SEZ sizzle returns with economic revival

With the domestic industry showing signs of steady recovery and merchandise exports stablising, special economic zones are again getting prominence in boardroom discussions and strategy plans of corporate conglomerates.

Six new proposals for setting up SEZs would be coming up in the meeting of the Board of Approval on June 8.

As many as 12 SEZ projects were surrendered between December 2008 and March 2009. But, no SEZ was surrendered since then.

According to experts, SEZs are no more seen as land-grab deals. Companies, too, are gradually realising the potential of investing in such long-term projects. Besides, SEZ will be the only scheme to offer tax rebates to exporters beyond March 31, 2011.

Since the beginning of the year, the Board, under the Ministry of Commerce and Industry, has met twice and has already granted formal approvals to more than 15 fresh proposals from various companies to set up sector-specific SEZs or multi-product SEZs.

In 2009-10, goods and services exports from SEZs rose 122 per cent at Rs 220,000 crore (Rs 2,200 billion) compared to 2008-09, according to the latest data compiled by the Ministry of Commerce and Industry.

"The economy seems to be reviving all across the globe. Hence, the increase in activities in SEZs is but natural and it is a fairly well- settled issue, now that the SEZ business model is a sure way for export- led growth of the economy," said S K V Srinivasan, executive director, IDBI Bank.

The government has so far approved 574 SEZs, of which 350 have been notified. More than 105 SEZs are operational and have contributed to the revival of the country's exports to a large extent.

"SEZ activity has certainly picked up again and can pick up significantly if the true meaning and potential is exploited by building hassle-free infrastructure... It can add 1.5 per cent to 2 per cent per annum to GDP growth if India builds five full-scale SEZs in the country," Nikhil Gandhi, group chairman, SKIL Infrastructure Ltd, told Business Standard.

Besides tax benefits, companies are also finding it easier to set up shops in SEZs due to a single-window clearance mechanism. Finance Minister Pranab Mukherjee also vowed to give greater thrust to the development of SEZs in his Budget speech, which has also made several firms sit up and take notice of the government's stance towards the policy.

"If one notices carefully, the SEZ policy would be the one such scheme where tax benefits could be obtained after March 31, 2011, while others would become invalid. The government has also not shown any indication towards extending the STPI (Software Technology Parks of India) scheme, which means more IT companies would now look at SEZs," said Hitender Mehta of Vaish Associates Advocates, a Gurgaon-based law firm.

According to Cushman & Wakefield, out of 80 million square feet of commercial office space supply, 32 per cent was demanded by SEZs in 2008. In 2009, the demand came down to 26 per cent. But, with demand for SEZs increasing, it is expected to go up to 29 per cent in 2010 and 50 per cent in 2011.

"There was complete gloom in demand for office space in SEZs in the last two years, which seems to be changing now. People are gradually seeing the financial viability of these projects and demand is only going to increase now," said Anurag Mathur, managing director, Cushman & Wakefield India.

Agrees Anshuman Magazine of CB Richard Ellis India, who says demand for office space in SEZs is slowly increasing, especially in the IT and ITeS sectors. However, he also said the demand is not anywhere near to what it was before the global economic recession.