Abstract
The introduction of Special Economic Zones (SEZs) in India has injected hope for augmented economic growth in recent future. The motive behind establishment of SEZs was mainly to fuel rapid economic growth, provide world class infrastructure and employment, promote exports, increase foreign exchange reserves and attract more Foreign Direct Investment (FDI). The main objective of the paper is to investigate whether the enactment of SEZ policies had any impact on inflow of FDI among Indian states. This is tested using panel data techniques on 16 groups of states over 14 years period from 2001 to 2014. The results indicate that enactment of SEZ policy (as well as operational SEZs) in a state has induced more FDI inflow. Based on the results, it can be concluded that the states, which want to benefit from FDI inflow, they need to enact the policies sooner.
Highlights
Recognising the importance of export promotion in triggering the economic growth, the Government of India established the first Export Processing Zone (EPZ) at Kandla in 1965 [1]
The results indicate that formulating of Special Economic Zones (SEZs) policy in the state has resulted in increased Foreign Direct Investment (FDI) inflow when other factors influencing FDI is accounted for
The number of operational SEZs is found to be positively correlated to the per-capita income, availability of electricity, urbanisation, SEZ policy and nearness to the port but negatively correlated to highway density
Summary
Recognising the importance of export promotion in triggering the economic growth, the Government of India established the first Export Processing Zone (EPZ) at Kandla in 1965 [1]. The key privileges included—1) duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units; 2) single window clearance from Central and State Approval; 3) 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax (IT) Act for first 5 years, 50% for 5 years thereafter and 50% of the ploughed back export profit for 5 years; 4) exemption from minimum alternate tax under section 115 JB of the IT Act; 5) external commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognised banking channels; and 6) exemption from Central Sales Tax, Service Tax, States sales tax, dividend distribution tax and other levies of the respective State Governments [7]
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