Essay on Special Economic Zone [SEZ] – Meaning, Advantages, Disadvantages

Meaning

Special Economic Zone [SEZ] as is evident in the name itself is an Economic Zone, which is especially assigned by the government to promote business and commerce activities.

SEZ refers to that region which enjoys certain special privileges such as tax holidays, subsidies or such other incentives. Even credit is made available at lower rates of interest to attract investment.

It is that zone which is focused on special economic activities e.g. Agriculture, Information Technology, Medical Innovation; that are prioritised in line with the current economic policy. More entities from these particular focus areas are invited to set up businesses.

SEZs are created to encourage a strong growth boost to certain regions that are lagging behind economically. As these zones become operational, the region starts experiencing multifaceted development.

Creating an SEZ is usually a policy decision by the government and exhibits the commitment of the government towards business development, industrialisation and sustainable economic growth.

Advantages

  1. There is an economic boost to that particular region.
  2. Employment in that region goes up to meet the labour demand.
  3. Investment interest goes up because of the tax and other incentives.
  4. Land prices in the region go up in anticipation of the future growth.
  5. As the standard of living rises, commodity prices rise thereby increasing money circulation in the area.
  6.      General development of the region goes up as medical services, schools etc. come up.
  7. Companies are ready to relocate because they get easier terms and better opportunities as compared to other regions.
  8. Other affiliated or ancillary businesses and trades go up.
  9. Infrastructure improves to keep up with the requirements of the SEZ, i.e. electricity, roads, transport, etc.
  10. The per capita income for that region starts rising.
  11. This is a positive indicator of the government’s intention towards development.
  12. Because of prosperity setting in and employment rising, crime rate may go down.
  13. Some SEZs may be able to attract foreign investment, generating foreign exchange.
  14. Some SEZs become hubs for trade and subsequently an independent township.
  15. Some SEZs may need capital goods to be imported from another country thereby building better international trade relations.

Disadvantages

  1. Instead of a uniform development SEZ tends to create pockets of development.
  2. Selection of regions can be politically motivated and funds can be misused.
  3. There is a risk of the local industry getting cannibalized.
  4. Lack of planning can lead to haphazard development.
  5. The local administrative and governance set-up may be disturbed.
  6. Increased cost of living may adversely affect the local population, especially if not balanced with a rise in income.
  7. Local land for SEZ project might be acquired by unfair means.
  8.    There may be a feeling of resentment due to immigrant worker population.
  9. Increase in industries usually brings with it pollution of different kinds.
  10. Sometimes a change in government may render the SEZ counterproductive.
  11. Too many SEZs close by can start becoming a drag on the regional economy.
  12. Too many tax rebates can get down the inflow of funds for the fiscal growth.
  13. An unplanned setting up of an economic zone can disturb the sociocultural fabric of the area.
  14.  There can be an environmental impact due to unplanned growth.
  15. Excessive focus on an SEZ can lead to a relative neglect of other industrial areas.

Conclusion

The concept of SEZs have successfully created innovation opportunities and development. However, it is important to plan it carefully to integrate the SEZ with the local population, the sociocultural fabric, local needs, local administration and the environment for optimum outcomes.

By Janhavi

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