India is today recognized globally as an upcoming economic superpower with robust growth, vast opportunities, and an aspirational middle-class. Among many factors that make India a vital cog in the global economic system is its much-touted demographic dividend, driven by a large population of working-age youth. This demographic dividend has been billed as a strategic advantage that will help propel the nation into the realm of developed country status.
However, recognizing that the dividend could just as well become a liability if not adequately leveraged and made capable of addressing the world’s challenges, the government launched the Skill India and Startup India programmes. This much-needed focus on developing an environment and ecosystem to foster entrepreneurship has the potential to transform the country into a hotbed of innovation while creating large-scale employment, if implemented well.
These commendable initiatives have to be integrated and made to work efficiently with already existing programmes that encourage industry and innovation. Only then can vibrant and sustainable ecosystems be built within a stable, yet dynamic business environment. One highly successful policy initiative that has encouraged business activity over the years, especially export-driven business, is the Special Economic Zones (SEZ) programme that came into being through the SEZ Act of 2005.
What are SEZs?
An SEZ is a demarcated land area that is governed by a separate set of economic and tax laws not applied on normal Indian territory (referred to as Domestic Tariff Area or DTA). SEZs are deemed to be outside the territory of India for purposes of industry and trade. The movement of goods and services into an SEZ is considered as export from India, while movement of goods and services out of an SEZ to be consumed within India is considered as import, and is subjected to import duties. Capital goods and raw materials that are ‘exported’ to an SEZ are exempt from duties.
SEZs have been one of the most effective drivers of export growth for the country since the rules were notified in 2006, clocking over USD 550 Billion in exports alone since then.
While the key objectives of the SEZ programme are to attract foreign investment and boost industrial development, many of the benefits accorded to SEZs create an ideal environment for business ideation, employment generation, and upgrading of knowledge capital – all of which share common purpose with the earlier stated goals of leveraging India’s demographic dividend and fostering entrepreneurship.
There exists a misconception that the central role SEZs have played in boosting industrialization is on account of the fiscal benefits accorded to SEZ units. While financial benefits including various tax exemptions have great appeal to companies in capital-intensive manufacturing industries, there are a host of other benefits of operating in an SEZ that are often overlooked. SEZs are self-contained enclaves with infrastructure designed for industry, and often are integrated townships with social infrastructure also included. Logistical and warehousing infrastructure and backward and forward linkages to the DTA enable smooth operations and vast opportunities. Single window clearances, ease of startup, and procedural efficiencies are also characteristic of SEZs. With focus being on exports, SEZs are usually located in proximity to ports, thus enabling easy movement of goods. All of these factors come together to enable the entrepreneur to focus solely on their core competencies and responsibility of growing the business.
SEZs offer immense opportunities for contract manufacturing in electronics, auto ancillaries, food processing, and many other high-growth sectors. With digital transformation and the new economic order profoundly impacting these and many other industries, they are ripe for disruption through product and process innovations. And SEZs are well positioned to provide a robust platform to these new-age businesses. We only have to look at the Chinese model to learn how entrepreneurship and wealth creation have blossomed within SEZs. Many of China’s wealthy entrepreneurs have built their businesses within SEZs, taking advantage of infrastructure, logistical, supply chain and other benefits offered by them. In fact, they have become the epicenter for manufacturing economies in many parts of the world, and have propelled these economies to new heights.
India has everything going for it at the moment, and has the world’s attention firmly focused on it. With the government’s stated aims of promoting manufacturing, creating new jobs, upskilling the workforce, and fostering entrepreneurship, it makes sense that programmes to promote all of these are made more cohesive, and designed to work well with each other in tandem. As a critical tool for the promotion of manufacturing and exports, SEZs have made a difference and can make a real difference in achieving all of the other key objectives of the government while encouraging ‘startupreneuships’ which is among the key goals of the Prime Minister’s ‘Make in India’ initiative
For a young nation that is on the cusp of glory, the way in which all of these various initiatives are implemented cohesively to encourage and support job creators will determine whether it will remain superpower-in-waiting, or whether it will embrace glory.