With Indian companies’ interest in special economic zones (SEZ) waning — following an increase in the number of denotifications due to the global economic slowdown, poor market response and lack of demand for space, and a changed fiscal incentive regime for SEZs — the government is planning to attract foreign companies to set up shop in these investment enclaves.
Small and medium enterprises (SMEs) of Japan, Korea and the US may soon invest in the country’s SEZs to set up their manufacturing facilities for electronics and automobiles after the commerce ministry approached these countries to look at these investment enclaves.
While the US and Japan have no SEZs, South Korea has only six, set up between 2004 and 2008. These investors will benefit from the rupee’s depreciation along with cheap land and labour available in India, besides getting a 20% rebate on capital expenditure if the investments happen in electronics through the Modified Special Incentive Package Scheme (MSIPS).
“We have approached them to invest in hardcore manufacturing here as SEZs have a consolidated and well-developed policy for land and infrastructure besides a single-window approval mechanism. We want small companies to invest here and China has shown interest,” said a commerce ministry official.
Exports from SEZs declined 4.25% in the last three months to R1.13 lakh crore.
Till now, 576 SEZs have been approved, of which 392 have been notified. A total of 173 SEZs have commenced exports, of which 20 are multi-product SEZs. Till July 31, 2013, 58 have been denotified, most of which happened in the last two years because of the imposition of MAT and DDT. In the last four months, majors like Reliance, Parsvnath and Kalyani Group, among others, have denotified their SEZs, releasing more than 1,300 hectare of land.
As per the extant policy, 100% foreign direct investment (FDI) is freely allowed in manufacturing in SEZ units under the automatic route and there is no cap on foreign investment for small- scale industry's reserved items. The MSIPS provides 25% of the capital investment in non-SEZ area and 20% in SEZ area as financial incentive for the electronics system design and manufacturing (ESDM) sector.
The revived interest in SEZs is due to the relaxed SEZ norms, according to which the multi-services zones will be treated on a par with single-product SEZs, with the minimum area being slashed to half from 100 hectare. This will allow multi-product SEZ developers with a minimum land requirement