Govt set to give SEZs a fresh lease of life

Some tax sops to be restored, greater freedom to developers

New Delhi | Published: September 11, 2014 5:06 am
Proposal to allow dual use of infrastructure in non-processing areas (of SEZs) are under active consideration, said Nirmala Sitharaman. Proposal to allow dual use of infrastructure in non-processing areas (of SEZs) are under active consideration, said Nirmala Sitharaman.

India’s special economic zones (SEZs), stranded for want of state patronage over the past three to four years and which have plunged into a crisis, are likely to regain ground. Keen on infrastructure development and manufacturing-led export growth, the Narendra Modi government is planning to not only restore a couple of tax incentives for them but also practically give the developers of these zones the freedom to use the zones’ social infrastructure for commercial purposes.

Additionally, SEZs may be exempted from the Land Acquisition Act as part of the ongoing review of the legislation which has, for the short period of its existence, come to be regarded as onerous by the industry for its consent and social-impact assessment clauses.

Currently, over 21,000 hectares of land are lying vacant in notified SEZ processing area as investors find these zones unattractive, especially after the imposition of minimum alternate tax (MAT) on SEZ developers and units and dividend distribution tax (DDT) on developers in the FY12 Budget by then finance minister Pranab Mukherjee.

After the SEZ Act was notified in February 2006, exports from these tax-free enclaves had initially grown at a brisk pace (thanks partly to Reliance Industries’ export-focused Jamnagar refinery) to touch a peak of $87.5 billion in FY13, but shrank to $82.3 billion last fiscal. (The growth in exports from SEZs has plunged from a high of 115% in FY10 to -6% in FY14.)

At a press conference, commerce minister Nirmala Sitharaman said: “Decisions on modification of (MAT and DDT) as well as a proposal to allow dual use of infrastructure in non-processing areas (of SEZs) are under active consideration.” Allowing the general public to use the social infrastructure — such as schools and hospitals — in SEZs, currently meant only for those employed in those zones, was also being considered, she added.

An initial draft of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill proposed exempting 16 Acts including the SEZ Act from its purview.

But later, in deference of the opinion expressed by a parliamentary standing committee, SEZs were included in the purview of the Land Act, while reducing the number of exempted Acts to 13. The House panel was of the view that exempting SEZs would stymie the objective of the Act, as a large part of the land acquisition takes place for infrastructure and urbanisation.

Sitharaman said the proposed changes to the Land Act is likely to have certain (more) “exemptions”. The proposal, sources said, is to include SEZs along with some key projects (such as highways, railways and canals) in the “exemptions list” so that it will be easier for them to acquire and use land. As reported by FE earlier, the review of the Land Act could result in reducing the need for prior consent of “affected families” from 70% for public-private partnership projects and from 80% for private projects to 50% or so. Also, the mandatory Social Impact Assessment (SIA) may be confined to only large projects or PPP projects and “affected families” would be redefined to exclude “livelihood losers”.

The commerce minister also said the new Foreign Trade Policy (2014-19) to be announced soon would be “different” from the earlier policies and will focus on increasing manufacturing and services exports besides improving standards and branding of products. In 2014-15, India is targeting goods exports of $340 billion (compared with $314.4 billion last fiscal) and services exports of $160 billion (versus $151.5 billion).

Also being considered are a prescription of time limits for disposal of various activities related to SEZ developers and units, digitisation of procedures as well as extending the customs ICEGATE system to the SEZ framework.

The Prime Minister’s Office had recently weighed the revenue implications of the commerce ministry’s proposal to remove 18.5% MAT on SEZ developers and units and DDT on developers.

The revenue department, which had in the UPA regime begun to see SEZs as a drain on the exchequer, has been made to reconsider its stand, sources said. The commerce department in the UPA regime had argued that the gains from SEZs to the economy (in terms of infrastructure creation, employment generation and exports) outweighed the notional revenue forgone. With Sitharaman, who is also minister of state for finance at the helm, the ministry has reconsidered that stand.

Although the economic slowdown has had an impact on SEZs’ performance as well, they even underperformed the domestic tariff area units in FY14, as is evident from the dip in their share in the country’s total exports from 30% in FY13 to 26% in FY14. RIL opting to take 40% of its Jamnagar facilities out of SEZs has been a dampener too.

fe Bureau | The Financial Express

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