NPS Monga, Development Commissioner, Special Economic Zones (Maharashtra, Goa, Daman & DIU), shares his views on the need for revival of the manufacturing sector, government policies on SEZs, issues related to the sector and much more. Excerpts:
Do you think SEZ as a concept is economically viable in India? If yes, then why has it failed in India?
The SEZ concept started taking shape long back, even before the enactment of the SEZ Act in 2005. The success of seven Export Processing Zones (EPZs) prompted the government to come into the structure and enact the SEZ Act. After the enactment of the Act, the private developers could develop the zone and hand it over to manu¡facturing units on lease basis. Actually, it was a success. So, it will be wrong to say that SEZ concept has failed in India. For instance, 25 SEZs are functioning well in Maharashtra under my jurisdiction.
When the Act was enacted, around 500 developers showed their interest for development of SEZs. After getting the government´s in-principal approvals, some of them came across the biggest challenge of acquiring land for carving these zones. The development of an SEZ requires huge tracts of contiguous land and acquisition of 200-500 hectares of land is not an easy task. So, most of the in-principal approvals for developers could not see the light of day.
Also, the global downturn in economy worsened the situation, leading to slump in demand for overall manufacturing sector. So, SEZs that were supposed to be set up for the purpose of manufacturing, could not take off. Otherwise, the concept of SEZ is viable. SEEPZ is testimony to one of the biggest success stories for the SEZ sector.
Please tell us about the number of manufacturing units that SEEPZ accommodates?
Santacruz Electronic Export Processing Zone (SEEPZ) has approximately 300 manufacturing units. The jewellery manufacturing units in this zone alone export around Rs 15,000 crore jewellery to US and European markets every year. If we have 23 per cent of the US export market in India, then 22 per cent comes from SEEPZ alone. Only one per cent of exports come from other parts of India. One of the most important factors manufacturers get in SEZ is æease of doing business´.
What are the current issues plaguing the sector that need immediate attention and what are the proposed measures?
I think, there is a need for uniformity in exemption of local taxes to SEZ units. At present, while some corporations in Maharashtra grant certain exemption, the others do not consider granting any exemption. Similarly, SEZ units cannot avail electricity duty exemption. Lack of uniform tax policies within Maharashtra proves to be a spoilsport for SEZ units. It is left to the local bodies to levy taxes. The other most important issue is VAT (Value Added Tax). SEZ units can´t reimburse this tax, ultimately, adding to cost of manufacturing.
Further, some states are implementing the SEZ policy. All state governments have not devised a policy due to lack of cohesion between state governments and the Central Government. The units in SEZ can get the exemptions given by the Central Government under the Act. However, the Act can´t exempt the taxes of the state governments.
Due to recession, the manufacturing sector has not been able to trap the growth in the sector. IT and ITeS SEZs have been experiencing a trajectory. However, the manufacturing sector has been infested with problems as it requires huge tracts of land for development. So, it is the need of the hour to revive the manufacturing sector.
What quantum of investments are required for the development of SEZs? Please tell us about the financial model and stakeholders involved in the project?
The quantum of investments varies, depending on whether it is a sector-specific or a multi-product SEZ. If a developer develops an IT-specific SEZ, then he has to invest in supporting state-of-the-art infrastructure like roads, power, buildings, etc. Businesses or units in IT-specific SEZs also prefer plug and play mode. Even for the same type of SEZ, depending on the location, the investment required would vary. This is due to private SEZs or projects for which investments are raised by the promoter through their own resources or availing permissible institutional finances, overseas commercial borrowings, etc.
What kind of challenges do you face during the development of SEZs?
As I mentioned earlier, land acquisition is the biggest stumbling block for the development of an SEZ. A developer may find a particular project a very lucrative proposition in the beginning. However, changing market scenario can make his project unattractive for him. So, a developer can face hindrances like changing policies and the global market scenario.
In addition to these, some of the issues that pop up during the development of private SEZs are pertaining to protest of project-affected persons regarding rehabilitation related issues and litigations relating to land. These issues can be resolved only by regular interactions with the concerned people, bringing around an amicable settlement. A developer needs to take care of these issues.
Please apprise us about the factors that led to the withdrawal or cancellation of SEZs? How will it impact the country´s total exports, foreign investments, and overall infrastructure sector?
There are two issues. First, some of the developers lose their interest in SEZ scheme because of availability of alternative schemes in Domestic Tariff Area (DTA). In SEZ, a developer has to utilise the fixed manufacturing capacity. Otherwise, it attracts full duties and he can´t use it for DTA. Conversely, in DTA, a developer has the flexibility of using the manufacturing capacity for domestic markets as well as for exports. Thus, capacity utilisation is better in DTA. This is one of the factors which led to the dismal performance of manufacturing SEZs in India.
Second, when the SEZ Act came into existence, there was a spurt in the number of applications. The various applicants, who had a viable project plan, implemented the same. The others were basically seeking extension of in-principle or former approvals. The Ministry of Commerce and Industry took up the review of the progress made by the developers.
The government cancelled some projects where there was no activity at all or where the developer was not forthcoming with necessary documents for notifications. Even, some of the developers applied for withdrawal. However, the number of such withdrawals or cancellations has not really impacted SEZ exports .
To what degree was the sector´s implementation successful and at what stage of implementation did it experience a lot of success and the most difficulty?
Taking into consideration the enactment of the SEZ Act in 2006 and the recession in global markets in 2007-2008 to 2009-2010, the existing exports by SEZ units are not insignificant. Multi-product SEZs are capital intensive as they require huge investments and the global recession has also contributed to a fall in demand for establishment of new units as compared to initial estimation. It is evident from a swell in number of IT specific SEZs as compared to multi-product SEZs. The situation may turn around for better once the market condition improves, coupled with uniform exemption of state and local levies.
SEZs have not performed to their full potential in the past ten years. According to you what steps should be taken by the government to make them more productive and viable?
We must revive the manufacturing sector. For its revival, the government should endeavour to bring in non-congenial policy framework. The single window clearance - mainstay of SEZs- needs the attention of the state governments. The approvals of the respective state governments need to be given at one place so that people don´t have to run from pillar to post for getting them from various departments. Manufacturing sector needs to be incentivised depending on each state environment in order to gain the most from this sector.
What are your expectations from the government?
I hope the government makes SEZs tax neutral. Single window clearance will also strengthen SEZs.
- SUPRIYA ABHIJEET OUNDHAKAR