The Call of the SEZs

Despite hurdles, this is an idea whose time may just have come

VIVEAT SUSAN PINTO
Picture this: Five years from now manufacturing and export-oriented units in a given town or city in the country may have a common locational address — the neighbourhood special economic zone. Going by the number of SEZ proposals approved so far (150, on last count) the scenario above is a distinct possibility. In fact, proponents of the concept —especially Corporate India, which has embraced it wholeheartedly —are banking on this to boost the phenomenon. By some estimates, industrial investment alone in the proposed 400 SEZs, besides the 150 SEZ proposals approved till now another 220-250 applications are in the pipeline, could be about Rs 30,00,000 crore in the next 5-7 years. Of course, all of this will only come about if the proposed projects take off smoothly, which is highly unlikely, say observers. Says Mukesh Khandelwal, president of Delhi-based infrastructure advisory Feedback Ventures, “If all the proposed SEZs get off the ground it will lead to huge overcapacities. It is unlikely, though, that all these proposals will make a start in the first place. Many of them will fall by the wayside.”
Despite this, the rush to secure SEZ projects simply refuses to quell. Videocon, for instance, is the latest in a long list of corporate players and developers to join the SEZ bandwagon. V N Dhoot, chairman of Videocon Industries, whose unlisted entity Videocon Realty Infrastructure Ltd. is helming the project, says, “The logic for this rush is simple. With the gross domestic product growing at about 8%, there is need for adequate infrastructure to support industrial development. SEZs will help that, which is why the interest by players to set them up.” Arun Nanda, vice-chairman, Mahindra Gesco, which is eyeing SEZs in Jaipur, Pune and Thane apart from an expansion of its Chennai special economic zone, says, “Special economic zones are geared to help both the manufacturing and services sectors. The objective is to boost exports. So the provision of world-class facilities is a must.”

In fact, the major point of difference between the Indian and Chinese SEZ policies is that infrastructure in the case of the latter is provided by the government, whereas in India, the onus of providing the same rests on the developer or the promoter of the SEZ. “In that sense, the Indian developer shoulders the entire responsibility of the project,” says Amit Bansal, head of business development, Crisil Infrastructure Advisory. Players also talk of providing jobs — a point reiterated by the Commerce Ministry, which says that the 150 SEZs approved so far will generate 5 lakh jobs straightaway, while indirect employment will be in the region of about 15 lakh.

For all these activities undertaken by private players what the government assures is major tax benefits — both for the developer and the tenant, who will eventually set up his unit in the SEZ—which is the real driver of the phenomenon. According to observers, two types of players seem to be emerging from the current rush. Those who are treating an SEZ proposal as a real-estate project and those who are keen to get an SEZ tag for their business initiative. Reliance’s Jamnagar SEZ is a case in point.

The SEZ story
• The policy for setting up special economic zones was first introduced in April 2000
• Eight export processing zones have been converted into SEZs
• An SEZ Act was drafted
in 2005. New SEZ rules have since been incorporated
this year
• The SEZ policy basically seeks to boost exports by providing a safe haven for manufacturing and service units
• The highlight of the policy is the tax breaks it provides to developers and tenants
• So far 150 SEZ proposals have been given approval. 220 applications are pending
• RBI has tightened SEZ funding norms treating the latter
as exposure to commercial real estate

The company has a petrochemical plant at Jamnagar and is looking to develop the SEZ into a petrochemical hub. However, its Navi Mumbai and Mumbai SEZs totaling14,000 hectares as well as the 10,000-hectare Haryana SEZ are independent projects that the company will undertake. Company officials insist that it does have the land bank, especially, for the Navi Mumbai-Mumbai projects, though commencement of work is still about a year-and-a-half to two-years away on the latter.

Says a spokesperson for Reliance’s Navi Mumbai SEZ: “This project is a joint venture with City and Industrial Development Corporation of Maharashtra (CIDCO). And about 4,000 hectares of land is available with them. So far about 1,250 hectares has been cleared by the Ministry of Environment and Forests. We are awaiting a clearance for the balance land.” On the Haryana SEZ, acquisition of land, incidentally, is being undertaken by the state government.

Interestingly, most approvals for SEZs so far have come with no significant land banks in place. Parsvanath Developers’ chairman Pradeep Jain says the company is acquiring land directly from prospective buyers for its projects approved so far (nine have been given the go ahead, three of which will get formal approvals soon).

“We are not involved in large multi-product SEZs. Our proposals are product-specific, smaller in size, which will be set up in a period of 3years-5 years. In that sense, acquiring land is not an issue for us.” R K Jain, executive director of Ansal API, which is looking to set up three SEZs in Rajasthan, Haryana and Uttar Pradesh, says the company is also in the process of putting its land bank in place. According to analysts, the success rate of smaller, sector-specific SEZs is higher than larger, multi-product ones.
http://www.financialexpress.com/fe_full_story.php?content_id=141219