A REPORT

ON
SPECIAL ECONOMIC ZONES AND
FEASIBILITY STUDIES OF SPECIAL
ECONOMIC ZONES

FACULTY: SUBMITTED BY :

MRS.JYOTI TRIVEDI KETUL DESAI (CP 0510)

PRIYANK SHAH (CP 1910)

Master of Technology, Construction & Project Management (CPM)

Centre for Environment Planning and Technology (CEPT) University.

Ahmadabad – 380009
INTRODUCTION

A Special Economic Zone(SEZ) is a geographical region which has liberal

economic laws than the typical economic laws in the other parts of the country. .
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 SEZ 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 1.11.2000 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 instill 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 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 setting 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

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.
INCENTIVES AND FACILITIES OFFERED TO THE SEZS

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 Central Sales Tax.

 Exemption from Service Tax.

 Single window clearance for Central and State level approvals.

 Exemption from State sales tax and other levies as extended by the
respective State Governments.

The major incentives and facilities available to SEZ developers include:-

 Exemption from customs/excise duties for development of SEZs for

authorized operations approved by the BOA.

 Income Tax exemption on income derived from the business of

development of the SEZ in a block of 10 years in 15 years under Section 80-
IAB of the Income Tax Act.

 Exemption from minimum alternate tax under Section 115 JB of the Income
Tax Act.

 Exemption from dividend distribution tax under Section 115O of the

Income Tax Act.
  Exemption from Central Sales Tax (CST).

 Exemption from Service Tax (Section 7, 26 and Second Schedule of the

SEZ Act).

APPROVAL MECHANISM AND ADMINISTRATIVE SET UP OF SEZS

Approval Mechanism:

The developer submits the proposal for establishment of SEZ to the concerned State
Government. The State Government has to forward the proposal with its recommendation within
45 days from the date of receipt of such proposal to the Board of Approval. The applicant also
has the option to submit the proposal directly to the Board of Approval.

The Board of Approval has been constituted by the Central Government in exercise of the
powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by
consensus. The Board of Approval has 19 Members including Secretary of Department of
Commerce as a Chairman; a member secretary and other a17 members.

Administrative set up:

The functioning of the SEZs is governed by a three tier administrative set up. The Board of
Approval is the apex body and is headed by the Secretary, Department of Commerce. The
Approval Committee at the Zone level deals with approval of units in the SEZs and other related
issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of
the Approval Committee.

Once an SEZ has been approved by the Board of Approval and Central Government has
notified the area of the SEZ, units are allowed to be set up in the SEZ. All the proposals for
setting up of units in the SEZ are approved at the Zone level by the Approval Committee
consisting of Development Commissioner, Customs Authorities and representatives of State
Government. All post approval clearances including grant of importer-exporter code number,
change in the name of the company or implementing agency; broad banding diversification, etc.
are given at the Zone level by the Development Commissioner. The performance of the SEZ
units is periodically monitored by the Approval Committee and units are liable for penal action
under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of
the conditions of the approval.

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). All decisions of the Board
of approvals are with consensus.

LIST OF OPERATIONAL SEZs IN INDIA

SEZ established by Central Government:

SEZ of Gujarat for which formal approvals granted in Board of Approval

under SEZ Act, 2005:

No Name of SEZ Location Stat Type Area in

e hectors
SEZ ACT,2005

Any individual, co-operative society, company or partnership firm can file

an application for setting up of Special Economic Zone. The application is to be
made in Form-A to the concerned State Government and the Board of Approval
(BOA) in the Department of Commerce, Government of India. However the
application would be considered by the BOA only when the State Government
recommendation is received.
Minimum area requirements for setting up a SEZ are as follows:

Multi Sector SEZ 1000 hectares

Sector Specific SEZ 100 hectares

FTWZ 40 hectares

IT/ITES/handicrafts SEZ Bio-technology/ 10 hectares

non-conventional energy/gems and jewellery
Sector

Once the BOA gives formal approval and the concerned Development
Commissioner gives an inspection report certifying the contiguity and vacancy of
the area, the area is notified as SEZ.

GREEN SEZ REQUIREMENT & RATING SYSTEM:

IGBC along with the Ministry of Commerce and Industry (MoCI) has
prepared the Green SEZ guidelines. IGBC has further developed IGBC Green SEZ
Rating System as an extension of the Green SEZ guidelines which encourages the
projects to exceed the requirements of many codes and standards. IGBC Green
SEZ Rating System is a voluntary and consensus based programme.
The rating system has been developed based on materials and technologies
that are presently available. The objective of IGBC Green SEZ is to facilitate the
creation of energy efficient, water efficient, healthy, comfortable and
environmentally friendly SEZ.

The rating system evaluates certain credit points using a prescriptive

approach and other credits on a performance based approach. The rating system is
evolved so as to be comprehensive and at the same time user-friendly. The rating
programme uses well accepted national standards and wherever local or national
standards are not available, appropriate international benchmarks have been
considered.
 FEASIBILITY STUDY OF SEZ

Feasibility studies of SEZ projects is divided in five parts as shown in figure.

MARKET STUDY

Following are the steps involved in the market study.

 Situational Analysis

 Secondary Information

 Primary Information

 Characteristics of Market

 Demand Forecasting

 Market Planning
 Situational Analysis is done to find out the relation of the product with the
market. This can be done by informal talk to the customers, relevant persons and
authorities by formulating questioners.

We have to determine

 Total demand

 Breakup of demand (sector wise)

Secondary information is the readily available relevant information.

Following are the general sources of information.

 Survey reports

 Census of India

 Planning reports

 Year books

 Economic survey

 Annual survey of industry

For example if someone wants to have information on statistics of marine products

than It can be found out from the reports published by Marine product export
development authority.

Primary information is obtained by conducting a market survey because

secondary information doesn’t give the whole idea. Primary information supports
secondary information which is available from existing companies of relevant
sectors & from target population.

In the Characteristics of the market we have to study the Effective demand in

past, present demand, Breakdown of demand (SECTORWISE), Government
policies and price.
Demand forecasting can be done by following different methods of forecasting.

 Quantitative Methods

 Delphi method

 Time scale projection methods

 Exponential smoothening

 Moving avg. method

 Trend projection method

 Casual methods

SWOT ANALYSIS FOR SEZ

 Strengths

 Liberal govt. policies

 Employment generation

 Exemption from taxes

 Generation of foreign investment

 Single window clearance

 Weakness

 High initial investment

 Land acquisition

 Services cannot used in same country

 Opportunities
  Good relations can be built up with foreign companies

 To trade with foreign companies

 International popularity

 Threats

 Risk of capital investment

 Environmental issues

 Change in govt. rules & regulations

 Business rivals in the similar sector

TECHNICAL AND LEGAL STUDY

Following points are covered under technical feasibility.

 Location : SEZ project site should be located in such a way that there
should be proper connectivity to airports, ports and highways. There should
be enough availability of skilled and unskilled labors in the vicinity of the
area. There should be an availability of the basic infrastructure facilities like
water supply, Electricity, communication facilities, sewer lines. We also
have to identify its nearness trade & urban cities.

 Size: Size of SEZ depends on area of land available & No. of units to be
installed in the particular SEZ.

 Type : Type of SEZ i.e. multiproduct, engineering, IT, James & jewelleries
has much impact on the infrastructures to be installed and cost of the project
.

 Government policies : Rules and regulations of the state as well as central

government plays an important role in establishment of SEZ.

 Tax. Exemption, incentives and other benefits

 Labor laws
  Statutory approvals from the local authorities, state government and
central government

FINANCIAL FEASIBILITY:

Following points are to be assessed to check financial viability of a project.

 Total cost of project which includes

 Initial capital investment i.e. cost of land, buildings

 Cost of supporting infrastructure

 Operation and Maintenance cost

 Townships and its supporting facilities

 Means of finance or sources of finance

There may be 100% owner’s equity or it may be a combination of equity

and outside dept.

 Revenue generation

There are different sources of income for a SEZ project.

 Lease income from the units

 Income by providing different facilities to the units like water

recycling, effluent treatment plant etc.

 Income from export of goods to domestic market and

foreign countries

ECOLOGICAL STUDY

Impact on the environment is to be assessed before establishing any SEZ which

includes following points.
  Types of effluents generated by units i.e. solid, liquid and gases

 Proper treatment to all effluents, proper emission of harmful gases

 Proper disposal of all the wastes

 Maximum recycling of waste

 Rules & regulation of local pollution control authorities

SOCIO-ECONOMIC STUDY

Following points are included in socio-economic study.

 Rehabilitation of population because of proposed SEZ project

 Change in land use pattern of that particular area

 Environmental effects like pollution, solid waste generation, effluents from

industries

 Employment generation because of development of SEZ

 Standard of living of the people

 Growth of parent city located nearby SEZ area

 Industrial growth in that area

 Change in land values because of development

All parts of feasibility studies should be studied carefully to determine the viability
of the SEZ project. Though it has been described individually but each and every
one has an impact on the other parts. They are closely interconnected with each
other.
 Case Study
KANDLA PORT SEZ
(1000 ACRES MULTI PRODUCT SEZ)
 MARKET & DEMAND ANALYSIS

 There are 53 SEZs in Gujarat, covering an area of approximately

20,858 hectares.

 3 functional SEZs, covering an area of 506.54 hectares

 14 Notified SEZs are present covering an area of 6,201 hectares, in

which focus has-been given on developing SEZs for Engineering
and IT sector.

 19 formally approved SEZs involving in several sectors such as

Biotechnology, Power, Handicraft/Artisan, Gems, Jewelry and
Port based multiproduct

Location
With strategic Location host of incentive & Facilities together with
services of two major sea Ports, KASEZ offer an attractive destination
for international trade. Admittedly, KASEZ is the most business like
location in India most business like state. Come and Explore.
Situated on the Gulf of Kutch on the west coast of Gujarat at a distance
of mere 9 Kms from Kandla port.
It was Asia's first Export Processing Zone(EPZ) and today it is
considered as India’s largest multi-product functional SEZ
encompassing 1000 acres with 142 performing units.
Also it is surrounded by many numbers of ports and very near to
the developed city like Ahmedabad and Mumbai so market for this
SEZ is very good.

TECHNICAL ANALYSIS
Technical analysis mainly contain

• Mode of transportation

• Availability of manpower

• Basic infrastructure facility

Mode of transportation
Thus very good transportation facility is available for the kandla SEZ
and transportation from ports and road network is very good.

Availability of manpower
The availability of local labor 54% is very high so the local labor can be
higher at nominal cost and they are readily available.
And also the labors from Gujarat are available in good amount.
 Basic infrastructure facility

Water Supply
Water supplied to KASEZ is from Gandhidham Water Supply and
Sewerage Board.
Central storage of water in overhead water tanks.
Water supply to each unit by 150 mmØ and 230 mm Ø Pipeline
network.
20lakh liter / day water supply
Electricity Supply
Assured and interrupted power supply to the units by Gujarat Electricity
Board (G.E.B) from a separate PowerStation.
No shortage of power in KASEZ
Telecommunication
BSNL and Reliance networking for telephone and internet. Excellent
network of international and internal phone
Transportation
For transporting goods and raw materials in and out of the zone, a meter
Gauge railway line is provided inside KASEZ connecting it with Kandla
Port.
But this is still not operational and the transportation requirements of the
Zone is mainly met by truck services.
30 meter wide internal roads for transportation.
 FINANCIAL ANALYSIS

Financial analysis mainly contains

• Cost of project

• Means of finance

• Revenue generation

Cost of project & means of finance

GOVERNMENT INVESTMENT 73.56 CRORES

PRIVATE INVESTMENT/UNIT 254.17 CRORES

FOREIGN DIRECT INVESTMENT 16.03 CRORES

TOTAL 343.76 CRORES

Thus total cost of project is approx. 344 crores and most of the money
comes from private investments with the debt to equity ratio of 1:3
Revenue generation

EXPORTS
PHYSICAL EXPORTS UPTO
1517.20 CRORES
31ST MARCH 2009
DTA SALES 217.80 CRORES
 ENVIRONMENATL ANALYSIS

NOC from Gujarat Pollution Control Board (GPCB) is a pre-requisite

No common effluent treatment plant So all the units dispose of the
waste and scrap in the dumping yard and then it is transported to other
area for further process. Industrial waste production is within GPCB
limits provision for the units to dispose waste in the domestic market
after payment of the necessary duties.
Fishing industry is adversely affected.
Most of the industries store the waste and dump it in the yard. The
dumping yard is just opposite to Kidana village. It is affecting the
villagers adversely
On the other hand, the good thing is that 60% of the plastic industries
import the scraped plastic of other units and prepare HDPE, LDPE pipes
from the plastic.
 SOCIO ECONOMIC ANALYSIS

Two urban areas come under this region are Gandhidham and Kandla.
Gandhidham falls under Class I (Population above 1,00,000) category
town and Kandla in Class IV (Population between 10,000-19,999).
There is a lack of social infrastructure such as schools, colleges,
hospitals in the Kandla town due to the sez so lots of people have moved
towards Gandhidham.
There is a continuous growth in the population of Gandhidham due to
that there is a scarcity of water in Gandhidham and other infrastructures
have also disturbed because of the pressure on the existing systems
shared by increasing population.
On the other hand high amount of employment generated in Kandla and
nearby cities.

EMPLOYMENT

NO. OF UNITS EMPLOYMENT

168 16581

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