Action points to pull SEZs out of the doldrums

One needs to clearly distinguish between small format SEZs and large format multi-product SEZs, say SGK Kishore and Saurabh Kumar.

What started as a mad rush to have Special Economic Zones (SEZs) in business portfolio has today become a cautiously threaded word in business parlance. For a concept that is just six years old, the current state seems more like a journey of a life cycle. In the news mostly for wrong reasons, SEZ reform proposals get stuck between ministries, even as develo­pers are queuing up for de-notification and seeking exceptions. SEZ exports slowed down to 29 per cent CAGR over FY2011-12—res­ponsible is a systemic fai­lure creating an enabling infra­structure or robust busi­ness model for the sector to develop/evolve on its own.

While thinking of an appropriate response to the situation, one needs to clearly distinguish between small format SEZs (primarily IT/ITES) and large format multi-product SEZs. The development philosophy and app­roach differs significantly between these two cate­gories of SEZs. While the smaller SEZs are akin to any com­mercial real estate project in a city for IT/ITeS tenants, the multi-product SEZs are akin to greenfield city development but on a smaller scale. Indeed, we don’t need to term the small export-oriented IT/ITes enclaves as SEZs.

To start with, we need to address the fundamental aspects related to all the stakeholders. Firstly, multi-product SEZs are to be treated like a large infrastructure projects that require more support than any other traditional projects. Indeed, building a greenfield industrial city is more cumbersome than erecting a power plant or constructing a port.

Secondly, SEZ developers have to behave responsi­bly to avoid creating perceptions of SEZs being a ‘pure real estate play’ or ‘land grab’ opportunity. Managing social environment and addressing reasonable needs of the local community together with state governments during land aggregation and incubation period is critical for avoiding such perceptions and negative propaganda.

Thirdly, potential tenants need to get out of the mindset that it is only the state government that can provide land and utility connections. They need to start focusing on their core business and in the interest of their project and time-to-market they needs to start engaging directly and fruitfully with SEZ developers.

All the above factors must be applied for the right result so as to arrive at a set of enablers / initiatives / policies (‘Action Points’) that would drive the growth of SEZs over the next decade. This way, we can also avoid drastic policy response proposed such as the Land Acquisition Bill and Direct Tax Code Bill, which may not serve the larger interest of export growth and manufacturing competitiveness of India.

The important guiding principles for the Action Points are:

Create effective administrative set-up: Clarity and coordination among various state and central gover­nment authorities with respect to SEZ related proce­dures should be put in place. Single-window clearance is also dependent on this process. Further, there needs to be convergence of benefits under various policies and schemes of Government of India and state govern­ments; eg, benefits being extended to similar large area dev­elopments under National Manufacturing Policy.

Avoid policy uncertainty over near- to mid-term: There should be no fundamental shift in the SEZ con­cept that it is a zone which provides quality infrastru­cture and promotes export through fiscal incentives and procedural ease

Provide adequate fiscal incentives: This should be adequate for SEZ developers to undertake the SEZ business as well as for the unit holders to opt for SEZ space. In no way should this been seen as revenue loss to the government

Full involvement of state government: This is criti­cal from an implementation perspective. If required state government should take ownership of land acquisition and R&R activities including addressing social and livelihood aspects. The state govt. should also provide reliable external infrastructure (road, water, power) to meet near to mid-term requirements. All these can be on a cost sharing model with SEZ developer.

SGK Kishore is CEO and Saurabh Kumar Associate GM – Strategic Planning -CEO Business GMR Group, which is setting up a large SEZ in Kakinada, Andhra Pradesh.