Is SEZ growth story just in numbers 253 notified zones have only 343 units

Written by Arun S | New Delhi, Aug 27 | Updated: Aug 28 2008, 06:44am hrs
Consider this. A first-of-its-kind status report on industrial units within special economic zones compiled by the commerce ministry, shows that the number of units in 253 SEZs notified by the government since the last two years (after the SEZ Act and Rules were put in place) is just 343.

While it may appear that the governments goal that every SEZ having high occupancy levels in their units, has been belied by market forces, it may be too simplistic an interpretation. Of the 253 notified SEZs, only 90 are operational so far and therefore, it is too soon to expect a proliferation of units, commerce ministry officials reasoned.

Of the 253 notified SEZs, only 56 were notified in 2006, while 133 were notified in 2007 and 64 this year. For the units to come up in an SEZ, typically it takes an average of 6-7 months after an SEZ is notified, officials said.

Analysts also point out that due to the downward pressure on rents, companies interested in setting up units in SEZs have been demanding that the developers must lower their rentals. A Parliamentary panel had recently sought a record of the total number of units in all the notified SEZs, according to an official.

Interestingly, commerce and industry minister Kamal Nath had many a time stressed the importance of having SEZs with more units rather than just a lot of such tax free zones with a few units in them. Pointing to the Chinese example, he had earlier said that even there, one SEZ has around 600-700 units.

Ajay Nijhawan, convenor of the Export Promotion Council for EOUs and SEZs Panel for SEZ Developers, said, Among the few SEZs that are operational, most are sector-specific or IT SEZs. There are also many captive SEZs with a company itself being the developer. When a lot of multi-product SEZs spanning an area of around 5,000 hectares or more become operational, we will see an increase in the number of units in an SEZ.

Nath has also been stressing that bigger SEZs are more economical. However, a proposal by his ministry to get rid of the 5,000 hectare cap set by the Empowered Group of Ministers on SEZs last April, is yet to be cleared.

To give credit where it is due, of the total 1897 units that have come up in SEZs established prior to the Act and after it, 970 units have come up after the SEZ Act and Rules came into effect in 2006. This is more than the 927 units that came up before the Act, considering that the oldest SEZ in Kandla was set up in 1965.

There are also SEZs like Nokia with 6 units and the recently launched 5,000 acre Sri City multi-product SEZ near Tada (border of Andhra Pradesh and Tamil Nadu) which has 10 units from different sectors that have already signed MoUs with it and another 8 likely to soon finalise MoUs.

In the data on the number of units in SEZ, another significant fact was that in the 253 notified SEZs after the enactment of the policy and 19 established SEZs prior to SEZ Act, 2005, there are 1897 units, of which 1141 were in Central government SEZs and only 756 were in state and private SEZs.

The break-up of the 970 units are: 332 in seven Central government SEZs, 295 in state or private sector SEZs that were established before the Act but where these units came up after the Act came into force, and the 343 units in the 253 SEZs notified after the Act.

Of the 927 units, which were set up prior to the Act, 809 were in Central government SEZs and 118 in state government and private SEZs.

Asked about the trend of Central government SEZs attracting more units, Ajit Krishnan, partner, Ernst & Young, said, The Central government SEZs are probably offering better cost structures as opposed to private SEZs, which could be a function of either strong negotiation skills or better infrastructure.