Minimum land need for SEZ to be lowered

Many key changes are in the works to change the contours of the Special Economic Zone (SEZ) policy and boost growth across these units.

Following a discussion paper last November, the commerce ministry has prepared a draft SEZ policy, detailing revision in the minimum land requirement for these zones, easier contiguity norms, clarity in land sale and transfer, relocation of the zones, development of infrastructure, extending focus market schemes to these units and exit policy for developers and units, among others.

Commerce secretary S R Rao is slated to meet his counterpart in the revenue department, Sumit Bose, later this month to firm up the changes in the SEZ policy, it is learnt.

The minimum land requirement for multi-product SEZs may be brought down to 250 hectares from 1,000 hectares now, while the maximum area would remain capped at 5,000 hectares, according to the draft policy that Business Standard has reviewed.

For multi-services units, SEZ for a specific sector, port or airport, the ministry has proposed reducing the minimum size to 40 hectares from 100 now. In the case of north-eastern states, union territories and some hilly states, the minimum area requirement may be brought down to 50 hectares from the current 200. Reduction in the SEZ land requirement will come as a significant relief to developers.

For IT SEZs, the minimum land requirement criterion of 10 hectares may be dropped, while enforcing the minimum built up area criteria. Also providing an exit route to developers, they could be allowed to sell after developing an IT SEZ.

"Towards this end, sale of built up space to units by the developer may be permitted. To ensure that the incentive is utilised in the right earnest, such sale would be permitted only after the minimum built up area requirement is fulfilled by the developer."

Other changes may include those on the contiguity norms. For example, the contiguity between the processing and non-processing area may not be insisted upon. And national or state highways, railway lines, natural water bodies falling within an SEZ area may be addressed through suitable mechanisms, according to the draft policy.

"Regulatory concerns from lack of physical contiguity could be addressed by way of additional entry/exit gates manned by SEZ personnel." Also, the Board of Approval (BoA) will have the discretion to allow the developer to suitably address lack of contiguity and relax the strict contiguity requirements through innovations implemented at the expense of the developer, while not compromising the regulatory concerns, it says.

The revised policy also aims to give clarity on sale and transfer of land in SEZs, besides pointing at the need for focus market scheme and infrastructure development funds for these units. In addition, the draft policy talks of popularising SEZs among the Indian diaspora through embassies, consulates and road shows abroad to attract FDI. SEZ rules allow 100 per cent FDI through the automatic route.

Vikram Bapat, executive director at PricewaterhouseCoopers (PwC), told Business Standard that there were some practical problems in the SEZ policy and that changes were required.

The minimum land requirement for setting up SEZs was listed as the biggest concern among developers and companies. "The minimum requirement should be reduced as it is tough to find that much contiguous land in most parts of India," said Bapat. Contiguity norms in the present policy were also an irritant, experts said.

A commerce ministry official confirmed that the changes that are being considered in the policy include amendments to minimum land requirement norms and doing away with the minimum alternate tax in these zones.

The government has so far granted approval for setting up 588 SEZs, of which 386 SEZs stand notified. Till end July this year, Rs 2,136,605 crore (Rs 21.37 trillion) have been invested in SEZs in the country. Total exports of Rs 3,64,477 crore (Rs 3.64 trillion) have been made from SEZs in 2011-12, registering a growth of about 15.39 per cent over 2010-11.

In the first quarter of the current financial year, exports from SEZs increased by 64 per cent to Rs 1,18,321 crore (Rs 1.18 trillion), compared to the corresponding period last year.