SEZs all set to give a boost to SMEs

TIMES NEWS NETWORK[ TUESDAY, OCTOBER 03, 2006 12:00:00 AM]

MUMBAI: Irrespective of the size of the special economic zones (SEZs),
small and medium enterprises (SMEs) are set to benefit from the
increased levels of economic activity promised by the SEZs being set up
across the country.

The large number of SEZs promise to throw up a plethora of opportunities
for the small and medium enterprises (SMEs). After all, it is SMEs who
require the integrated infrastructure, the assured power and water
supply more than the big companies as they do not have deep enough
pockets to arrange for all the required facilities.

In contrast, the larger firms can pick and choose where they would like
to set up their plants. “The SMEs stand to gain the most from the SEZs,”
said Mr SJ Vijay, MD, Salmon Leap Associates, who has been actively
associated at the time of the framing of the SEZ policy.

Apart from setting up units within the SEZs, there are several feeder
units that spring up around the special zones. For instance, an auto
plant within the SEZ would end up attracting several auto-ancillary
units around it. This is turn would attract other auto-makers to this
region, giving rise to an auto cluster.

According to rough estimates, any SEZ, depending on size and other
factors, throws up opportunities for at least 50-100 ancillary units for
any industry.

Meanwhile, companies setting up shop in SEZs need not fear restrictions
as the move to treat loans to special economic zones (SEZs) on par with
real estate loans may not directly affect the units coming up in the
zone. It may be recalled that the Reserve Bank of India (RBI) had
directed banks to treat loans to SEZs as real estate loans.

Thus, the prudential norms applicable to real estate lending would be
applicable to SEZ lending. In other words, the risk weightage on these
loans will be higher which will require banks to set aside higher
capital than pure corporate loans.

This move has created apprehension in a section of the market that the
units coming up in these zones are also likely to be affected. While
bankers prefer to wait and watch till all policy level clarifications
are out and rightly so, others are of the opinion that since the units
coming up in the concerned SEZ will be separate entities, the RBI norms
applicable to lending to SEZs are unlikely to be applicable to units
coming up in the zones.

“The RBI directive is likely to be applicable to promoters of the SEZs
only and that appears to be valid since the SEZ business is akin to real
estate development,” said an industry observer. “Logically, the units
within would be manufacturing units. So they are unlikely to be treated
to the same norms,” he added.

The recent developments relating to SEZs may appear as setbacks, but
experts feel that there is no cause to be worried. “Any policy or event
that is path-breaking is likely to face objections. But these should not
be seen as problems, rather as a way of fine-tuning and refining effort
that will change the history of India,” said Mr Vijay.

For instance, there have been doubts on whether the larger number —
close to 150 — SEZs can attract enough number of companies to come and
operate in their zones. These doubts are based on the global experience
where, it is felt, SEZs have been successful because of their large size
and fewer numbers.

However, not everybody feels that size alone should matter for the
success of the SEZ. “Our existing export processing zones have largely
been dominated by SMEs in the gems and jewellery, garments, etc.,”
points out Rajeev Kumar, director, ICIER.

But there could be a scale bias this time round since the SEZs would be
privately owned and managed by promoters who may prefer to have larger
and less number of units in the zone.
http://economictimes.indiatimes.com/articleshow/msid-2069538,curpg-2.cms