Catalysing growth

The country aims to boost its technological sector, including establishing ties with overseas companies. Certain amendments in provisions will help in achieving this aim. To overcome the lapses of multiple controls/licenses, an unstable pecuniary regime, and to further attract foreign direct investments, Special Economic Zones (SEZs) have come into picture. An SEZ refers to an allocated area where steps are taken to liberalize tax regimes, mercantile, business, labour, and other legislations to encourage business activities and investments in various parts of the country.

The Special Economic Zones Act of 2005 governs SEZs in our country. Section 15 of the SEZ Act outlines the procedure for setting up a SEZ unit. A Board of Approval is established, and following the board's approval, the Central Government notifies the area of the SEZ. Subsequently, it becomes the duty of the Development Commissioner to grant appropriate approval to the concerned entity for setting up their business in accordance with the stipulated provisions. There is a pressing need to further streamline and liberalize these procedures and legislations, especially in line with the current scenario.

The SEZ Act of 2005, along with the SEZ Rules, came into effect in February 2006. However, the Act and Rules need simplification. One of the most pertinent modifications needed is to explicitly allow subcontracting by or for SEZ units to ensure their optimal utilization, including space, infrastructure, employees, etc., in addition to potential capital gains. For example, subcontracting in SEZs should be unequivocally permitted, especially with respect to services related to technology industries. Currently, circulars, judgments, past precedents, etc., serve as the basis for engaging in such service-related activities in the technological sector.

According to SEZ Rules 41 & 42, an SEZ unit may subcontract a part of its production or production process to units in the Domestic Tariff Area, Special Economic Zone, Export Oriented Unit, Electronics Hardware Technology Park, Software Technology Park (STPI Scheme), Bio-Technology Park, etc., with prior permission from the Specified Officer of the SEZ. Merely owing to the use of the term "production" in the provisions and the absence of the term "service," sometimes a stringent interpretation is applied. Straightjacket clarifications would enhance the business of SEZs and simplify transactions, eliminating the need for complex procedures associated with seeking prior permission. Subcontracting is the most straightforward and fastest way for a country to boost its economy. Therefore, liberalized and clear provisions are the need of the hour to prevent conflicting views and facilitate ease of doing business.

The terms "subcontracting" and "outsourcing" need to be elaborated upon for SEZs. While labour legislations now offer greater clarity on such terminologies through provisions and dictums, the SEZ Act requires even more lucidity. In legal provisions, every word carries significant meaning. For instance, the inclusion of activities such as making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating within the definition of "manufacturing process" under the Factories Act of 1948 has over the years subjected places like kiosks, kitchens in organizations, research and development centres, etc., to stringent statutory provisions.

Another suggested amendment concerns provisions like Rule 70 of the SEZ Rules, 2006, which states that the entry of individuals into the processing area of the Special Economic Zone should be regulated by the Development Commissioner through the issuance of identity cards. Such provisions also require simplification.

Recent suggestions from the Finance Ministry, with respect to the creation of a trust-based regime rather than a control-based one and the promotion of optimal utilization and easier subcontracting, will provide a significant boost to various zones.

SEZs were established as industrial parks over 70 years ago in Puerto Rico to attract investments. Many countries, including various Asian nations, subsequently followed suit.

Businesses that establish their units in Special Economic Zones benefit from FDI policies and exemptions from certain taxes, which in turn leads to higher profits. Further liberalizing these provisions would encourage the nation's economic expansion and development.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal