SEZ export numbers rely heavily on RIL Jamnagar unit

Written by Kirtika Suneja | New Delhi | Updated: Mar 16 2013, 07:31am hrs
Excluding this unit, total SEZ exports in 2011-12 would be less than Rs.2 lakh cr and growth rate would be much less

Despite a growing chorus of opinion that special economic zones (SEZs) have flopped as growth-drivers in their current form, policymakers continue to cite the relatively higher growth in exports from SEZs to justify a plan to give more sops to these enclaves. While official data say exports from SEZs have risen 35% in April-December this year in rupee terms (overall export growth in April-January grew just 9.3% and declined to a minus 4.9% in dollar terms), a closer look would show the SEZs purported good performance is little more than a statistical illusion.

Not merely the benefit of low base effect (the SEZ Act came into effect in February 2006 and exports from these zones are now around 30% of the countrys total exports), a major chunk of the exports of manufactured goods from these zones is attributable to a single unit Reliance Industries Jamnagar multi-product SEZ which, incidentally, is driven primarily by the countrys sole export-focused refinery.

Interestingly, RIL has recently got 40% of this SEZ denotified as it intends to sell many value-added petrochemical products in the domestic tariff area, rather than export. Thats because the absence of tax on outputs in SEZs adds to cost, since input taxes cannot be offset. Introduction of MAT on SEZs was a dampener too.

As per SEZ exports break-up for 2011-12, the latest available, manufacturing exports from these zones were R2.6 lakh crore, or 72% of the SEZs total exports. No, this is not because our SEZs have won their spurs and have started serving the purpose of making our manufacturing globally competitive. RILs Jamnagar SEZ exported goods worth R1.65 lakh crore (including deemed exports of R17,800 crore) in 2011-12 a good 45% of total SEZ exports in the year.

Excluding RILs Jamnagar refinery exports, total SEZ exports in 2011-12 would be less than R2 lakh crore and the growth rate would also be much less (Reliance started exporting from its Jamnagar mega refinery six years ago).

The recent introduction of minimum alternate tax on SEZs has, along with the general economic slowdown and demand crunch in the west, led to a decline in the relative contribution of information technology SEZs to overall exports from these zones (see table).

The cumulative value of Indias exports in April-December 2012-13 was R11.6 lakh crore against R10.6 lakh crore in the year-ago period, a growth of 9.34%. During this period, exports from SEZs grew 35% to R3.5 lakh crore. Exports from SEZs will get affected with a number of them getting denotified. SEZs were meant primarily for exports. Hence, there will be an impact of this trend on the potential of exports from these areas, said Ajay Nijhawan,convener of the SEZ Developers Panel.

The share of IT-ITeS in SEZ exports declined from 26.8% in 2010-11 to 22.2% in 2011-12, while that of manufacturing (thanks to RIL) increased from 61.8% to 71.9%.

IT SEZs were the first to get enabled because of the shorter gestation period involved but MAT and the dividend distribution tax hit them. This is the reason why developers are not forthcoming to set up new SEZs, said an analyst. As FE reported, the government may come out with more incentives for SEZs in the forthcoming review of the foreign trade policy to stem the decline in investor interest in these zones.

According to government sources, the need for a fresh look at the SEZ policy has become more pronounced as the growth in exports from SEZs sharply declined from over 121 % in 2009-10, 43.11 % in 2010-11 to only 15.39 % in 2011-12. Moreover, there has been a significant increase in the last two financial years of the number of applications for denotification of approved SEZs 37 of the total 46 denotifications of SEZs having been approved between 2010-12.

This is in addition to the number of withdrawal applications for formal and in principle approvals granted to SEZ projects.