Why government is promoting Special Economic Zone (SEZ) and why do you think SEZ is a better model to increase India's export in comparison to EPZ and FTZ?

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances, absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 01.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes. To instil confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions with the stakeholders. A number of meetings were held in various parts of the country both by the Minister for Commerce and Industry as well as senior officials for this purpose The Special Economic Zones Act. 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are: (a) generation of additional economic activity (b) promotion of exports of goods and services; (c) promotion of investment from domestic and foreign sources; (d) creation of employment opportunities: (e) development of infrastructure facilities: It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The applications duly recommended by the respective State Governments/UT Administration are considered by this BoA periodically. All decisions of the Board of approvals are with consensus. The SEZ Rules provide for different minimum land requirement for different class of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created. The SEZ Rules provide for: - Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZS; Single window clearance for selling up of an SEZ; Single window clearance for setting up a unit in a Special Economic Zone; Single Window clearance on matters relating to Central as well as State Governments; Simplified compliance procedures and documentation with an emphasis on self-certification; The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels. Exemption from Goods & Services Tax Exemption from Central Sales Tax for certain industries, not subsumed in GST Regime. Single window clearance for Central and State level approvals. Exemption from Stale sales tax and other levies as extended by the respective State Governments for certain industries, not subsumed in GST regime. SEZ mode has inherent benefits over the EPZ and Free Trade Zone (FTZ) as SEZ is much larger in geographical size than EPZ and FTZ. The SEZ has a larger scope of business than EPZ and FTZ are mere trading centres are suitable for countries which are well connected logistically for trading for example, UAE, Singapore. SEZ is a time-tested model are found in all the countries but EPZ is found in developing or developed countries. Infrastructure of SEZ consists of manufacturing units, townships, roads, hospitals and schools and other services but EPZ is confined to manufacturing establishments. The benefits of SEZ are more towards the growth of domestic business catalysing the greater economic activity for exports where EPZ has the main objective of developing exports business. SEZ is open to all fields of businesses like manufacturing, trading and service but EPZ focuses more on manufacturing. Further; the tax benefits in SEZ are much more than in EPZ. There is very limited accountability of export performance in SEZ but it has great influence over the business carried out in EPZ as the penalties and duty recovery is imposed in case of shortfall. The consumption of raw material that is imported duty free has to be consumed over a period of 5 years in SEZ but the time period in EPZ is only one year. Laws concerning the certification of the import goods are much more relaxed in SEZ than in EPZ. Custom departments have less interference in the inspection of the premises in SEZ but EPZ requires routine customs inspection of cargo. FDI investment in manufacturing units does not require sanctions from the board as it is in EPZ.