Thursdays decision to considerably dilute the minimum land requirement for special economic zones (SEZs) was aimed at infusing a fresh lease of life into these zones that have lost much of their sheen after the imposition of an 18.5 per cent minimum alternate tax (MAT) in Budget 2011-12. But industry sources say the new policy would have only a limited positive impact on these enclaves.
With MAT in place for SEZ developers and units and divided distribution tax (DDT) for developers,the sole attraction of SEZs is the relative freedom from fractious regulatory surveillance and some not-so-big advantage vis-a-vis other units in terms of indirect tax obligations.
Subject to the condition of positive net foreign exchange earning,SEZs are exempted from indirect taxes in their export sales while non-SEZ units also are refunded duties under various export promotion schemes.
Yet some of the large multi-product SEZs might use the new norm to make their zones viable by denotifying part of the land acquired.
As for sector-specific SEZs,new products can be added by acquiring land tranches of 50 hectares each (the new minimum for these zones,against 100 hectares earlier),up to 450 hectares.
The new minimum for a multi-product SEZ is 500 hectares. So the smaller (sector-specific) SEZs will now have the flexibility to have more than one product even with a minimum land area of 100 hectares,a far cry from the earlier norm of a minimum 1,000 hectares of land for multi-product zones.
A host of SEZ developers struggling to meet the earlier land norms including many run by DLF,Unitech and Iffco,the Chennai-based ETA,Bangalore-based Karle,Pune-based Eon and Kumar Builders are likely to avail of the new benefits to stay afloat. That apart,the easier exit policy for SEZ units would improve the viability of many zones.
Sources said that several developers are expected to file applications shortly to denotify part of their SEZs and are in touch with lawyers and tax advisers. These developers are finding it difficult to populate their respective zones with units due to the economic slowdown and are holding land beyond their requirement.
SEZ exports grew 31 per cent last fiscal,when the overall export growth was nearly flat,but this has to a large extent been attributed to exports from Reliances Jamnagar refinery,implying that SEZs have not been of much help in improving Indias manufacturing competitiveness.
While it is a welcome policy initiative giving flexibility to existing developers and units for exiting fully or partially from SEZs,it will not convert into any further investment in SEZs as long as there is MAT and DDT on these zones. Apart from single-window clearance,MAT and DDT were the main attraction for people to invest in SEZs, said Tapan Sangal,director,Kabran Partners.
The government has notified 389 SEZs so far,of which 170 are operational. These employ over 1 million people.