SEZs in India: Promising Times Ahead

SEZs in India as export-oriented business zones where companies may avail of tax benefits and a cluster of incentives and concessions from the government have made quite an impact with their results.

Conceptualized to reduce pressure on urban centres and to augment the
country’s urban infrastructure, they also
have a critical role to play in increasing exports, attracting foreign investment and creating employment. The current 400 odd Special Economic Zone (SEZ) projects on the anvil is a direct conclusion of reaping visible rewards offered through the SEZ route.

Export Promotion Council for SEZs is the government body that notifies
the SEZs. With the Indian companies setting up bases in SEZs, the total
investments in SEZs shot up while foreign investments in SEZs followed
suit.

SEZs have, in fact, helped people in rural areas increase their
income. They have generated a considerable investment. More than 32,000
people are employed in the SEZs on regular wages.
The Ministry of Commerce estimates employment generation of 100,000
people by December 2007 and export revenues to cross Rs 67,000 crore
by the end of 2007-08.

The case for SEZs in India:

India’s strengths that can encourage investments in a SEZ:

• Strong economic growth prospects
• Large and skilled workforce
• Strong policy framework
• Presence of ancillary industries
• Strong growth in the external sectors
• Formidable domestic market

The visible change in the government’s outlook and policies towards the SEZs makes the case for SEZs in the private-public partnership format a realistic one for the SEZ projects
Gujarat government has been allotted 15,000 hectares of land for setting up SEZs, the highest in the country.

The Government’s role:

The government has promoted all kinds of industries to set up bases
in these SEZs. The changing nature of industries in the Indian
SEZs is amply demonstrated in the increasing share of pharmaceuticals,
engineering sectors, the gems and jewellery industry, information
technology, IT-enabled services and electronic hardware, food processing
textiles, aviation, research and design.

The IT sector has contributed
to the growth of SEZ exports significantly as most of the IT/ITES
companies are based in SEZs.
With the new SEZ Act, 2005, the government has introduced major
changes from its earlier policy.

It has done away with certain
regulations and has simplified the process of starting a business
by introducing the single window clearance policy.
In states like Haryana, Maharashtra and Andhra Pradesh, hub of
urbanization, a major part of agricultural land has been converted
for integrated township projects that account for over 3% of the
agricultural land as well as residential real estate projects that
cover 1%.

The challenges:

The government’s SEZ initiative has also been taken with a grain of salt by farmers in some parts of the country whose land was being acquired by local governments to hand over to companies developing the zones, forcing the government to rethink its policy.

It first grants an approval and then notifies the zones after the land
acquisition is complete. For a while it put a temporary freeze on fresh
clearances and formal go-aheads for previously approved SEZs.

But removed
the freeze on approvals and notifications but not without major
caveats including placing a ceiling on the size of the zones (5,000 hectares).

SEZ proposed by Skil Infrastructure Ltd. to be set up in Karnataka,
will be scrutinised after the FIPB Foreign Investment Promotion
Board clears Skil’s
proposal to offload a26% stake to a US-based investor for $500 million.

The major challenges are associated with SEZs are:

• Improvements are called for in terms of size, road and port connectivity,
  assured power supply, flexible labour laws and decentralized decision making.
• There is lack of complete data and information around SEZs which keeps
  from giving a holistic understanding of its potential and
  providing insights on the functioning of the existing SEZs.
• Ever since the government implemented the SEZ Act in 2005, only 1,945-sq km land has been earmarked for the projects. Many fresh projects can still be accommodated. Recently, the Centre has directed to the state governments to place a 1% cap on conversion of land for industry.
• The proactive role of the Government. Without facilitation by the state government, it is not possible to buy land for the huge projects. The state governments should take the onus to ensure that fertile land is not notified for industrialization projects and the projects should only be limited to barren and waste land. This will lead to a win-win situation for the involved parties.

Of course, the development of the concept of SEZs here draws a comparison with China which focuses on a lower number of large projects, just as China does. Hainan, the largest SEZ project in China, is a case in point with a spread of 31,000 sq km, as size 15 times bigger than all Indian SEZs.

However, close on the heels is RVL contemplating an investment
of Rs 25,000 crore and also seek third-party investments to
the tune of Rs 1 lakh crore.The going might be tough. Reliance has
been planning an SEZ and has bought land from HSIIDC.

The latter
maintains that the acquisition of land within the framework
of permissible government norms. But to assuage the protest from
farmers, the Haryana Chief Minister had to apprise the villagers
of the importance and magnitude of such a project for the state in
the form of five lakh jobs and revenues up to Rs 10,000 crore.

The high points for this year are:

• Several companies from the manufacturing and service sectors have shown interest in setting up their units in the Mangalore SEZ. The Mangalore Refinery and Petrochemicals Ltd (MRPL) is the main investor in the Mangalore SEZ project.
• Pharmaceutical and shipbuilding companies in the manufacturing sector and various service sector companies have shown keen interest in setting up their units in general-purpose multi-product component of SEZ.
• Among the 36 projects cleared recently for SEZ is West Bengal’s first multi-product SEZ for pharmaceuticals, biotechnology and chemicals, located in Midnapore and to be developed by Ramky Infrastructure Ltd.

Photo: A metro train entering Baranagar Metro station in Kolkata, India by Ravi Dwivedi, licensed under CC BY-SA 4.0, via Wikimedia Commons.