A majority of the Special Economic Zones (SEZs) in the country have come up near cities and have only added to the problems of urban governance.

The Special Economic Zones (SEZs) refer to all forms of free trade zones including Export Promotion Zones (EPZs). In a short span of about five years, 585 SEZs have been approved, of which 143 have commenced exporting goods worth Rs. 300,000 crore, accounting for over 28 per cent of the country’s total exports. With an investment of Rs. 200,000 crore, SEZs today provide direct employment to over 700,000 persons, and also affect planned development of cities and metros in the country.

Why SEZs?

With the main objective of competing in the global market, India has taken several steps to boost economic growth. During the past, several steps starting with EPZs to promote exports were taken. Asia’s first EPZ was set up in Kandla in 1965. In order to overcome the shortcomings experienced on account of the multiplicity of controls and clearances and also with a view to attract large foreign investments in the country, the SEZ policy was announced in 2000. In 2005, an important bill on SEZ was passed by Parliament in order to instil confidence in investors, which came into force with effect from February 10, 2006.

The five important objectives of SEZs are: (a) Generation of additional economic activity, (b) Promotion of exports of goods and services, (c) Promotion of investment from domestic and foreign sources, (d) Creation of employment opportunities and (e) Development of industrial infrastructure facilities.


The major incentives and facilities available to SEZ developers include:

* Exemption from customs/ excise duty.

* Exemption on income derived from the business of development of the SEZ in a block of 10 years, in 15 years under Section 80-1 AB of the Income Tax Act.

* Exemption from minimum alternative tax under Section 115 JB of the Income Tax Act.

* Exemption from dividend distribution tax under Section 1150 of the Income Tax Act.

* Exemption from Central Sales Tax.

* Exemption from Service Tax.

Impact on urban development

The complexity in the growth of cities and towns has been increasing due to the recent developments in the economic arena and advancements in information and communication technology. The demographic composition, infrastructure needs, cultural plurality and living styles are affected. The increasing complexity calls for a new integrative framework of urban systems with SEZs. Though several attempts both at national and State level have been made to address the integration of urbanisation and economic development issues in terms of policies and programmes, the results are disturbing and disappointing. The problems in urban and peri-urban or urbanisable areas have been aggravated with the establishment of SEZs and specialised industrial hubs in various parts of the country.

Metro and city-centric

The SEZs have come up around the metros and cities. An overview of the SEZs that are operational, for which notifications have been issued and under implementation and proposals yet to be submitted to the Central Government by the Government of Karnataka, indicates the following:

* Out of the 20 SEZs that are operational, 80 per cent of the investments, 28 per cent of land acquired and 74 per cent of the employment is centred around Bangalore.

* Out of the 15 SEZs for which notifications have been issued and that are under implementation, 54 per cent of the investments and 38 per cent of the employment potential created will be in the Bangalore environs.

* The proposals which are yet to be submitted to the Government for notification, 79 per cent of the proposed investments, 71 per cent of the land proposed to be acquired and 85 per cent of the employment potential created will also be around Bangalore.

It is observed in many studies, at the national level, that SEZs are very close to existing major cities or nearer to State capitals.

Not self-contained

The establishment of SEZs has major implications on urban and regional planning as well as on local self-governance. Integration with the city has been absent from inception as opined by K.C. Shivaramakrishnan, former Defence Secretary. Furthermore the SEZs are not self-contained development zones in terms of infrastructure and transportation. These zones and surrounding areas have been intensively used by land speculators for future gains. A few critics said that the SEZ policy is creating less of a new manufacturing base and more of a real estate business. SEZs are overwhelmingly focused on IT/ ITEs and thus are not building sectors to absorb the growing labour force at local levels.

The SEZs are not likely to create new infrastructure beyond industry-based buildings, since most of them are less than one sq. km in area and are located in and around existing mega cities. Thus it is leading to the suspicion that they may ride or depend upon on existing infrastructure. It is unlikely that they can function as self-sufficient entities either now or in future.

There are many instances wherein only direct employment is assessed but not indirect employment created outside the SEZ, which is two to three times bigger. All these have mostly led to informal and isolated developments and placed a burden on cities’ infrastructure, etc.


The national and State Governments have come out with several policies on urban development, infrastructure, tourism, and housing. But none of the policies have considered the impact of SEZs on urban development. This has been one of the shortcomings in the effort made towards balanced development of regions and settlements. Hence there is a need for:

* Integrating the SEZs with the existing master plans/ regional plans or to develop regional/ sub-regional plans around SEZ areas.

* Providing housing, affordable means of transport, and access to basic social amenities especially for the low income category of skilled and semi-skilled workers around SEZ areas.

* Coming out with norms for social and economic infrastructure for SEZ development and evolving a model for new neighbourhoods.

* Dispersing economic activities such as SEZs across the regions in the State.

* Evolving a governance model for SEZ towns or cities for participation of locals.

(The author is former Director, Directorate of Town Planning, Karnataka Govt.)