Development And Implementation Of Special Economic Zones Economics Essay

A Special Economic Zone (SEZ) is a geographical region that has different economic and other laws and is more free market oriented in comparison to a countries established laws. India first passed the Special Economic Zone Act in the year 2005.This paper discusses the advantages and disadvantages of a Special Economic Zone and how it benefits Foreign Direct Investors and the scope of Project Development in India in a Special Economic Zone. There are various factors affecting the project development of a Special Economic Zone in India which will be discussed in depth. The main focus of the research is to develop a project development for a business in a Special Economic Zone in India.

Statement of Research Question:

According to me the statement of Research Question will be the Analysis of the facts from the past and from the present scenario in the Special Economic Zone developments and ascertain the future of the development of Special Economic Zones in the hosting country. Also, I will concentrate on presenting a real life example on understanding about developing and implementing in the Special Economic Zone.

Theoretical Rationale:

India is right now a fast growing economy and the Special Economic Zone play a major role in flourishing it. Special Economic Zones has led to increase in Foreign Direct Investment (FDI) by foreign investors in the form of International Business or Multinational Corporation (MNC). The Government of India has been active in the development of the Special Economic Zone by formulating polices, reviewing them regularly and have safeguarded that ample facilities are provided to the developers of Special Economic Zones and also to the companies setting up themselves in the Special Economic Zones in India. Special Economic Zones in India are created by the Government of India. The Special Economic Zones in India are run by Government-Private or solely Private ownership. They provide special provisions to develop the industrial growth in that area. The first Special Economic Zone was launched in 1965 in Kandla, Gujarat. There are various incentives and facilities provided to the units in the Special Economic Zones including Foreign Investment, Duty free import, Domestic procurement of goods for development, exemption of various taxes, exemption from customs/excise duties, operation and maintenance of the Special Economic Zones.

Since the Special Economic Zones provide a lot of add-ons for investors it acts as a very eye catching zone to develop a business but, there are a lot of challenges that are to be faced by them. Also, the Special Economic Zone attracts the Foreign Investors due to the exemption of customs or excise duties, taxes and the like creates some added challenges that are to be faced by the Foreign Investors. The Foreign Investors face cultural, political and legal challenges in a different land. Developing the Special Economic Zone also benefits the country. It creates employment for a huge population improving the employment rate in the country and thereby, reducing poverty. The Foreign Direct Investment (FDI) that comes into the country generates flow of money in the country.

John dunning provided a framework approach namely Ownership, location and internationalization (OLI Framework).

Marco Neuhaus (2006) states that the framework points out some advantages of ownership one enterprise may come across by doing business overseas. The location suitability for the firm is also evaluated using this framework. This might help the decision of an enterprise to venture overseas for the business or not. Thirdly, the concept of internationalization is addressed by the OLI frame work which can help an enterprise in setting up an operations plan. Using the OLI framework, a multinational enterprise (MNE) would be able to assess the feasibility of setting up the business.

I would like to formulate a Project Development of a Special Economic Zone (SEZ) in India. I would like to analyze the various challenges that are faced by a business that want to enter the Special Economic Zone.

The Implementation Of The Research Project For Organisation:

The organization that I would like to study in relation to my topic of research is Ireo. I would base my research on the Special Economic Zones in the context of developing a Special Economic Zone in India. Ireo in JV partnership with Panchshil Realtors (pune) has developed India’s first IT Special Economic Zone (SEZ), EON Free Zone at Kharadi, Pune, India.

Ireo is the first Private Equity Fund dedicated to the Indian real estate sector with a fund size of US $2 billion with the backing of global blue chip investors and financial institutions. They have emerged as a major pan-India developer equipped with financial strength to fully leverage available opportunities in this sector.

Since establishing their presence in 2004, they have evolved into a fully integrated real estate organization that is both the financer and developer of its projects. The company has a pan-India footprint of projects in prime locations across NCR (including Gurgaon), Haryana, Punjab, Tamil Nadu and Maharashtra under various stages of developments and implementation.

Combining the best of Indian and international resources, their team consists of accomplished Indian and expatriate professionals from diverse backgrounds to lead initiatives and to deliver best in class products and services to their customers.

Preliminary Literature Review:

The literature review was compiled using library search and electronic resources. Since the Special Economic Zone concept is relatively new in India, There are considerably less number of journals and e-books in this field. A few of those resources and publications were reviewed for this preliminary literature review.

Special economic zone Act is a program introduced by the state for the development of the country. It has been initiated by the Indian government to create a free market economy and free trade among nations, abolition of national boundaries and dismantling the nation – state system giving priority to ‘Market’ over the ‘state’. (Partha Mukhopadhyay; Jan 2008)

Special economic zone is a geographic region that has economic laws more progressive than that of the countries typical economic laws. These zones are known by different names in different parts of the world like free trade zone(FTS), bonded free zones(BFZ) , industrial free zone (IFZ) and Export processing zone.( Jona Aravind Dohrmann;January 2006)

Export processing zones is an ancestor of special economic zone. The main purpose is to attract industries which are export oriented by offering them favourable investment and trade condition as compared to the rest of the country. The UN industrial development organization (UNID) identifies five attributes of export processing zone they are

1) Dominated by market mechanism.

2) Restricted to a limited region.

3) Specialize in production of export goods and offer special encouragement for such productions.

4) The primary goal is employment generation, foreign investments and foreign exchange.

5) The Secondary goal is technology transfer, developmental linkages and regional development.

The Free trade zone policy in 2000 was re launched by the Bharathiya janatha party (BJP). The name was changed from export processing zone to special economic zone. The policies purpose was to make SEZ an engine for economic growth supported by quality infrastructure complimented by an attractive fiscal package both at the central and state level with minimum possible regulations.( Jermy Grasset and Frederic Lady;January 2007)

The features of SEZ scheme are

No license required for import.

Manufacturing or service activities allowed.

SEZ units to be positive net foreign exchange earner within 3 years.

Domestic sales subject to full custom duty and import policy in force.

Full freedom for sub-contracting.

No routine examination by custom authorities of export or import cargo.

The UPA government enacted the special economic zone act 2005 which was passed in june 2005 and came into force on 10th feb 2006 with the notification of the SEZ rule in 2006.

Three categories of SEZ

Multi product SEZ

Sector specific SEZ

Free trade and warehousing zone

The first category signifies the manufacturing of services of two or more goods in a sector or goods or services falling in two or more sectors. Contiguous area of 100 hectares or more is required.

The second sector is meant exclusively for one or more products or services. This includes biotechnology, gems and jewellery, non conventional energy, hardware and software and electronics. Minimum area requirement of 100 hectares of contiguous and vacant land is required.

The third sector the minimum area requirement is 40 hectares of contiguous or vacant land and the built up area should not be less than 10 hectares.

154 SEZ were notified under SEZ act 2005. IT sector has the maximum number.

Many issues have been brought up in relation to SEZ in India the main being

Locating land.

Relaxation of labor laws

Usage of water

Farmers are protesting against for acquisition of land this leads to destructions of employment of peasants whose land is acquired and provide very little employment opportunity to highly skilled and educated individuals and the totally net employment generated may well be negative. In many cases valuable land has been given away at concessional prices.

To conclude the implications of SEZ may cause increasing socio political crisis due to the complexity of the society. In order to avoid polarization of the society, civil society should engage to create a consensus on developmental issues.

Hypothesis to be tested:

Feasibility of special economic zones after 10-15 years.

Availability of land in the future.

Data Sources and the Justification for the Choice:

Choice of data sources forms the most integral part of any good research. I would use the Peer reviewed Journal articles, articles from Business magazines, Newspapers, reports. Journals like Journal of Business Research, Journal of International Business Studies, Indian Journal of Economics and Business. Magazines such as Business World, Business Today, The Business Magazine, Forbes, Business Week etc. and newspapers like the Financial Times, The Economic Times, The Economists etc.

Peer reviewed Journals, Magazines and newspaper form the most trusted source of information and is also available on the internet. Books are the first choice for trusted information.

Use of the Aston library and e-library is the place to get these sources of information.

Research Design:

A Research Design is the plan for a study, guiding data collection and analysis. A Research Design helps the study to locate the problem and to follow economical procedures.

The Research Design for my study will be as follows:

Define “Terms”

Background information of the topic of research

Locate the problem

Create priorities

I will follow 2 main types of Research and they are Secondary Research and Qualitative Research techniques. The data that is already written or published by someone else for their purpose of study is classified as Secondary Research. Qualitative Research Techniques consists of Interviews, Focus Groups, and Questionnaire etc.

Methodology to be employed:

In doing this research I will use Primary Data and Secondary Data. As said earlier, Primary data will involve qualitative techniques such as Interviews, Focus groups, Questionnaire etc. For primary data collection I will choose a real life example of a firm entered the Special Economic Zone, as mentioned earlier Ireo. I will do research on how did the organization setup a Special Economic Zone. Since, the organization is a foreign company entering the Indian market I can gain first-hand information from the firm regarding the challenges they faced while setting up a business in a different country. For this purpose I will Interview certain employees of the firm get information on the research survey conducted by them during the setting up phase. 

As far as the secondary data collection is concerned I will use Academic books, journal articles, Magazines articles and Newspapers. After putting through the data collected from both the sources i.e. secondary and primary I can get a clear picture of the past and the current scenario of the development of Special Economic Zones. Then I can answer questions of Hypothesis to be tested.

Ethical Considerations:

The research will comply with research ethics in terms of:

Accurate transcription of data and findings

Objectivity as a researcher

Compliance with the principles of not harming anyone as a result of this research

Compliance with Aston Business School rules on plagiarism

Not obtaining information through illegal or restricted procedures

Compliance with the respect of copyrights reserved for journals and published