Tuesday, July 03, 2007

Core sector SEZ units could get cheaper funds

Posted online: Tuesday, July 03, 2007 at 0000 hours IST

NEW DELHI, JUL 2: Some units based in special economic zones (SEZs) may
be allowed to raise loans at core sector interest rates, almost 2
percentage points cheaper than rates applicable to real estate projects.
Currently, RBI treats SEZ development at par with commercial real estate
The commerce department, which oversees SEZ policy, has suggested to RBI
that an SEZ be divided into various sub-groups such as infrastructure,
integrated township and land development, among others. Units in the
infrastructure sub-group should be allowed to raise loans at lower
rates, it said.

Officials said RBI was considering this proposal and a final decision
would be taken after further consultations. The Prime Minister, too, had
earlier asked the empowered group of ministers on SEZs to decide if
these projects should be given infrastructure status.

While the central bank sees SEZs as similar to real estate for lending
purposes, the commerce department feels SEZ activities attract huge FDI,
generate additional economic activity, create employment, promote
exports and help develop world-class infrastructure.

The department has now suggested that SEZ development activities that
are purely of infrastructure nature should be given core sector status.
The RBI and the commerce department would soon reach a consensus on the
issue, officials said, adding that the central bank is favourably
considering the suggestion.

Partition Plan
• Commerce dept has mooted a sub-group formula for SEZs
• Infrastructure projects in SEZs may borrow at core sector rates
• The move could reduce borrowing costs of SEZ units by nearly 2%
• RBI now studying suggestions made by commerce department

Apart from enabling SEZ units to raise cheap loans, the move would also
expand their funding options. Bankers said giving infrastructure status
to sub-groups in SEZs would encourage banks to increase funding to these

"Right now, no bank wants to lend to SEZ units, since they are treated
at par with real estate projects. But a change in status would encourage
banks to increase lending to an SEZ project. Plus the interest rates
will become nearly 2 percentage points cheaper for SEZ activities that
enjoy infrastructure status," said LP Aggarwal, general manager
(credit), Punjab National Bank.

Although the commerce department is yet to finalise what would
constitute the infrastructure sub-group, experts said the entire
processing area within the SEZ could be given infrastructure status. "As
per present norms, SEZ units must have a minimum 50% processing area,
which is entirely an infrastructure activity and not real estate," said
Lalit B Singhal, director general of the Export Promotion Council for
EOUs and SEZs.



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