India’s experiment with Special Economic Zones (SEZs) has been one of ambition, policy evolution, and economic strategy. Introduced with the intention to emulate the success of global SEZ models such as those in China, SEZs in India have walked a complex path. Nearly two decades since the SEZ Act, 2005 came into force, the question remains: Have SEZs been a missed opportunity, or do they represent a strategic success milestone in India’s economic journey?
What Are Special Economic Zones (SEZs)?
Special Economic Zones are designated areas within a country that are governed by special economic regulations different from other regions. These regulations typically aim to attract foreign investment, boost exports, and create employment by offering:
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Tax incentives
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Simplified customs procedures
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Liberalised land and labour policies
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World-class infrastructure
In India, SEZs are governed by the SEZ Act, 2005 and the SEZ Rules, 2006, with oversight from the Ministry of Commerce and Industry.
The Original Vision
The SEZ Act was passed with the goal of:
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Attracting large-scale foreign and domestic investment
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Increasing exports of goods and services
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Creating employment opportunities
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Developing infrastructure and improving ease of doing business
India envisioned SEZs as hubs of innovation, global manufacturing, and service excellence — insulated from the usual bureaucratic and infrastructural bottlenecks.
Achievements So Far
1. Export Growth
As of FY 2023-24, India’s SEZs contributed approximately Rs10 lakh crore ($120 billion) in merchandise and service exports, making up a significant share of India’s total exports.
2. Employment Creation
SEZs have generated over 2.5 million direct jobs and countless indirect jobs across IT, electronics, pharma, and logistics sectors.
3. Sectoral Success
Some sectors like IT/ITeS, pharma, gems & jewellery, and petrochemicals have seen significant success in SEZs — with cities like Hyderabad, Bengaluru, and Noida becoming tech-export hubs.
4. Ease of Doing Business (in theory)
SEZs promised a single-window clearance mechanism, streamlined regulations, and world-class infrastructure, making them attractive for exporters and manufacturers.
Where SEZs Fell Short
Despite their promise, SEZs in India haven’t lived up to their full potential. Some of the core issues include:
1. Policy Uncertainty and MAT/ DDT
The imposition of Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) on SEZs in 2011 eroded the very tax incentives that made SEZs attractive. This created investor uncertainty and dampened enthusiasm for new zones.
2. Underutilised Zones
Many SEZs remain inactive or underutilised. Out of over 400 formally approved SEZs, only about 270 are operational, and several are struggling to attract investment or tenants.
3. Land Acquisition and Litigation
Large SEZ projects have faced challenges related to land acquisition, local resistance, environmental concerns, and long-drawn litigations, making them less viable in practice.
4. Export-Only Restrictions
Until recently, SEZs were allowed to serve only export markets, making them less flexible in terms of domestic sales. This restriction limited their scalability and economic integration.
5. Redundant with Other Policies
With newer schemes like Production Linked Incentive (PLI), Make in India, and GIFT City, SEZs have faced policy overlap and have lost relevance in some sectors.
Reforms and the Way Forward
DESH Bill (Development of Enterprise and Service Hubs)
To revitalise the SEZ framework, the government introduced the DESH Bill, a proposed replacement for the SEZ Act. Key highlights:
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Broader focus beyond exports — integration with the domestic market
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Flexible land use policies for mixed-use development
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Digitised single-window clearances
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Promoting greenfield and brownfield investments
If passed, the DESH Bill could breathe new life into India’s SEZs and turn them into true economic multipliers.
Comparative Insights: India vs. China
Parameter China SEZs India SEZs First SEZ Year 1980 2005 Scale Mega industrial cities Fragmented zones Policy Continuity High Medium (frequent changes) Incentives Strong and consistent Introduced, then diluted Integration with Global Trade Deep ModerateConclusion: Missed Opportunity or Strategic Milestone?
It’s both.
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Success: India’s SEZs have been instrumental in boosting IT exports, generating employment, and improving logistics.
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Missed Potential: Over-regulation, tax reversals, and poor execution in some zones have hindered their broader impact.
The next phase — led by the DESH Bill and integrated manufacturing zones — offers a second chance to reimagine SEZs not just as tax havens, but as globally competitive, innovation-driven enterprise hubs.
Final Thoughts
Having worked with SEZ Developers and SEZ Clients whether in manufacturing or IT, we can firmly say For India to become a true global manufacturing and services powerhouse, SEZs must evolve — not just structurally, but strategically. If the upcoming reforms focus on stability, infrastructure, and integration with domestic and global supply chains, SEZs can yet become one of India’s defining economic success stories.
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