Answer: 

Introduction:

An SEZ is a territory within a country that is typically duty-free (Fiscal Concession) and has different business and commercial laws chiefly to encourage investment and create employment. Usually the goal is to increase foreign investments and boost exports by increasing the ease of doing business.

Body:

Challenges faced by SEZs:

• Differences in State policies: Due to differences in policy and its enforcement, industries tend to concentrate in a few regions. For instance, about 64% of the SEZs are located in five states – Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.
• Unutilized Land in SEZs: Land acquisition is a major issue as States find it difficult to resolve the political aspects. But even after acquisition, due to lack of demand for SEZ space and disruptions caused by the pandemic, a lot of land lies vacant.
• Existence of Multiple Models: There are multiple models of economic zones such as SEZ, coastal economic zone, Delhi-Mumbai Industrial Corridor, National Investment and Manufacturing Zone, food park and textile park which pose challenges in integrating the various models.
• Sectoral bias: SEZs are mainly IT/ITeS dominated. Manufacturing SEZs are not much visible. This reduces the employment scope at SEZs while employment is one of the core objectives of SEZ. These SEZs also tend to concentrate only on few products, thereby limiting the scope for diversification.
• Changes in tax policy: It appears that SEZs have ceased to be attractive after the tax holiday for units and developers was wound down between 2017 and 2020. Imposition of the Minimum Alternate Tax in 2012 and the implementation of the sunset clause resulted in the withdrawal of tax concessions.
• Free Trade Agreements: The proliferation of Free Trade Agreements between 2005-15 robbed SEZs of their advantages, as importers outside SEZs benefited from zero-rated imports without being subject to Domestic Tariff Area (DTA) related restrictions.

The government constituted Baba Kalyani committee to study the existing SEZs of India and prepare a policy framework to adopt strategic policy measures. It recommended extending tax concessions, developing separate laws for manufacturing and service SEZs, etc. As per DESH bill, 2022, SEZs will be renamed as Development hubs.

Conclusion:

SEZs have been looked up to as the tools of industrial development, manufacturing and exports. For the initiative to be successful, a coordinated effort by the union and the state government along with industry and market experts is the need of the hour.