Special Economic Zone


Why in the news Special Economic Zone?

The Ministry of Commerce and Industry has issue the Special Economic Zone (SEZ) (Fifth Amendment) Rules, 2023, utilizing the authority grants by Section 55 of the SEZ Act, 2005.

Special Economic Zones (SEZ) (Fifth Amendment) Rules, 2023:

  • The SEZs (Fifth Amendment) Rules, 2023 amends the SEZ Rules 2006.
  • The revise regulations permit the designation of a segment of the built-up area within an Information Technology (IT) or Information Technology Enable Services (ITES) Special Economic Zone (SEZ) as a non-processing area, contingent upon the fulfillment of certain requirements such as the reimbursement of tax benefits links to the region.
  • A SEZ’s processing area use for the production of goods or the provision of services. The supporting infrastructure locates in the non-processing area.
  • If a non-processing region demarcates, the processing area cannot be reduce to less than the designate area or less than fifty percent of the total area.
  • Companies operating in IT/ITES SEZs in non-processing areas not entitle to any benefits or resources provides to SEZ Units.

Importance of amendments:

  • Offers more freedom to conduct business in Special Economic Zones.
  • Guard the interests of SEZ developers and occupants alike.
  • A wider range of occupants will make greater use of the freed up space.

About Special Economic Zones (SEZs): 

  • A specially define duty-free zone, or SEZ, considers foreign territory for the purposes of trade operations, tariffs, and duties.
  • SEZs can be establish by the State Government, its agencies, the private, public, or joint sectors.
  • Several nations, notably China, India, Jordan, Poland, Kazakhstan, the Philippines, and Russia, have establish Special Economic Zones (SEZs).
  • The SEZ Rules, which went into force in 2006, were implements after the SEZ Act of 2005.
  • The fundamental framework for the creation and administration of SEZs in India was supplies by the Act and Rules. They want a single point of contact for all issues pertaining to the federal and state governments, as well as a streamlining of the current processes.
  • ‘SEZ’ encompasses a wide range of zone categories, such as Free Zones (FZ), Urban Enterprise Zones (UEZ), Free Trade Zones (FTZ), Free Ports, Export Processing Zones (EPZ), and others.
  • There are 276 SEZs operating in India at the moment.

Challenges associated with Special Economic Zones in India:

  • Domestic sales: Businesses operating in Special Economic Zones (SEZs) are only permitted to sell goods in India if they pay the relevant duties, which further inhibits their ability to expand there.
  • Contrary to World Trade Organization (WTO) regulations: According to a 2019 study by a WTO dispute settlement panel, India’s export-related programs, such as the SEZ program, violate WTO regulations and are equivalent to illegal subsidies under the Agreement on Subsidies and Countervailing Measures. India has filed an appeal against this decision with the WTO’s appellate body.
  • The clustering of SEZs around major cities and in developed states.
  • Policy Reversals: The absence of long-term incentives for the units neutralized the early increase in the number of SEZs following 2005. The SEZ idea in India has weakened as a result of the removal of incentives like the exemption from dividend distribution tax and minimal alternate tax in 2011–12.
  • Unused land: According to the Public Accounts committee’s 2021–22 report, 52% of the land designated for Special Economic zones was sitting dormant.
  • Lack of Clearances for Single Windows: Several exporters operating in SEZs have stated that procedural and documentation problems persist despite the installation of fast-track approvals.

Way Forward to Special Economic Zone:

  • Boost competitiveness by supporting the growth of the ecosystem through the financing of utility infrastructure, commercial services, and high-speed multimodal connectivity.
  • A shift in SEZs’ emphasis from exports to widespread employment and economic growth.

(As Recommended by Baba Kalyani committee).


Aiming to promote economic growth, attract a broad range of firms to these specialized zones, and improve the operational flexibility of IT and IT-enabled services SEZs, the amendment to SEZ Rules is a progressive reform. The effects might be advantageous for companies, job seekers, and developers alike, as well as for the general economic environment and the spatial dynamics inside Special Economic Zones (SEZs).

Source: Wikipedia, The Hindu.