What is a Special Economic Zone (SEZ)?

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment. India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced. In India The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. The main objectives of the SEZ Act 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;

(e) development of infrastructure facilities;

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval. The functioning of the SEZs is governed by a three tier administrative set up. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zone level deals with approval of units in the SEZs and other related issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of the Approval Committee. Once an SEZ has been approved by the Board of Approval and Central Government has notified the area of the SEZ, units are allowed to be set up in the SEZ.

Strengths of India!!!!

The economy of India is the fourth largest in the world, with a GDP of $3.63 trillion at PPP, and is the tenth largest in the world with a $691.9 billion at 2004 USD exchange rates and has a real GDP growth rate of 6.2% at PPP. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. Indian economy has posted an excellent average GDP growth of 6.8% since 1994 India, the fastest growing free-market democracy in the world, registered a growth rate of 9.8 percent in FY 2006. India has emerged the global leader in software and business process outsourcing services, raking in revenues of US$12.5 billion in the year that ended March 2004. Agriculture has fall to a drop because of a bad monsoon in 2005. There is a paramount need to bring more area under irrigation. Export revenues from the sector are expected to grow from $8 billion in 2003 to $46 billion in 2007. India’s foreign exchange reserves are over US$ 200 billion and exceed the forex reserves of USA, France, Russia and Germany. This has strengthened the Rupee and boosted investor confidence greatly. A strong BOP position in recent years has resulted in a steady accumulation of foreign exchange reserves. The level of foreign exchange reserves crossed the US $100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18, 2005. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. More than 60% of Indian population is belonging to the working age group. India is one among the leading countries in the world with regard to ICE technology.

India is powerfull to tackle the Global Crisis

Global economy crisis is badly affecting to the financial stability of countries all over, India has no exception. The bitter experiences of Indian economy from the crisis in late 80’s and early 90’s prompting the economic institutions and policy makers of India to expect a worst situation from the global economic crisis which triggered from the recent financial crisis of USA. Given its economic integration with the world economy, India cannot remain immune to the global financial crisis. The Indian equities and currency markets have already been affected by these developments. Current micro economic climate has been characterized by rising domestic inflation, a weakening rupee, hardening interest rates, extreme volatility in capital markets and moderate to severe slowdown in leading global economies. Fortunately, the substantial driver of India's growth is still domestic consumption and investment isolating it further from the fall-out of the global turmoil. With a domestic saving rate in the range of 30-35 percent, among the highest in the world, and over 70 percent of the population below the age of 35, the strong foundation of India's economy remains intact, and will continue to power our future growth.

Will the US subprime crisis affects India?

As the crisis widens in the US, the companies, including outsourcing units and IT enties that heavily depend on their overseas clients for getting their revenues, may get affected in days to come. The subprime crisis may lead to a slowdown and then to a recession in the US economy.
In case it happens, the chief technical officers (CTO) of US-based companies, having their back-office operations in India, will be compelled to lower their budget, which will further have a cascading impact on Indian companies. The good part of the story is that unlike China, which had an export oriented economy, the Indian economy was based on the domestic market

The Indian economy has grown at more than 9 per cent in 2005-2006 and projections indicate robust performance in the coming years. India’s exports may record a decline if the US slows down. In 2006, roughly 18 per cent of India’s exports — about 15 per cent of India’s GDP — was directed to the US. The negative impact can be partly offset by exports of services.
As the US slows down, an effort to reduce costs could boost outsourcing of services. The IT sector has made and will make impressive strides. Possible setbacks from weakness in capital spending in the US may be insignificant. On the financial side, equity markets have posted losses and are likely to move in tandem with events in the US. The Sensex for instance posted declines in 2001 when the US was in a recession. Institutions in India holding US mortgage-related securities are likely to suffer losses. the spill-over effects of the US financial crisis to the Indian economy may not be significant enough to overwhelm the positive economic momentum already in place.

World Watchman in Crisis - The USA

The origins of the current credit crisis lie in a loose monetary policy and excessive capital flows that were turbo-charged by "financial engineering" techniques used by banks. Borrowing bought more borrowing, fuelling price increases in financial assets -- debt, equity, property, infrastructure. In good times, financial markets embrace capitalism. In bad times, financial markets re-discover socialism.The de-leveraging and price adjustment can be achieved by creating inflation through a loose monetary policy. If asset prices remain at current levels, higher inflation allows values to fall in real terms. Higher inflation also reduces the value of borrowings that must be paid back allowing the required reduction in leverage.

Crisis is unavoidable, and he claims that investors will lose their confidence "at some point," creating serious dilemma for "both exchange markets and interest rates." As the United States faces the threats of a potential housing bubble, a massive trade deficit and the lowest level of American savings in history. The Fed slashed interest rates, and Congress provided extreme tax cuts giving American households unprecedented buying power. While the government's response did help the U.S. economy grow, it also created immense debt. To alleviate this problem, at some point, U.S. consumers will have to curb spending and concentrate on saving – plus the economy will be forced to forego foreign investment. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade.

Rising prices. Growing unemployment. For millions of workers across the United States, times are tough—and getting tougher the surge in oil prices is a reflection of a boom in world capitalist production. Such booms inevitably lead to overproduction—the uniquely capitalist phenomenon of producing more goods than can be sold for a profit. The housing sector of the economy, like the oil and energy sector, has particular importance in the overall economy. A slowdown of home construction is felt in construction as well as in the production of basic materials like lumber and glass.Under capitalism, production is based on profits, not on social needs. A 2004 report by the National Law Center on Homelessness and Poverty estimated that there are 3.5 million people experiencing homelessness in any given year, with nearly half of those children. Far from reflecting the demand for housing, the boom in housing prices is the result of monetary intervention by the U.S. Federal Reserve. Low interest rates over the past three years have had the effect of driving for-profit investment into the housing market in the expectation of high returns. Compounding these signs of impending crisis within the for-profit, commodity-driven sector of the economy is the overarching political project of U.S. imperialism for world domination. It is impossible to separate the capitalist economy from the U.S. war drive in the Middle East and throughout the world.Vast spending on the military-industrial complex, involving huge capitalist corporations coordinated by the Pentagon, was a key factor in rescuing U.S. capitalism from the ravages of the Great Depression of the 1930s. But since the Vietnam War, military spending has proven unable to act as the same sort of stimulant that it did during World War II. While military spending has contributed to softening the impact of capitalist downturns, the boom-and-bust cycle of the U.S. capitalist economy has continued unabated.

Sub prime crisis in USA

US economy is slowing down due to the sub prime crisis. What you mean by sub prime crisis?
The sub-prime mortgage crisis is the major financial crisis of the new millennium whose origin is in theUnited States (US) housing market. The gradual softening of international interest rates during the last few years, coupled with relatively easy liquidity conditions across the world, provided for increased risk appetite of investors leading to expansion in the sub-prime market.
The word ‘sub-prime’ refers to borrowers (who are not rated as ‘prime’) and who do not have a sound track record of repayment of loans. The risks inherent in sub-prime loans were sliced into different components and packaged into a host of securities, referred to as asset-backed securities and collateralised debt obligations (CDOs). When interest rates rose leading to defaults in the housing sector, the value of the underlying loans declined along with the price of these products. Institutions were saddled with illiquid and value-eroded instruments, leading to liquidity crunch; the crisis in the credit market subsequently spread to the money market as well. The policy response in the US and the Euro area has been to address the issue of enhancing liquidity as well as to restore the faith in the financial system. The sub-prime crisis has also impacted the emerging economies, depending on their exposure to the sub-prime and the related assets.

India has remained relatively insulated from this crisis. The banks and financial institutions in India do not have marked exposure to the sub-prime and related assets in matured markets. Further, India’s gradual approach to the financial sector reforms process, with the building of appropriate safe-guards to ensure stability, has played a positive role in keeping India immune from such shocks.