Malena K Amusa & Shantanu Nandan Sharma, December 21, 2008
The Economic Times
Despite the much-talked about slowdown in India, developers of special economic zones embrace an optimism and say it will become tangible if the government adopts a series of incentives to save the future of these pockets of prosperity.
SEZs, which were originally conceived by the earlier BJP regime, are championed by the ruling UPA government as a dream policy to spur Indian exports and achieve inclusive growth through generation of employment.
Now, L B Singhal, director of the government council to promote such zones, bustles from meeting to meeting to figure out how India’s special economic zones will outsmart the global financial climate that has scared off zone investors and reduced demand on factory products. Pressure has been mounted on commerce minister Kamal Nath and his department secretary G K Pillai to offer a package to bail out SEZ investors.
But this has not been without a turn of events. The very SEZ companies that saw soaring sales abroad are now turning home and wanting to sell products in domestic markets while enjoying the same incentives. That way, zones can “continue to have their factories running” and maintain “the present level of employment,” says Singhal, DG of Export Promotion Council for EoUs (export-oriented units) and SEZs.
The bigger question, however, is whether the government will be able to offer more incentives such as reducing income tax on profits made from domestic sales, refunding the service tax to SEZs, or terming these zones as infrastructure developments, thereby facilitating cheaper credit. Already, the ministry of finance has been up in arms against tax loss due to SEZs, which is estimated at Rs 100,000 crore for four years, beginning 2006-07.
What’s more, a section of the BJP has vehemently protested the present format of SEZ, and there are chances that if the party comes to power, it may change the SEZ Act itself. Former finance minister and senior BJP leader Yashwant Sinha calls for changes in the concept itself rather than showering more incentives. “Many non-genuine investors and land sharks will now exit SEZs, blaming the economic downturn.
According to reports, some cash-strapped real estate companies, including DLF, which have already got clearances for IT-ITeS SEZs are now looking for an exit route. During the Goa SEZ fiasco, the commerce ministry officials came out on record several times that there was no way a company could de-notify a notified SEZ.
SEZ head of GMR-Infra SGK Kishore likes to differentiate the zones into two broad categories. “The slowdown will be felt more on small IT/ITeS zones, most of which are product specific. They may fold it up if they fail to get clients.
But for large SEZs of over 2,500 acres of land, developing the land itself will take quite sometime. We are expecting that the government will give more incentives to the SEZs, and will make more credit available by classifying these as infrastructure zones. By the time, these zones are developed, the economy will be in a recovery phase,” he explains
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