FE Editorial In the zone

Written by The Financial Express | Updated: Aug 29 2008, 05:57am hrs
The news that only 343 units are functioning in the 253 special economic zones notified under SEZ Act of 2005 comes as no surprise. SEZs are complex projects that require the build up of substantial infrastructuresomething that takes more than two years. Given the hurdles in providing power, telecom, roads and water utilities, it is too early to expect any substantial result. The real surprise then is that despite all these handicaps, new SEZs have made amazing gains, especially on the export front, which indicates their substantial potential when full infrastructure is put in place. Exports from new SEZs rose from just Rs 122 crore in 2006-07 to Rs 5,159 crore in 2007-08, raising their share in total SEZ exports from 0.4% to 7.8% in just one year. In fact, if deemed exports and sales in the domestic tariff area are factored in, the share rises to a tenth of the total turnover of all SEZs. More important, the pattern of production evolving in new SEZs indicates that they are much better structured for sustained growth as they have been much more successful in diversifying market risk. Numbers for last year show that 61.8% of the total output was sold in the export market. Products in the deemed-export category accounted for almost a quarter of the output, while sales in the domestic tariff area accounted for the remaining 14.8%. In contrast, more than 95% turnover of the seven central government-owned SEZs was geared solely to export markets, which makes them vulnerable to fluctuating trade trends.

Yet another factor that highlights the strength of new SEZs is the structure of exports. Unlike the central government-owned SEZs and the other pre-2005 SEZs, new SEZs are focused on sunrise sectors. For instance, gems & jewellery, trading and service account for almost three-fourths of exports from central government SEZs and 62.3% of exports in the other pre-2005 SEZs. In sharp contrast, electronic hardware, chemicals, software and biotech products were the largest export products of the new SEZs, accounting for four-fifths of their total exports. The governments projections show that new SEZs will emerge as the largest export base in 2008-09, with exports touching Rs 52,877 crore. Impressive for three years of work.