabbani F. A., 1980) • Develop external economic co-operation and technological exchanges and promote the socialist modernization programme. (D R Phillips & A G O Yeh, 1983) • Kandla FTZ had little success by any criteria. (D L LiJayawardena, 1983 • Chinese carefully researched a number of existing zones in preparation for establishing their own. (Clyde D. Stoltenberg, 1984) • EPZs in Asian countries have been developed primarily with the aim of supporting the strategy of export led growth. Setting up an EPZ is probably not a difficult task, but to make it work is a completely different matter. When EPZs were first established, they were usually not integrated with the domestic economy, but in the long run, they should be an integral part of national development and should complement the growth of the domestic tariff sector. (Kwan Yiu Wong & David K Y Chu, 1984) K L Gupta Cont…

  15. Cont… • Social Impacts of Shenzhen SEZ i.e. illegal trading, smuggling, foreign exchange speculation, bribery, fraud etc. (Lousie Do Rosario, 1985) • Responding challenges of social responsibility and economic development. (Deniss A. Rondinelu, 1987) • Shenzhen failed to attain predetermined economic goals. (Edy L Wong, 1987) • Shenzhen turned out to be a heavy importer instead of being an export oriented economy. (David K W Chu, 1987) • EPZs also expose domestic businesses to examples of internationally competitive enterprises. (Peter G Warr, 1989) • China’s SEZs are not confined to manufacturing but may also be applied to real estate development, tourism agriculture and other services. (Wai Man Wu, 1990) • Special incentives to foreign industries questioned by local authority. (Lynnda Marie B Laraya, 1993) K L Gupta Cont…

  16. Cont… • China designated four SEZs as laboratories for its experiments with market economy and foreign investment. (Xie Wei, 2000) • China, based on the SEZ strategy, embarked on its economic open policy. (Albert G. Schweinberger, 2003) • SEZ strategy serves to attain the goals of both increased attraction of foreign capital and protection of domestic infant industries simultaneously. (Young Namkoong, 2003) • China’s idea is to minimize the gap between social and economic development in the region. (Nadeem M Firoz & H Amy Murray, 2003) • The results do suggest that a heavy reliance on foreign investors is unlikely to maximize the welfare of citizens and that there should be a balance between domestic and foreign investment. National interest may hold only if the zones generate private profit to domestic shareholders. (KankesuJayanthakumaran, 2003) K L Gupta Cont…

  17. Cont… • Though the gross exports, foreign exchange earnings and employment increased phenomenally in absolute terms, their growth rates declined substantially. (AggarwalAradhna, 2004) • To be globally competitive, Indian industry needs to invest in quality and reputation. (ShethJagdish, 2004) • SEZ’s has inadvertently created a nest of bad elements such as widespread official corruption, smuggling, prostitution. (Liu Haishan, 2005) • Zones should not be considered the best policy option for long-run industrial development. (AggarwalAradhna, 2006) • Manufacturing units would shift base to the SEZ just to escape tax. (Menon Ramesh, 2006) • Frequent modifications in the policy will only detract serious investors from investing in SEZs. (TyagiVinay et al, 2007) K L Gupta Cont…

  18. Cont… • SEZ as India’s supersonic engine of growth against latest land grab instrument. (KujurRajat Kumar, 2007) • Large SEZs on the Chinese pattern may not be suited to our conditions because India does not have vast tracts of contiguous land located close to ports. (AggarwalAradhna & Rajiv Kumar, 2007) • SEZs will aggravate regional disparities. (Bijoy C R, 2007) • Valuable resources spent to create SEZs will be at the cost of building better infrastructure for the rest of the country, something that will affect both the domestic industry as well as agriculture. (GoswamiBhaskar, 2007) • Thus once again rather than building a space for new opportunities, SEZs appear to be becoming a space for intensification of old ones. (Gopalakrishnan Shankar, 2007) • Benefit from SEZs can only be achieved by including the rest of the economy. (ErlendReigstad, 2007) K L Gupta Cont…

  19. Cont… • State Government – Investor Synergies. (Mukherjee Rahul, 2007) • Non compliance of NFE provision. (UpadhyayaHimanshu, 2008) • The conversion of fertile land into industrial land may create food crisis in near future.(Khan Saeed, 2008) • The government must slow down the process of giving approvals. This is important not only for social or political reasons but also due to economic realities. Restore STPI and EOUs benefits. (ChaterjeeSumana, 2008) • Lack of co-ordination between Commerce Ministry & Finance Ministry. (PillaiManoj, 2008) • Developing SEZs in states which are lagging compared to other states can help to alleviate the inequities which will boost overall consumption. (NemaPradeep & PradeepPokhariyal, 2008) K L Gupta Cont…

  20. Cont… • Uneven distribution of SEZ investments across the country. (Gopinath D, 2009) • IT Zone concern. Quality of zone administration key determinants behind success of zones.(AmitenduPalit, 2009) • India is far behind in investing in skills and training of a large work force that mans its export factories like China. (KasturiKannan, 2009) • Growing number of SEZs with sector-specific small sized fragmented zones may not yield the desired results. (L. Lakshmanan, 2009) • SEZ may not have major impact on employment and exports (5% of total exports in India) (Shah Deepak, 2009) • The locations for the new SEZs should be selectively done so that they spread development and address existing regional imbalances. (S Narayan Menon & SoumyaKantiMitra, 2009) K L Gupta Cont…

  21. Cont… • SEZ encouraging existing industries to locate in SEZ. (MukhopadhyayPartha & KanhuCharanPradhan, 2009) • Use of eminent domain for acquisition of land. (Sivaramakrishnan K C, 2009) • Data on EPZs is scant. ILO only collecting data on SEZ. Case study will be best method for study. (Nicola A. V. Virgill, 2009) • Land is treated as a transferable commodity in the market with no focus on people or their livelihoods. (VaddipartiNeha & Sheela Prasad, 2010) • Small size of SEZ. IT/ITES SEZs.(D Nagayya & T V Rao, 2010) • Indian export promotion policies failed because the Indian government pursued a top down export promotion strategy rather than a bottom up strategy. (SeshadriTriyakshana & Virgil Henry Storr, 2010) K L Gupta Cont…

  22. Cont… • Prioritizing sectors which need to be developed. (TantriMalini, 2010) • Most appropriate development strategy is one, which has a vision of developing both agriculture and industry simultaneously. (P Murugesan & P K Bandgar, 2010) • SEZs are not creating mfg. base. (Loraine Kennedy, 2010) • Coercive tactics for land acquisition, lesser compensation. (RawatVidyaBhushan et al, 2011) • Regional disparity. (TantriMalini, 2011) • Shenzhen SEZ has experienced extraordinary growth. (MeeKam Ng, 2011) • Shenzhen suffers from a lack of overall planning. (MadalinaGiorigianaMangra et. Al, 2011) • Indian government incurs a net financial loss on the SEZ plan by sustaining greater losses to tax revenue than gains to FDI. (Jain Sumit, 2011) K L Gupta Cont…

  23. Cont… • Real estate corruption, regional imbalance, review of existing tax incentives. (SingalaSubbaiah, 2011) • Need to restructure the SEZ scheme in the country. (TantriMalini, 2012) • Horizontal linkages. (Wei Ge, 2012) • Linkage of the SEZ with the SSI units. (Sharma Surendra, 2012) • New taxation policy affected SEZ operation. (Dabas Ajay, 2012) • Many farmers across the country refusing to give their land at any price. (M Levien, 2013) K L Gupta Cont…

  24. Cont… • Poor working condition of women workers in Asian SEZ. (Rabbani F. A., 1980) • No of jobs generated by SEZs is disappointing. ( E E Pollack, 1981) • Worker's power in the Asian EPZs to improve their position is minimal. (Kwan Yiu Wong & David K Y Chu, 1984) • Working Conditions and Wages in EPZs have been widely criticized by writers from industrial countries. (Peter G Marr, 1989) • Good HRM Practices by FIE in Shenzhen. (Daniel Ding et al, 1997) • Maintenance of ecological balance along with industrial development is required.(Ramachandrabh Atta, 2003) • Many workers are not paid for overtime as per standard rates. (Pun Ngai, 2004) K L Gupta Cont…

  25. Cont… • In Cochin SEZ, 55% workforce are contractual and don’t enjoy any benefit as regular employee. (Venugopal P N, 2005) • Maintaining global labour standard. (BurmanAnirudh, 2006) • Study reveals that casual workers are discriminated against the permanent workers. (BhandariAmit & Almas Heshmati, 2006) • In Shenzhen SEZ, frustration with hard labor, merciless factory bosses, low pay and miserable living conditions is palpable. (Howard W. French, 2006) • Chinese experience should be read not only as a model but also as a salutary warning. (Gopalakrishnan Shankar, 2007) • Due to stagnation, SEZ’s ability to absorb surplus labour has been declining. (AggarwalAradhna, 2007) K L Gupta Cont…

  26. Cont… • Need of social infrastructure. (PriceWaterhouse Coopers, 2008) • Below minimum wages, environmental damage. (AnanthanarayananSriram, 2008) • Labour Commissioner’s power to Development Commissioner conflict of interest. (Singh Jaivir, 2009) • SEZ policy can lead to serious and adverse consequences including social conflict, civil strife and breakdown of democratic institutions. (Sharma Naresh Kumar, 2009) • SEZ creating disparity. (Centre for Education & Documentation, 2009) • Project-Affected Persons (PAPs) should be given assistance by specialized R&R agencies in all these processes. (DattaSarkar et al, 2009) K L Gupta Cont…

  27. Cont… • Govt.’s inability to define priorities, and regulate and manage the phenomenon called SEZs. (MukhopadhyayPartha, 2009) • Set up of Shenzhen Labour Arbritration Committee and court. (Anna P. Y. Tsui, 2009) • For SEZ success, govt. must consult with the farmers before acquiring their land. (Singh Dharminder, 2009) • There is increasing evidence of usage of child labour in factories in China. (ChaudharyKoel Roy, 2010) • Land Acquisition without much backlash, Tamil Nadu, Gujarat. (Sharma R N, 2010) • Big private developers have responded to land acquisition difficulties by partnering with state governments that helped to procure the land. (SeshadriTriyakshana, 2011) K L Gupta Cont…

  28. Cont… • The role of SEZs in human capital formation appears to be relatively limited.(A Abdul Raheem, 2011) • There is a need to impose stiffer obligations on the SEZs to justify the incentives. (BirajdarShrimant, 2011) • SEZs and other infrastructure projects do not generally benefit small or medium sized enterprises in the development stage. (Chelsea Fish, 2011) • Privately developed SEZs are thus a form of arbitrage through which capitalists receive artificially cheap land acquired by the state and then re-sell it at many times that value. (Michael Levien, 2012) • It is observed that mere compensation for the land is not enough because the money paid to the farmers will get spent after a few days. (Barman Arup, 2012) K L Gupta Cont…

  29. Cont… • The onus of land acquisition would be entirely on negotiations between prospective SEZ entrepreneurs and the owners of agricultural land. (Mitra Siddhartha, 2012) • There will be strict background checks for new SEZ likely. State government officials are often unaware of the performance of SEZs in their own states. The Centre has thus decided not to approve proposals unless developers have a record of developing operational SEZs (BasuNayanima, 2014) • Over 90% SEZ’s land are lying vacant : Govt (Economic Times, December 7, 2015) • Commerce Ministry working out policy initiative to revitalise SEZs (Economics Times, December 10, 2015) K L Gupta

  30. Literature Review :- K L Gupta

  31. Special Literatures :- • Reluctance of zone officials and tenants to respond surveys. (MalhotraShavin, 2008) • Lack of transparency in government’s actions. (Asher Manshi, 2014) (Gujarat) “One Public Information Officer (PIO), when questioned about the lack of transparency in governmental actions, was candid enough to say: ‘I am just a PIO in name, the real PIOs are the top bureaucrats, hand-picked by the government to work in favour of the companies”. K L Gupta

  32. Literature Review (Gist) :- K L Gupta

  33. Research Gap :- • No comprehensive study has been done on Economic & Legal aspects of Special Economic Zone at central level as well as state level. • No comprehensive study has been done on SEZs in Gujarat. K L Gupta

  34. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  35. Research Problem:- As we have seen that India embarked on journey of SEZ model looking at success of Chinese SEZ. Exclusive law Special Economic Zone also passed in year 2005 for better governance of SEZs in India. After the SEZ Act, 2005, till date 330 SEZs have been notified by the central government. There are many advantages of having SEZs in the country and but presently it has been failing to meet the expectations in terms of growth in exports, employment, investments. There are several negative aspects of SEZs alongwith positives ones. This study will analyze the economic and legal aspects of SEZs in Gujarat. K L Gupta

  36. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  37. Objectives of the Study :- • Followings are the main objectives of the present study. • To evaluate economic impact of SEZs in Gujarat. • To evaluate compliance by SEZs in Gujarat under SEZ Act, 2005 & SEZ Rules, 2005 • To do comparative analysis of SEZs in Gujarat with SEZs in other states. • To evaluate government’s policies regarding SEZs in India and Gujarat. K L Gupta

  38. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  39. Hypotheses of the Study :- • Followings are the hypotheses of the present study. • Special Economic Zone has promoted economy of Gujarat. • Special Economic Zones in Gujarat are complying all legal • requirements as per the SEZ Act, 2005 and SEZ Rules, 2006 • SEZs in Gujarat performing better compared to SEZs in • other states. • Government policies are supporting Special Economic Zone • to grow K L Gupta

  40. Universe of the Study :- • 417 formally approved, 32 in principally approved, 330 notified and 205 exporting SEZs in India. • Gujarat having 57 approved SEZs out of which 18 are functional Sample Design :- • Researcher has taken those SEZs which notified at least 5 years ago so that its progress can be analyzed and interpreted accordingly. • Total 17 SEZs as sample size K L Gupta

  41. Selected SEZs :- • Kandla SEZ, Kutchch (2000) • Surat SEZ, Surat (2000) • Surat Apparel Park (2005) • Adani Port & SEZ Ltd. (2006) • Reliance Infra., Jamnagar (2006) • Zydus Infra. Pvt. Ltd., Ahmedabad (2006) • Gandhinagar Electronic Park SEZ (2006) • Dahez SEZ Ltd., Bharuch (2007) • Synefra Eng. & Const Ltd. Vadodara (2007) • Ahmedabad Apparel Park (2007) • E-complex Pvt. Ltd. (2008) • Larsen & Toubro Ltd., Vadodara (2008) • Aqualine Properties Pvt. Ltd., Gandhinagar (2008) • Sterling SEZ & Infra. Ltd., Bharuch (2008) • Jubilant Infra. Ltd., Bharuch (2008) • Tata Consultancy Services Ltd. (2008) • Euro Multivision Pvt. Ltd. (2009) • GIFT SEZ Ltd. Gandhinagar (2011) K L Gupta

  42. Data Collection & Analysis :- • Primary Data • SEZ Act, 2005 & SEZ Rules, 2006 • Secondary Data • Articles from Journal, Books, News article, Database, Central & State Govt. website, Govt. Notification & Circulars • Information received under RTI Act, 2005 Around 150 references referred. Basic statistical tools have been used. K L Gupta

  43. Scope of the Study :- Present study is going to analyze Economic & Legal aspects of SEZs and the researcher has confined his study to all notified SEZs of Gujarat region only. Gujarat is one of the top five states in India which has made significant effort in flourishing SEZs in the state. K L Gupta

  44. Scheme of Chapterization :- • Total 5 chapters • C 1 – Introduction to SEZs • C 2 – Legal Provisions regarding SEZs in India • C 3 – Special Economic Zones of Gujarat - Profile • C 4 - Data Analysis & Interpretation • C 5 – Concluding Remarks K L Gupta

  45. Outline :- • Introduction • 2. Literature Review • 3. Research Problem • 4. Objectives of the Study • 5. Research Methodology • 6. Data Analysis & Interpretation • 7. Concluding Remarks • 8. Q & A K L Gupta

  46. Data Analysis & Interpretation :- Investment (Overall) Growth 1.72 (2012-13), 14.33 (2011-12), 6.23 (2010-11), NA (2009-10) None of the SEZ provided data on Investment except Surat SEZ which shows unattractiveness of the zone. Multiproduct and Pharma Zone top in investment. 4 times growth in IT/ITES SEZs. FDI constitutes less than 1% of the total investment in SEZs of Gujarat. Gujarat has failed to attract FDI in the SEZs of Gujarat K L Gupta

  47. Data Analysis & Interpretation :- Export-Import Slow growth of exports Heavily dependent on Imports Less net export earnings, in some cases in negative Export growth -1.66(2013-14), 19.24 (2012-13), 19.54 (2011-12), 33.70 (2010-11), NA (2009-10) Import growth 1.17(2013-14), 20.08 (2012-13), 14.47 (2011-12), 27.17 (2010-11), NA (2009-10) Average growth of Export-Import – 17.71% - 15.72% Gujarat grabbed share of 45% share in total exports made from SEZs in India but one of the state to register de-growth in exports. This 45% attributed to Reliance SEZ which is having 83% share in total exports from SEZ in Gujarat. K L Gupta

  48. Data Analysis & Interpretation :- Net Foreign Exchange Earnings (NFEE) NFEE most imp tool to measure performance of any SEZ. Its requirement under law for cumulatively for a period of five years from the commencement of production. (Rule 53 of SEZ Rules 2006) Duty forgone & duty collected main component to calculate NFEE. None of the SEZ provided information on this. Kandla, Surat, Reliance positive NFE where Synefra, Dahej & Adani showing negative. K L Gupta

  49. Data Analysis & Interpretation :- Domestic Procurement Domestic procurement data shows the domestic linkages which is utmost necessary for overall growth of the country. Many authors also have suggested linkages. Most of the SEZs have not provided information under RTI application regarding domestic procurement so it is not possible to arrive at any conclusion. K L Gupta

  50. Data Analysis & Interpretation :- Domestic Tariff Area (DTA) Sales SEZs are allowed to sell goods in domestic tariff area provided that they have achieved positive NFFE. Significant growth in DTA sale is not healthy sign for economy Many SEZs have not provided information on DTA. As per available data, it seems that average negative growth in last 4-5 years. In fin year 2013-14, there is significant growth in DTA sales. As per CAG report, sometime SEZs are considering DTA sales towards the calculating NFEE. It has been mentioned in the report that 8% and 5% of total production considered while calculating NFE for the financial year 2011-2012 & 2012-2013 respectively. K L Gupta

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