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Monday, 23 Feb 2015
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India’s SEZ conundrum
 

The government recently approved the applications of as many as 56 special economic zone (SEZ) developers, including JSW Aluminium and Parsvnath SEZ, to surrender their projects.

 

India’s SEZ conundrum| ProjectsToday

 

57 SEZ developers had approached the government to surrender their projects. The applications were reviewed on 20 February 2015, by the Board of Approval (BoA) that deals with SEZ-related matters. The board approved all except one of the proposals to surrender the projects.

 

Formal approval had been granted in all 57 cases between January 2006 and June 2009. However, since there was no significant progress made by the developer, the concerned development commissioner had proposed cancellation of the approvals.

 

  SEZFactsheet_ProjectaToday

35 of the 57 SEZs belonged to the IT/ITES sector, while the rest were in Biotechnology, Gems & Jewellery, Textiles etc. Location-wise, 13 were located in Telangana, eight in Maharashtra, seven in Andhra Pradesh, six in MP, five in Gujarat etc.

 

The SEZs cancelled included proposals by Deccan Infrastructure, Sun Infrastructure, DLF, JSW, Delhi Metro Rail Corporation and Xansa SEZ.

 

JSW’s Aluminum SEZ in Vizianagaram district of Andhra Pradesh was held up due to pending signing of agreement for supply of Bauxite and environmental clearance for mining of the ore.

 

As for DLF’s Noida SEZ, the formal approval expired in July 2012, and in a letter dated 24 June 2013, the company informed that it was not developing the SEZ due to lack of viability.

 

Reliance Industries Navi Mumbai Special Economic Zone (NMSEZ) was also cancelled as the developers informed that they were not interested in setting up the SEZ. Located in Kalamboli, Maharashtra, the SEZ is one of the four nodes of the 1,250 ha multi-product NMSEZ that is jointly owned by Ambani, Anand Jain of Jai Corp, SKIL Infrastructure and the City and Industrial Development Corporation.

 

Since October 2014, the government has cancelled 67 SEZs. Including those cancelled on 20 February, the total number of SEZs cancelled so far stands at 123.

 

Taxes and all

The SEZ policy in India came into inception in April 2000. The prime objective of the policy was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.

 

Under the original scheme, businesses were exempted from the minimum alternate tax (MAT) on book profits, and developers were exempted from payment of the dividend distribution tax (DDT), making SEZs an attractive proposition.

 

However, from 2011-12, MAT and DDT exemptions for SEZ units and developers were withdrawn and this led to the downfall of the central government’s mega dream of having over 500 SEZs across India.

 

To save the 196 operational SEZs and a few others where the developers are still interested in developing new SEZs, the export promotion body for special economic zones has requested the finance minister to roll back MAT and DDT on SEZs in the upcoming budget.

 

Apart from taxation issues, other critical matters impeding the SEZ industry are land acquisition problems and lack of adequate infrastructure like road and port connectivity. The successful implementation of the rest of the SEZs cleared by the government depends on the swiftness of the government in clearing the above mentioned critical hurdles.

 

SEZs helped China in its rapid economic development in the early 1990’s. But a major reason for the success of SEZs in China was the creation of complementary infrastructure like power, roads and ports, which is lacking in India.

 

Even with all these issues, SEZs, which are major export hubs, contribute about one-third of India's total exports. Exports from these zones increased from Rs 22,840 crore in 2005-06 to Rs 4,94,000 crore in 2013-14. In 2012-13, exports from SEZs touched Rs 4,76,159 crore, showing a growth of 31 per cent over 2011-12. While, in 2013-14, exports touched Rs 4,94,077 crore, with a growth rate of four per cent.

 

While the export numbers justify the case for more SEZs, only better taxation regime backed by quality infrastructure support will encourage developers in setting up more SEZs. Otherwise, in the coming months, we will see more applications for surrendering the licenses received for setting up SEZs.

 

Quote of the week:

  Nirmala Sitharaman, Union Minister of Commerce and Industry
"SEZs are still contributing to exports. Yes they have problems. But the decline of SEZs has been parallel with the way the economy is declining. Issues related to MAT (minimum alternate tax) and DDT (dividend distribution tax) have been discussed."
- Nirmala Sitharaman, Union Minister of Commerce and Industry
 

 

 
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