Ground for Growth

With exports from existing SEZs going up 63 per cent in the past three years and the government legislating SEZs in their new avatar, there is a stampede for approvals. Apart from the 150 proposals cleared, there are 117 applications that have got in-principle approvals and another 250 up for consideration. The waiting list include Dr Reddy8217;s, Korean Posco, the Tata Group and Sun Pharma.

While the government expects FDI inflows to reach 10-15 billion per year, this rush has serious critics too. The Finance Ministry, which has to make good all the revenue foregone due to tax sops offered to SEZs, is one and released estimates of tax losses 8212; Rs 90,000 crore would be lost Rs 70,000 crore in direct taxes and Rs 20,000 crore in indirect taxes 8212; that SEZs will lead to.

In its annual report, the RBI noted: 8220;The revenue loss8230; in providing incentives may be justified only if the SEZs ensure forward and backward linkages with the domestic economy.8221;

Even the IMF8217;s chief economist, an Indian to boot, Raghuram Rajan came out strongly against the tax concessions: 8220;If you create perverse economic incentives and then rely on bureaucrats to stand in the way of businesses exploiting those incentives, the outcome will be little more investment than would otherwise have happened and a lot less revenue, but much richer bureaucrats.8221;

Despite vehement opposition from the Finance Ministry, which wanted to cap the number of SEZs, the concept is here to stay. Even the RBI admits that 8220;the simplification of procedures and tax breaks as envisaged by the SEZ Act 2005 are expected to attract investments of about Rs 1,00,000 crore8221;, while Rajan says SEZs would provide the environment and infrastructure that 8220;will allow firms to be internationally competitive8221;.

On charges that SEZs are landgrabs in another guise, Union Commerce and Industry Minister Kamal Nath told Parliament in August that of the 150 approved SEZs involving 26,800 hectares, 37 approvals and 9,140 hectares were for projects proposed by state industrial development corporations. In these cases, Nath said, the land was already in the states8217; possession while in most other cases, the land was already in the SEZ applicant8217;s possession.

But states are strongly rooting for SEZs. When the Empowered Group of Ministers on SEZs capped approved SEZs at 150, the reaction was instantaneous. Chief Ministers Naveen Patnaik Orissa, Bhupinder Singh Hooda Haryana, even M Karunanidhi Tamil Nadu wrote strong letters to the Centre to reconsider the limit.

Tamil Nadu, with final or in-principle approval at 22, was most concerned. In an unusual note for someone who stalled the disinvestment process, Karunanidhi wrote to the PM, 8220;Putting a ceiling on the number of SEZs will amount to bringing back the old control and licensing regimes, which you had so thoughtfully started liberalising from 1991 onwards. I am of the view that such ceilings would act as a deterrent to new investments and employment generation.8221;

This is where the SEZ concept is likely to score 8212; state governments are as excited as, if not more than, the Centre, about them. This could be the key to more inclusive economic growth than what was seen in the 15 years of liberalisation.

KARNATAKA

JUST DO IT, NOW

Johnson TA

In keeping with Karnataka8217;s premier status as an information technology exporter, most of the 34 special economic zones in the state are for IT and IT enabled services. Here the investment for 19 formally approved SEZ projects and 15 projects approved in-principle so far has been pegged at Rs 21,729.26 crore. They cover an area of 4,496.16 hectares and promise jobs to 5,68,050 people. As many as 22 of the 34 SEZs are IT/ITES specific and carry an investment of Rs 17,201 crore. They cover 1,405 hectares with a job projection for 3,77,600 people. Apart from the 34 SEZs that are in the advanced stage of creation, Karnataka has given preliminary go-ahead for 21 other proposals for SEZs, including 18 IT specific ones. And the biggies of the Indian IT industry have queued up. TCS recently made four proposals. Infosys and Wipro are working on two approved projects each and HCL has one approved SEZ. In terms of land and investment, the largest SEZ proposed in Karnataka is the multi-product Mangalore SEZ of the Mangalore Refineries Private Limited8212;spread over 1320 hectares and investment of Rs 25,000 crore. This project has received in-principle approval from the national board of approval and is part of a larger coastal special economic zone proposed in the Baikampady and surrounding areas of Mangalore. Mangalore is also the location for a 125-hectare IT/ITES special economic zone to be set up by Infosys Technologies with an investment of Rs 300 crore. The 125 hectare Infosys SEZ is proposed to be integrated into a 250 hectare IT SEZ. Mangalore and Mysore are the two locations, apart from the Bangalore, where over 80 per cent of the IT SEZs are coming up. Apart from Wipro, TCS and HP, over a dozen property developers have IT/ITES SEZ projects in the IT capital of the country. One of the first SEZs that is up and running in Bangalore is the Biocon Park. Spread over 36 hectares, it was recently accorded SEZ status. The biotechnology major sees the 10-year SEZ concessions that kicked in this year as being more attractive than the concessions granted through the export-oriented unit status. Two SEZs in the manufacturing sector are both government projects 8212; a 202-hectare textile SEZ in Hassan district and a 169.6-hectare engineering and allied services SEZ in Shimoga district.

TAMIL NADU

SET TO COMPETE

Jaya Menon

Infrastructure is the new mantra at the Madras Special Economic Zone. New roads, new drainage systems and new services are transforming the area, which began as an Export Processing Zone in 1984, to lure investors. For the first time since its inception, the Centre is investing more than Rs 25 crore on the run-down infrastructure of the free trade enclave, located at Tambaram in suburban Chennai, to keep up with fiery competition that will soon erupt across the state.

In February this year, the Centre gave 8220;formal approvals8221; for several SEZs across the country. Tamil Nadu grabbed 20 approvals, the highest after Andhra Pradesh 27 and Maharashtra 26.

Of the 20, at least 15 are for IT Parks, requiring just 25 acres of land to fulfil the SEZ mandate.

Set up across 262 acre on Chennai8217;s edge, the Madras Zone began exports in 1985-86. It became a Special Economic Zone in January 2003, expanding its strength to the present 231 units to cover the entire gamut of software, textiles and garments, electronics hardware, engineering, chemicals and pharmaceuticals, leather and sports goods, gem and jewelry, plastic and rubber, food 038; agro products, miscellaneous units and generate 22,000 jobs. With a total export turnover of Rs 10 crores in the first year of its operation, the zone scaled Rs 1901 crores last year.

With more SEZs in the anvil and the fresh influx of Central funds, the zone managers are preparing to beat the competition. Says B Vijayan, Development Commissioner, MSEZ, who will now oversee the progress of all the zones in the state following the new SEZ Act: 8220;With the new SEZs, the viability of my zone will be affected. We have to make extra efforts to retain our clients.8221;

Over the years, the Madras Zone enjoyed its virtual exclusive status. The grand plans of the previous DMK government to set up a SEZ in Nanguneri, about 30 km from Tirunelveli, near Tamil Nadu8217;s southern tip, has remained a non-starter despite the ministry8217;s nod that came six years ago. During the last AIADMK regime, the Nanguneri project, which would have transformed the socio-economic face of the southern districts, was shelved for political reasons. Now spanning 2500 acres with an additional 500 acres, the zone has become a SEZ.

Says the state-run Tamil Nadu Industrial Development Corporation TIDCO chairman and managing director, S. Ramasundaram: 8220;We have now given our co-promoter 8212; California-based INFAC Group 8212; an ultimatum: a deadline for financial closure. They hope to complete it in the next three months and then we approach the Ministry of Commerce for approval.8221;

The ambitious state government received in-principle approvals for more SEZs in Ennore in Chennai considering the Port located there and Hosur and has also sought another SEZ in Perambalur. In Ennore, the land approval for the SEZ is pending before the Ministry of Commerce as it belongs to the Salt Corporation.

Meanwhile, the private players appear to be racing ahead. With the 8220;proactive8221; atmosphere prevailing in the state, it could be less than a year before the 20 approved SEZs get going, pointed out Vijayan.

GUJARAT

MANUFACTURING DREAMS
KAMRAN SULAIMANI

The state is just 2 short of its target of setting up 25 SEZs in the state. The 23 SEZs which have been approved by the Commerce and Industry Ministry 8212; formally or in-principle 8212; are likely to bring in an investment of Rs 1,20,000 crore in the state. Another seven are in the process of getting the approval.

Though only Kandla and Surat SEZs are fully operational right now, prominent groups have received approval to set up SEZs in Gujarat, including Reliance with an investment of

Rs 400 billion, Essar with Rs 110 billion, Adani Rs 100 billion and Gujarat Hira Bourse with Rs 40 billion. The SEZs will come in places like Ahmedabad, Dahej, Kutch, Vadodara and Navsari.

With some of the biggies like Reliance, Essar and Adani putting in Rs 80,000 crore in a phase wise manner, the first thing on the government8217;s mind is to make the process faster by helping them with basic infrastructure 8212; land, electricity, water and drainage facilities. The state, which has SEZs approved in 8 different sectors like engineering, pharma, textiles, chemical, petro-chemical, electronics and IT, now wants to consolidate on the ones which have been approved, rather than going for more.

8220;The government is forming committees in these SEZs to monitor the development of infrastructure and marketing. Our state-level committee has also approved seven other SEZ which have been sent to the Centre for approval,8221; said R J Shah, principal chief industry advisor to Gujarat government.

Gujarat Industrial Development Corporation GIDC has got the approval for a multi-product SEZ spread over 4,370 acres, with an estimated investment of over Rs 4,000 crore. GIDC has more SEZs in the pipeline. Reliance will set up a petrochemical SEZ at Jamnagar 8212; spread over 450 acres with an investment of over Rs 20,000 crore.

There will be a pharma SEZ by Zydus Cadilla near Ahmedabad, a chemical SEZ by Adani spread over 7,000 acres with an estimated investment of over Rs 12,000 crore and Adani8217;s Mundra SEZ spread over 5,000 acres. Then there are a jewellery park SEZ in Surat, an automobile SEZ in Rajkot, and an engineering SEZ by NG Realty near Changodar in Ahmedabad. While these are expected to come up in the next five years, also on the card are an IT SEZ near Vadodara and a Biotech SEZ.

Industrial Commissioner Arvind Agarwal explains why the state is a good choice to set up SEZs: 8220;Amending the Industrial Disputes Act with the Centre8217;s permission in February 2004, the state has made it more flexible for employers. The companies have the freedom to appoint and retrench labour, besides offering better wages. At the same time, the environment is financially advantageous for labourers as well.8221;

Adds deputy commissioner Industry G I Desai: 8220;We have a number of ports. SEZs can import and export products on a large scale. It8217;s ideal to set up SEZs for manufacturing as the state provides good infrastructure.8221;

The SEZ are coming up with attractions too. For instance, Zydus Cadilla8217;s Pharmex in Ahmedabad is conceptualised and modelled on the lines of internationally reputed pharma parks. It will be housing Asia8217;s largest pharma museum spread over an area of 5 Lakh sq ft providing a complete perspective on drug making process.

MAHARASHTRA

COUNTDOWN TO BOOM
Dev Chatterjee
The state is fast turning out to be the biggest beneficiary of the SEZ boom now sweeping across the country with 45 proposals approved by the state government.

SEEPZ, a Mumbai export oriented unit, has already converted itself into a SEZ but the biggest project of all is being built by Reliance chairman Mukesh Ambani. The first phase of Ambani8217;s SEZ is expected to be commissioned within the next four years as construction on the 10,000-hectare project continues at a frantic speed.

The senior Ambani is now bidding for the Rs 2,400 crore road bridge, connecting Mumbai to New Mumbai across the bay, as an infrastructure project under the SEZ scheme. Project officials claim that they are at present negotiating with Cidco 8212; the government-owned company developing New Mumbai 8212; to acquire more land for extra facilities at the SEZ. 8220;We are looking at a captive port and an airport project,8221; claimed an official.

Reliance has picked up 51 per cent stake in Rewas port though the airport could be a problem for the SEZ unless a non-compete clause between Mukesh and his younger brother Anil Ambani is sorted out. The port will handle the exports from SEZs and will have both rail and road corridors, including a separate freight line between Reliance8217;s Navi Mumbai SEZ and its Haryana SEZ.

If Reliance is thinking big, the state government is also doing its bit. Maharashtra Industrial Development Corporation MIDC 8212; a government-owned body 8212; is setting up 18 of the 45 new SEZs. MIDC has 1.4 lakh acres of land in its kitty and plans to acquire another 50,000 acres.

Experts say the SEZ projects would help the state to attract investments and create new jobs. 8220;SEZs are certainly one of the most robust plans the government has ever come out for large scale industrialisation and creation of jobs,8221; says MD of rating firm Crisil, R Ravimohan.

What, however, is not being appreciated by India Inc is the policy of blanket approval for SEZs as many 8220;non-serious and obscure8221; promoters have also applied to the state governments. 8220;There should be more entry barriers to keep the non-serious players out,8221; says Nikhil Gandhi, Chairman of Sea King Infrastructure which is developing the Navi Mumbai SEZ with Reliance.

But the market economics, claim many experts, will ensure that not all projects become success stories. Land acquisition will not be very easy as most big corporates are facing problems while setting up projects. Mahindra, for example, which is setting up a 3,000-hectare SEZ in Pune, has asked the government to address major concerns such as land acquisition, approvals, water supply, connectivity, and developer credentials.

8220;It8217;s quite natural that not all the MoUs will fructify but the projects by the big corporates will help the state and the nation to create infrastructure and bring economies of scale in manufacturing operations,8221; says D R Dogra, executive director, Care Ratings.