Handicrafts industry, an employment intensive export focused sector and among the worst hit by the sudden rupee appreciation last year, may soon be able to join the special economic zones (SEZ) bandwagon in a big way with the Centre deciding to soon reduce the minimum area requirement for handicrafts SEZ to 10 hectares from 100 hectares.
The Centre would also shortly make two more important notifications that would bring cheer to those involved in setting up SEZs. One is to refund service tax paid by SEZ developers and units for authorized operations not only within the SEZs, but also outside of such tax-free enclaves; and the other to give tax sops like drawback and Duty Entitlement Pass Book (DEPB) scheme for all supplies of goods from domestic tariff area or DTA (areas in the country outside the SEZ) to SEZ developers. The Centre would soon make the necessary changes in the SEZ Rules and Foreign Trade Policy incorporating these decisions.
The move to reduce minimum area requirement for handicrafts SEZ comes following representations made by several states, particularly letters written to the Centre by chief ministers of states like Uttar Pradesh, Orissa and West Bengal, commerce secretary G K Pillai said here. The proposal to fix the minimum area requirement for handicrafts SEZs at 10 hectares (like other sector-specific SEZs including IT/ITES, gems & jewellery, electronic hardware, bio-technology and non-conventional energy) is to boost handicraft exports, especially from small scale units and increase employment in the sector.
Following rupee appreciation of over 13% against the value of US dollar in the last financial year, the handicrafts sector lost revenues of around $500 million and could export only around $3 billion, as against the target of $3.5 billion, said Navrattan Samdaria, former chairman, Export Promotion Council for Handicrafts. Even in the current fiscal, the sector has suffered around 20% losses, he said, adding that the total employment in the sector has come down from 7 millionto 5 million due to these overall losses.
Currently, there are only four handicrafts SEZs that have got formal approval (after having procured the required land of over 100 hectares) from the Centre, and only one such SEZ has been notified so far. Besides, only one handicrafts SEZ has got in-principle approval (project cleared, but yet to procure the required land).
Compare this to 322 formal approvals received by the IT/ITES industry of which 165 SEZs have been notified so far. Samdaria said the reduction of minimum area requirement would help handicrafts units in hubs like Moradabad, Jodhpur and Jaipur to come together and set up SEZs. On service tax refund, after initial opposition, the finance ministry agreed to commerce ministry?s argument that as per the intent of the SEZ Act, service tax exemption should be given for authorized operations irrespective of whether it is within or outside SEZs.
On the Centre deciding to give DEPB and drawback benefits for supply of items from DTA to SEZ developers, director general of export Promotion Council for SEZs and Export Oriented Units, L B Singhal said ?this will enable developers to procure more from DTA rather than resort to importing such goods. This would help in creating additional economic activity and employment generation in DTA and will thereby lead to better backward integration of SEZ with the domestic economy.?