Projects Info | 22-28 September, 2008

SEZ rush

SEZs are part of the government's strategy to generate
economic activity and exports, employment, develop world-class infrastructure and promote the investment from both domestic and foreign sources.
A PROJECTS INFO report...

Introduction
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZs in India functioned from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.

"SEZs are going to create jobs. Private investment in SEZs, before the enactment of Act, was merely Rs 3,600 crore (Rs 36 billion) and 1 lakh (100,000) jobs were created in the last 15 years. In the last 11 months alone, I have already got Rs 11,600 crore (Rs 116 billion) in investment in SEZs, creating 15,000 jobs. This will create 8.9 lakh (890,000) jobs in the next three years," said Gopal Krishna Pillai, Chair-man, Board of Approval for Special Economic Zones.

The main objectives of the SEZ Act are:
a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities;

The SEZ Rules provide for Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs;
Single window clearance for setting up of an SEZ;
Single window clearance for setting up a unit in a Special Economic Zone;
Single Window clearance on matters relating to Central as well as State Governments;
Simplified compliance procedures and documentation with an emphasis on self certification

Incentives and facilities offered to the SEZs
The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-
Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
100 per cent Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50 per cent for next 5 years thereafter and 50 per cent of the ploughed back export profit for next 5 years.
Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
Exemption from Central Sales Tax.
Exemption from Service Tax.
Single window clearance for Central and State level approvals.
Exemption from State sales tax and other levies as extended by the respective State Governments.

The major incentives and facilities available to SEZ developers include
Exemption from customs /excise duties for development of SEZs for authorized operations approved by the BOA.
Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
Exemption from Central Sales Tax (CST).
Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

SEZ Approval Status
Consequent upon the SEZ Rules coming into effect w.e.f. 10th February, 2006, Twenty-seven meetings of the Board of Approvals have since been held. During these meetings, formal approval has been granted to 513 SEZ proposals. There are 138 valid in-principle approvals. Out of the 513 formal approvals, 250 SEZs have been notified.

SEZs- leading to the growth of labour intensive manufacturing industry
Out of the 513 formal approvals given till date, 177 approvals are for sector specific and multi product SEZs for manufacture of Textiles & Apparels, Leather Footwear, Automobile components, Engineering etc.. which would involve labour intensive manufacturing. SEZs are going to lead to creation of employment for large number of unemployed rural youth. Nokia and Flextronics electronics hardware SEZs in Sriperumbudur are already providing employment to 13722 and 629 persons. Hyderabad Gems SEZ for Jewellery manufacturing in Hyderabad has already employed 1500 persons. They have a projected direct employment for about 1500 persons. Apache SEZ being set up in Andhra Pradesh will employ 30,000 persons to manufacture 10,00,000 pairs of shoes every month. Current employment in Apache SEZ is 5325 persons. Brandix Apparels, a Sri Lankan FDI project would provide employment to 60,000 workers over a period of 3 years. Even in the services sector, 12.5 million sq meters space is expected in the IT/ITES SEZs which as per the NASSCOM standards translates into 12.5 lakh jobs. It is, therefore, expected that establishment of SEZs would lead to fast growth of labour intensive manufacturing and services in the country.

Benefits derived from SEZs
Benefit derived from SEZs is evident from the investment, employment, exports and infrastructural-- developments additionally generated. The benefits derived from multiplier effect of the investments and additional economic activity in the SEZs and the employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition. Stability in fiscal concession is absolutely essential to ensure credibility of Government intensions.

Investment and employment in the SEZs set up prior to the SEZ Act, 2005:
At present, 1897 units are in operation in the SEZs. In the SEZs established prior to the Act coming into force, there are 1141 units providing direct employment to over 1.99 lakh persons; about 35 per cent of whom are women. Private investment by entrepreneurs in these SEZs established prior to the SEZ Act is of the order of over Rs. 4043.28 crore.

Investment and employment in the SEZs notified under the SEZ Act 2005
Current investment and employment:
Investment: Rs 73348 crore
Employment: 100885 persons

Impact of the scheme
The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad, which is evident from the list of Developers who have set up SEZs:
Nokia SEZ in Tamil Nadu
Quark City SEZ in Chand-igarh
Flextronics SEZ in Tamil Nadu
Mahindra World City in Tamil Nadu
Motorola, DELL and Foxconn
Apache SEZ (Adidas Group) in Andhra Pradesh
Divvy's Laboratories, Andhra Pradesh
Rajiv Gandhi Technology Park, Chandigarh
ETL Infrastructure IT SEZ, Chennai
Hyderabad Gems Limited, Hyderabad

Several issues need to be addressed to streamline SEZs in India, said Chairman, CII National Council on Infrastructure, Vinayak Chatterjee. Land acquisition needs to be transparent and smooth given the quantum of land that will be needed for SEZs. It is presumed that SEZs will promote exports, but should not India be setting up world-class infrastructure to manufacture for the domestic market as well. "The issue of revenue loss is problematic. Promoting economic development leads to a loss of revenue but the government has to calibrate this and indicate an acceptable degree of loss of revenue versus economic development," said Chatterjee. "Further, we need clarity on the numbers and concentration of SEZs. The government is focusing on SEZs at the expense of rejuvenating existing urban industrial clusters, he said. Existing domestic industry should not be allowed to feel that it has been orphaned. The government has to address thelarger problem of urban development." He said that SEZs should serve as a bridge between rural and urban economies. The concept of PURA (Provision of Urban Facilities in Rural Areas), which is how developed countries have holistically conceptualized their rural habitations, needs to be remembered at a time when India is entering an era of SEZs. The explosion in the economy envisaged through SEZs will have to be linked to integrated infrastructure in rural and urban areas. India should focus on comprehensive and integrated spatial planning within and beyond SEZs. This however is a dream come true here.




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