Narendra Modi plans booster shot for SEZs

Written by Arun S | Gireesh Chandra Prasad | Gireesh Chandra Prasad | New Delhi | Updated: Jun 20 2014, 20:50pm hrs
The Narendra Modi government, whose 100-day agenda is set to be finalised next week, may attempt to reverse the special economic zones' (SEZ) journey downhill, a move in conformity with its prioritisation of urbanisation, infrastructure and defence projects.

Principal secretary to the PM, Nripendra Misra, is meeting revenue and commerce secretaries on Saturday to discuss ways to revive the SEZs, which apparently lost patronage of the UPA government during the last leg of its tenure, although the relevant law was made by the UPA-I in February 2006.

The Prime Minister's Office is weighing the revenue implications of the commerce ministry's proposal to remove 18.5% minimum alternate tax (MAT) on SEZ developers and units and dividend distribution tax (DDT) on developers (both imposed by FY12 Budget by then finance minister Pranab Mukherjee).

The revenue department, which had in the UPA regime begun to see SEZs as drain on the exchequer, has been made to reconsider its stand, sources said.

The commerce department has long argued that the gains from SEZs to the economy (in terms of infrastructure creation, employment generation and exports) outweigh the notional revenue foregone. With more seamless interaction between the finance and commerce ministries now (commerce minister Nirmala Sitharaman is also minister of state for finance), the task has become easier for the PMO.

Any tax relief for SEZs could, however, come only in the Budget.

The move, pertinently, comes ahead of the second round of meeting called by Modi with secretaries of all central departments next week to give final shape to the NDA government's agenda for the first 100 days.

The meeting is expected to be held after Modi returns from his two-day visit to Bhutan, which begins on Sunday, sources said.

Commerce secretary Rajeev Kher, sources said, would impress upon Misra at Saturday's meeting the worrying facts: that over 21,000 hecatres of land are lying vacant in notified SEZ processing area, the fall in the rate of growth of investment in zones and the shrinking of their exports as also their share in the country's total exports.

After the SEZ Act was notified in February, 2006, exports from these tax-free enclaves had initially grown at a brisk pace (thanks partly to Reliance's export-focused Jamnagar refinery) to touch a peak of $87.5 billion in FY13, but shrank to $82.3 billion last fiscal (The growth in exports from SEZs has plunged from a high of 115% in FY10 to minus 6% in FY14).

Although economic slowdown has had an impact on SEZs' performance as well, they even underperformed the domestic tariff area units in FY14, as is evident from the dip in their share in country's total exports from 30% in FY13 to 26% in FY14. RIL opting to take 40% of its Jamnagar facilities from the SEZ ambit and the levying of MAT and DDT on SEZ developers and units have been dampeners.

At the proposed meeting of secretaries, Modi is likely to suggest concrete ideas that could be immediately implemented as well as larger schemes that could be carried out in the next six months, said a secretary in one of the central departments.

Sources said that Modi's second interactive session with top bureaucrats will cover major issues concerning the economy, including energy and infrastructure, as well as matters in the social sector, tax policy, security and foreign policy.

Specifically, a large budget outlay for Delhi-Mumbai Industrial Corridor, faster implementation of the rail connectivity projects to coal-bearing areas in central and northern India, speeding of defence projects with greater private sector participation and a push to road projects stuck for want of various cleareances would figure in the list of the Modi government's 100-day agenda, sources said.

These include better delivery of major welfare programmes, clearing the backlog of investment proposals, review of performance in the energy and power sectors, steps to attract greater foreign investment, ways to tackle the contraction in manufacturing activities and the steps needed to boost exports.

Ways to prevent scams relating to the use of central funds transferred to states under projects like the National Rural Health Mission, which offer immense flexibility to the local administration regarding its spending, are also likely to be discussed.

The Prime Minister is also expected to review the measures already taken by the secretaries to simplify procedures and cut down red tape. We have pruned the number of files that we need to handle routinely. It helps in giving better services to stakeholders, said an official. Old files getting shredded and arrival of large stacks of brand-new folders have been a regular sight across various ministries in the last one week. Officials now come on time, said the secretary.

One of the issues before the NDA regime is to tackle is the country's energy deficit that is adversely affecting a manufacturing-led economic recovery. The coal ministry wants the government to address the alarming demand-supply mismatch in the coal sector by allowing private commercial mining. The new government also has to address fuel linkage and long-term financing issues faced by power plants. The government also has to bring certainty to natural gas pricing.