SEZs draw investors as hurdles filter policy

Written by Reuters | Mumbai, August 28: | Updated: Aug 28 2008, 16:43pm hrs
Special Economic Zones (SEZs), touted as engines of India's industrial growth, are poised to take off in a big way, despite the initial hurdles and after ironing out some regulatory creases.

SEZs are duty-free economic enclaves, with units qualifying for incentives such as income tax holidays for a specified period and other benefits.

In China, SEZs have been major boosters for investment inflows to the current levels of $50 billion, absorbing nearly a quarter of its total inflows, a PricewaterhouseCoopers report said.

India has so far approved 513 SEZs, of which 250 have been notified. Investments are expected to cross 2 trillion rupees by December 2009 and bring incremental employment to 800,000 people, said India's commerce secretary G K Pillai.

In the last three months more than 160 billion rupees of investments in SEZs have been announced by various firms.

Ansal Properties & Infrastructure Ltd is investing about 36 billion rupees for IT SEZs across three states.

Infrastructure Leasing & Financial Services has tied up with Maharashtra Industrial Development Corp (MIDC), to invest up to 80 billion rupees in SEZs in the state.

State-run trading firm, MMTC Ltd, has invited bids to set up SEZs in various sectors. Tata Realty & Infrastructure, in a joint venture with the Tamil Nadu government, has committed to investing more than 30 billion rupees to build a IT SEZ.

"The benefits and revenues far outweigh the issues involved," said Rajiv Jalota, chief executive officer, MIDC, which is developing 22 SEZs in Maharashtra.

The body has faced opposition to land acquisition in the state and has now set up a dedicated cell to compensate and rehabilitate displaced landowners.

A raft of regulatory changes to facilitate investments have been planned, including one to ensure the developers also benefit from the scheme. Duty drawback credits, available only to exporters, will now be extended to developers.

Offshore banking units will also get exemption from complying with statutory liquidity ratio, said L.B. Singhal, Director General, Export Promotion Council for EOUs and SEZs.

So far about 810 billion rupees have been invested in SEZs, generating employment for close to 350,000 people, according to statistics from the government's SEZ site. (http://sezindia.nic.in/welcome.htm)

Last year SEZs generated about 666 billion rupees in exports, a 92 per cent jump from the previous year. India's total exports during the period rose 23 per cent to $155.5 billion.

'NO SHOW STOPPERS'

In January, the tourist state of Goa dropped plans to build SEZs after protests from political and environmental groups, and in 2007, forced farmland acquisition in Nandigram provoked violent protests leading to deaths in West Bengal.

Since then, forcible land acquisitions have been barred. "The Ministry of Commerce is very clear. No land can be forcibly acquired for SEZs," said Pillai.

"Whatever you do in India there are bottlenecks - whether you start an SEZ, airport or an airline, anything. We have absolutely no issue on that," said Sachin Saxena, operations director, OLS, Nokia India, among the first global firms to set up an SEZ.

"There are ambiguities in the regulations, but they are no major show stoppers," said Nirav Mody of JB SEZ, who is also the vice president of strategic marketing and business development of J.B. Chemicals & Pharmaceuticals Ltd.

"The project looks good on paper. We hope to get some decent returns on it."

"After Nokia, Motorola has come. Adidas and Nike have come. There is tremendous interest," Singhal said.