Special Economic Zones(SEZ) in India - Failure or Success

Special Economic zones in India have not yielded the derived results due to the following reasons –

1. In SEZ, the exemption of Minimum Alternate Tax on book profit and Dividend Distribution Tax (DDT) which stood at 20 percent, each was revoked in 2011-12 after alleged misuse by companies resurfaced. This deterred investor from investing in SEZ.

2. Unpredictability of future taxation policy actions has led to a negative investor sentiment. More clear and well defined taxation policy will help investors make up their mind.

3. Four key factors which are vital for the success of an SEZ in India – Infrastructure, Logistics, Location and Professional Zone Management. These all are not up to the mark in India. Unlike China which has both complementary and external infrastructure like roads, ports, airports etc., India is lacking on this front. 

4. Lack of power availability and not adopting World Class trade facilitation practices is also a reason for bad performance of SEZ.

5. India has signed Free Trade Agreement with ASEAN and many other countries because of which their products are imported on a duty free basis in India. So if products manufactured in SEZs locally are charged with custom duties they will become expensive and unviable. Hence performance of SEZ is affected due to differentiating taxation policies.

6. Unlike China, in India the functionality on SEZs has not been undertaken on a holistic basis. Unless all factors are looked into with an integrated approach, effectiveness of SEZ will suffer.