SEZ: Again are back into action!

Category: International Trade Sub-category: Export Import Procedures
Document type: news

With the stabilization of the merchandise trade and the steady recovery of the domestic industry the special economic zones (or shortly SEZ) are again back into the limelight. Their presence are pretty well be felt in boardroom discussions and strategy plans of corporate conglomerates.

And the result is obvious. Although 12 SEZ projects were surrendered in the span of 4 months between December 2008 and March 2009, no SEZ was surrendered till then. Moreover, six new proposals for setting up SEZs are expected to come up in the meeting of the Board of Approval (BoA) which is scheduled to take place on 8th June.

The Board, under the Ministry of Commerce and Industry has already met twice this year till now to grant formal approvals to more than 15 fresh proposals from various companies to set up sector-specific SEZs or multi-product SEZs.

These days SEZ are not only viewed as land grab deals but something beyond that, say experts. Companies too have started realizing the importance and potential of investing in such long term projects. Besides, SEZ will be the only scheme to offer tax rebates to exporters beyond March 31, 2011 while others would become invalid.

The performance of the SEZ is also highly satisfactory. The government has so far approved 574 SEZs of which only 350 have been notified. Only about 105 SEZs are operational and have contributed largely to the revival of the country's exports. According to the latest data compiled by the Ministry of Commerce and Industry, the goods and services exports from SEZs in 2009-10 stood at Rs.2, 20,000 crore marking an increase of 122% compared to 2008-09.

"The economy seems to be reviving all across the globe. Hence, the increase in activities in SEZs is but natural and it is a fairly well- settled issue, now that the SEZ business model is a sure way for export- led growth of the economy," said S K V Srinivasan, executive director, IDBI Bank.

"SEZ activity has certainly picked up again and can pick up significantly if the true meaning and potential is exploited by building hassle-free infrastructure... It can add 1.5 per cent to 2 per cent per annum to GDP growth if India builds five full-scale SEZs in the country," Nikhil Gandhi, group chairman, SKIL Infrastructure Ltd, told Business Standard.

None of them seems to have any doubt in their minds over the increasing potentiality of the SEZs.

Besides tax benefits, SEZs are also offering some other attractive benefits to the companies who now find it easier to set up shops in SEZs due to a single-window clearance mechanism. In addition, Pranab Mukherjee's recent budget promises to give greater thrust to the development of SEZs which has made several firms curious about the government's stance towards these policies.

Hitender Mehta of Vaish Associates Advocates, Gurgaon-based law firm points out another important issue. "The government has also not shown any indication towards extending the STPI (Software Technology Parks of India) scheme", he said, "which means more IT companies would now look at SEZs."

With the growing demand for SEZs these days, Cushman & Wakefield India expects the commercial office space to be demanded by SEZs out of the total demand to go up to 29% in 2010 and 50% in 2011. "There was complete gloom in demand for office space in SEZs in the last two years, which seems to be changing now", said Anurag Mathur, managing director, Cushman & Wakefield India. According to them, out of 80 million square feet of commercial office space supply, 32 per cent was demanded by SEZs in 2008. In 2009, the demand came down to 26 per cent.

Even Anshuman Magazine of CB Richard Ellis India agrees on the fact that the demand for office space in SEZs is slowly increasing, especially in the IT and ITeS sectors. Still he does not forget to mention that the demand is nothing as compared to the demand that existed before the global economic recession.