Special Economic Zones or SEZs are delineated duty free zones, integrating all requirements for creating a conducive environment for exports. For example they will provide quality infrastructure attracting companies to invest. Further, fiscal benefits provided to both the developer and the units of the SEZ will reduce operating costs and prevent export of taxes.
Whether SEZs are likely to lead to fiscal ruin or not depend on how they are designed and perceived. The phenomenon of SEZ truly reflects the need fro reforms in the administrative of economic activities. Let it, however, not be converted into inefficient tax heavens again.
The integrated environments provided by SEZs assist manufacturers/service peoviders achieve economies of scale resulting in price reduction. Reduced price of products will give India a competitive advantage in the global export market. Thereby increasing forex earnings. With Tax benefits for the technology and manufacturing industry phasing out gradually, SEZs offer the next logical alternative to these industries with large export turnovers. Additionally, benefits extended to SEZ units should attract foreign investment resulting in the infusion of advanced technology, thereby improving standards of quality and efficiency in products offered in the export market.
In this regard one can take a look at growth story in China that has been fuelled by existence of duty free zones dotting Chinese landscape, offering fiscal concessions and benefits to the manufacturing industry. Benefits accrued have been passed by Chinese to domestic and global customers resulting in competitive prices and overall growth of economy.
In India the new SEZ legislation has exempted all SEZ units from multifarious taxes at central and state level to help in competitive pricing of products. Also exemptions from taxes mean lesser formalities for the exporters. It can be concluded that SEZs with the preferential fiscal policies would drive exports, create jobs and reduce regional disparities in India.