With
the domestic industry showing signs of steady recovery and merchandise exports
stablising, special economic zones (SEZ) are again getting prominence in
boardroom discussions and strategy plans of corporate conglomerates. Six new
proposals for setting up SEZs would be coming up in the meeting of the Board of
Approval (BoA) on June 8.
As many as 12 SEZ projects were
surrendered between December 2008 and March 2009. But, no SEZ was surrendered
since then.
According
to experts, SEZs are no more seen as land-grab deals. Companies, too, are
gradually realising the potential of investing in such long-term projects.
Besides, SEZ will be the only scheme to offer tax rebates to exporters beyond
March 31, 2011.
Since the beginning of the year, the Board,
under the Ministry of Commerce and Industry, has met twice and has already
granted formal approvals to more than 15 fresh proposals from various companies
to set up sector-specific SEZs or multi-product SEZs.
In 2009-10, goods and services exports from SEZs
rose 122 per cent at Rs 2,20,000 crore compared to 2008-09, according to the
latest data compiled by the Ministry of Commerce and Industry. “The economy
seems to be reviving all across the globe. Hence, the increase in activities in
SEZs is but natural and it is a fairly well- settled issue, now that the SEZ
business model is a sure way for export- led growth of the economy,” said S K V
Srinivasan, executive director, IDBI Bank.
The government has so far approved 574 SEZs, of
which 350 have been notified. More than 105 SEZs are operational and have
contributed to the revival of the country’s exports to a large extent.
“SEZ activity has certainly picked up again and
can pick up significantly if the true meaning and potential is exploited by
building hassle-free infrastructure... It can add 1.5 per cent to 2 per cent
per annum to GDP growth if India builds five full-scale SEZs in the country,”
Nikhil Gandhi, group chairman, SKIL Infrastructure Ltd, told Business Standard.
Besides tax benefits, companies are also finding
it easier to set up shops in SEZs due to a single-window clearance mechanism.
Finance Minister Pranab Mukherjee also vowed to give greater thrust to the
development of SEZs in his Budget speech, which has also made several firms sit
up and take notice of the government’s stance towards the policy.
“If one notices carefully, the SEZ policy would
be the one such scheme where tax benefits could be obtained after March 31,
2011, while others would become invalid. The government has also not shown any
indication towards extending the STPI (Software Technology Parks of India)
scheme, which means more IT companies would now look at SEZs,” said Hitender
Mehta of Vaish Associates Advocates, a Gurgaon-based law firm.
According to Cushman & Wakefield, out of 80
million square feet of commercial office space supply, 32 per cent was demanded
by SEZs in 2008. In 2009, the demand came down to 26 per cent. But, with demand
for SEZs increasing, it is expected to go up to 29 per cent in 2010 and 50 per
cent in 2011.
“There was complete gloom in demand for office
space in SEZs in the last two years, which seems to be changing now. People are
gradually seeing the financial viability of these projects and demand is only
going to increase now,” said Anurag Mathur, managing director, Cushman &
Wakefield India.
Agrees Anshuman Magazine of CB Richard Ellis
India, who says demand for office space in SEZs is slowly increasing,
especially in the IT and ITeS sectors. However, he also said the demand is not
anywhere near to what it was before the global economic recession.Source: BS 2/6/10
The
rise of special economic zonesIs the time
ripe for taking a fresh look at the SEZ policy?
Special
economic zones (SEZs) in India have always been controversial. The controversy
got more intense after the United Progressive Alliance (UPA) government of
Manmohan Singh enacted a special law for such zones in 2005. With a slew of
fiscal incentives and other concessions made available for setting up these
zones, there was a virtual race among India’s top companies to seek necessary
approvals from the government and jump the SEZ bandwagon.
Large tracts of land were handed over to
companies so that they could set up their units under the SEZ scheme. In
several cases, farmers and their families had to give up their cultivable land
so that the government-approved zone could come up in an area. Often the
government acquired such land at ridiculously low prices fixed under the law
and then sold that to the company setting up the zone at below-market prices.
Initially, there was no policy on rehabilitating and resettling those who were
displaced by such land acquisition.
The UPA government woke up to it only after
popular protests against such land acquisition gained ground. The Nandigram
agitation in West Bengal and minor protests in several other locations fuelled
the movement against the SEZ idea. It soon became a political hot potato. The
UPA government came under attack from the Left and even from Mamata Banerjee’s
Trinamool Congress. In response, the UPA government mooted a new law on
rehabilitation and resettlement of people displaced by land acquisitions for
industrial projects, including those to be set up under the SEZ scheme.
It is an irony and a reflection of the
vicissitudes of Indian politics that even though the government is yet to get
the rehabilitation and resettlement law passed by Parliament, the controversy
over SEZs has died down. Worse, almost without anybody noticing this, the
government has resumed its meetings to consider fresh SEZ applications and it
seems that the country is all set to witness a fresh race among industrial
houses to set up new SEZ units. Mind you, as many as 574 SEZs have already
received formal approvals from the government, of which 350 have been notified
under the SEZ Act.
The increasing significance of SEZs is also
evident from the fact that at present 105 zones are operational, where 2,761
units have received permission to set up their projects. Total investment in
these zones is estimated at Rs 1.28 lakh crore and the number of workers
employed there is close to 490,000. More significantly, these units are now
accounting for an increasingly larger share in India’s total merchandise
exports.
Consider the following figures. India’s total
merchandise exports in 2007-08 were estimated at $163 billion, which went up by
14 per cent to $185 billion in 2008-09. The following year, thanks to the
global economic downturn, India’s total exports fell by about 5 per cent to
$177 billion. At the same time, the share of SEZ exports in India’s total
exports has been rising. At $16.5 billion in 2007-08 and $22 billion in
2008-09, SEZ exports were about 10 to 11 per cent of India’s total exports in
this period. The sudden jump took place in 2009-10, when SEZ exports rose to
$46.51 billion, accounting for over 26 per cent of the country’s total exports.
In other words, SEZs are now accounting for more
than one-fourth of the country’s total merchandise exports, making a
substantial contribution to India’s foreign exchange earnings. Look at it
another way. If you exclude SEZ exports, India’s total exports in 2009-10
shrank to $130 billion, a 20 per cent fall over the comparable non-SEZ exports
of $163 billion in 2008-09. Analysts might argue that the mushrooming growth of
SEZ units has triggered a major diversion of exports from domestic tariff areas
to these zones because of the availability of attractive fiscal concessions and
other incentives under the SEZ Act.
However, can such incentives be so attractive
that they would cause such a big diversion to raise the share of SEZ units in
India’s total exports from 12 per cent to 26 per cent in one year? Or, is there
any merit in Commerce Secretary Rahul Khullar’s recent comment on a television
channel that the rising share of SEZ units in India’s total exports should make
everybody sit up and wonder if the SEZ policy was pilloried for the wrong
reasons? And is the time ripe for taking a fresh look at the SEZ policy,
revamping it if necessary, making sure that it has no adverse consequences for
farmers and, finally, preventing industry from grabbing land in the name of
setting up these zones? Source:
BS 19/5/10
SEZs fail to click in UttarakhandA
couple of proposed special economic zones (SEZs), both in private and
government sectors, in Uttarakhand have failed to make any headway.
Though
Parsvnath and other private players have put on hold their SEZ proposals, the
government is also not showing any enthusiasm. Officials here claimed that
private players were not finding market conditions conductive to setting up of
SEZs. Parsvnath is building a SEZ at Sahastradhara Road here.
The government is also yet to enact its own SEZ
Act and take final decisions on its proposed SEZs at Sitarganj and Dehra Dun.
Already, it has shelved its proposal to build an SEZ at Pantnagar.
For preparing the draft SEZ Act, a committee was
set up under the additional chief secretary. But so far the committee has
failed to take shape since the post of additional chief secretary is lying
vacant.
State Infrastructure and Industrial Development
Corporation of Uttarakhand Limited is keen to develop SEZs, both at Sitarganj
and Dehra Dun. “We are trying to revive these proposals. We hope that some decisions
would be taken in the next one month,” said a government official.
According to top officials, there is a need to
study SEZ rules in other states and adopt a suitable model for the hill state
in the wake of SEZ controversies in West Bengal and elsewhere in the country.
Earlier experiences of Special Purpose Vehicles and PPP modes should also be
taken into consideration, they added. Source:
BS 14/5/10
Manufacturing zones promise triple
bonanza for SEZsThe biggest advantage would
be easy regulatory clearances.
Several special economic
zones (SEZs) may have run into rough weather, but there is a ray of hope now.
The proposed national manufacturing and
investment zones (NMIZs), the draft of which was released last week, actually
promise a triple bonanza for SEZs: Easier access to land, flexible labour
policies and various concessions proposed by the Department of Industrial
Policy and Promotion (Dipp) in the manufacturing policy. The biggest advantage
would be getting regulatory clearances easily.
According to a discussion paper on NMIZs,
export-oriented units (EoUs) and SEZs can be located within the NMIZs. An SEZ
located in NMIZs will also enjoy the incentives under the SEZ Act.
The basic difference between NMIZs and SEZs lies
in the scale of operation. "SEZs could be a smaller entity within the
NMIZs and would be governed by the SEZ Act. NMIZs, on the other hand, will be
much larger in size," said a senior official in Dipp.
One of the major roadblocks for setting up SEZs
has been land acquisition and it is here that NMIZs are likely to have an
advantage. "The biggest challenge to SEZ is the ability of the private
promoter to get a good parcel of land. The government will aggregate land to
create manufacturing zones," said Chintan Patel, associate director, Ernst
& Young.
While a single-product SEZ requires 100
hectares, a multi-product zone requires 1,000 hectare, except for the 'special
status' states such as the north-eastern states, Jammu and Kashmir, Himachal
Pradesh, Goa and all Union territories. In these states, the minimum area
requirement for multi-product SEZs is 200 hectares.
Patel said that given what the government was
offering in NMIZs, there was no reason why an SEZ would not like to locate in
the NMIZs. "These manufacturing zones would be very large and there might
not be too many of them anyway," he added.
NMIZs are designed to push the share of
manufacturing in the Gross Domestic Product to 25 per cent by 2022 from about
15 per cent at present.
"The government is looking beyond SEZs and
EoUs. In NMIZs, the focus is not just on exports but manufacturing," said
Chetan Bijesure, additional director of the Federation of Indian Chambers of
Commerce and Industry. They are being encouraged for value addition and for
that special incentives, concessions and infrastructure facilities which are
not available outside would be provided. The government may come out with
notifications on these, though it is not clear whether the proposed zones will
be backed by legislation like the SEZ Act.
While there is still a certainty of policy in
the case of SEZs, some industry experts believe the policy around EoUs is not
very certain and benefits to these may be withdrawn. It, therefore, makes sense
for future EoUs to come up in NMIZs.
In terms of other major advantages, Bijesure
pointed out that the manufacturing policy proposes reduction in regulatory
compliance, ranging from labour, environment and forest, registration and
taxation. On the flexibility of labour laws, he said it was not that the new
zones would be detrimental for labour. He cites the example of the Employees'
State Insurance. "If the ESI benefits are not available to employees,
there is a provision for them to get adequately compensated. Similarly, instead
of an exit policy that gives rise to litigation, the policy proposes an
insurance scheme which a manufacturing unit can subscribe to and use in case of
closure of a unit," added Bijesure. These flexibilities are not available
in the case of SEZs, except in a few states where they have been brought under
essential services.
Another advantage the NMIZs might provide is the
single-window clearances. "The single-window mechanism in SEZs has not
worked especially at the state level, where there are a number of problems.
States like Haryana and Orissa have tried to do
some work in this direction. NMIZs promise faster clearances," said
Bijesure. Each NMIZ will be run by a special purpose vehicle, which will be
empowered to issue or expedite approvals and pre-approvals.
Availability of finances for an NMIZ is also proposed
to be cheaper. The policy proposes subvention of interest on working capital by
4 per cent to create parity with international counterparts. Viability gap
funding through existing schemes would also be considered.
Wherever necessary, requisite budgetary
provisions for creation of these linkages through the public sector will also
be made. These make the proposed zones better investment havens than even the
SEZs. Source: BS 12/4/10
Govt
scraps 12 special economic zonesThe
government has scrapped 12 special economic zones (SEZs) located in Delhi,
Orissa, West Bengal, Gujarat, Haryana, Maharashtra, Tamil Nadu and Andhra
Pradesh, Parliament was informed today.
"Requests for
de-notification by the developers have been received from 13 SEZs located in
the states/Union territories of Delhi, Orissa, Gujarat ... Of which 12 have
been approved by the Board of Approval," Minister of State for Commerce
and Industry Jyotiraditya Scindia said in a written reply.
Board
of Approval (BoA), a 19-member inter-ministerial group headed by Commerce
Secretary Rahul Khullar, approves the SEZ projects.
Scindia
said that the final de-notification is allowed only on refund of duties or
benefits, "if any, availed by the developer."
The
SEZs, which have been denotified by the BoA includes four IT-ITeS zones of
realty major DLF in Haryana, Gujarat, and Orissa.
On the
de-notification of three SEZs in Goa, the minister said that the state
government "may have compensate the developers". However he said that
the developers have approached judiciary and the matter is sub-judice.
"Goa
government had recommended 15 proposals for setting up of SEZs. Out of these, 7
proposals were accorded formal approval by the BoA and notifications were
issued in respect of three cases," he said.
Source: BS 10/3/10