AT a time when export units all across the country are registering negative growth, Export Oriented Units in Special Economic Zones continue to register an increase of 30 per cent. Irrespective of job cuts in the export sector, which has been hit badly due to recession, these
EOUs are still on a recruitment spree. From a mere Rs 8,000 crore turnover from SEZs in 2000, the figure crossed Rs 90,000 crore in the last fiscal. LB Singhal, Director-General of the Export Council for EOUs and SEZs, who was instrumental in the promotion of SEZs and EOUs over the past five years and has witnessed the opening of the maximum number of SEZs during his tenure, spoke to VIJAY THAKUR about the role of SEZs and the challenges they are facing to compete in the international market. Excerpts:
What is the role of Special Economic Zones and Export Promotion Zones, and how much progress has been made?
The objective of the
SEZ scheme is to provide world class infrastructure to manufacturers so as to increase exports of goods and services, provide employment and increase investment from foreign and domestic sources.
India first started with the EPZ scheme in 1965. Thirty-five years down the line only eight EPZs had been set up — seven by the Central government and one by a private player. The annual exports turnover from these SEZs was a mere Rs 8,000 crore in 1999-2000.
That was the time when the government reviewed the EPZ scheme and introduced the SEZ scheme in 2000 to give impetus to exports by involving more and more private players and creating an investor-friendly atmosphere, keeping in mind the competition from the international market. Since international investors were looking for a long-term stable scheme, the government introduced and enacted the SEZ Act in 2005 which became operational from 10 February 2006. Since then there has been no looking back.
Figures speak for themselves. In 1999-2000,the exports from EPZs amounted to only Rs 8,000 crore, but crossed Rs 90,000 crore in the last fiscal. Before the SEZ Act, exports were around Rs 22,000 crore in 2005-06, But in a period of just three years, exports grew more than four times.
Another parameter is investment. In the last three years there has been an incremental investment of Rs 1,04,867 crore in SEZs. As was the case in job creation, SEZs at present are providing direct employment to around 387,000 people and indirect employment is almost three times that. Which means it has engaged around 1.5 million people directly and indirectly. Out of this, 65 per cent of the total employment has been generated in just three years.
Do you think there is an impact of the present recession on SEZs and to what extent have they been affected?
SEZs are not immune to the global economic scenario. Ultimately the exporters from SEZs are also exporting in the international market. If that market is affected, it would have an effect on SEZs as well. Certainly there has been impact both in terms of exports as well as speed of development of SEZs.
In 2008-09, initially we were expecting exports from SEZs to the extent of Rs 125,000 crore vis-à-vis the exports of Rs 66,000 crore in 2007-08, but because of the global slowdown and specifically the factors in Europe and America, the exports this year were Rs 90,000 crore.
But still the performance of SEZs vis-à-vis total exports from the country is good. The total exports from the country have grown approximately 3.4 per cent this year, whereas SEZs exports have grown by 36 per cent. So far, SEZs have still done well in spite of the global downturn, but there has been some impact; otherwise we would have been able to achieve the growth of 90 per cent as against 36 per cent this year. As far as the speed of SEZ development is concerned, in most the pace has slackened and the time period for execution of the SEZ projects has been prolonged.
Recently there has been some news that some SEZs are withdrawing their proposals and asking for denotification. How do you feel this will impact the future of SEZs?
We have given formal approval to 568 SEZs. Formal approval means the land is already in the possession of these developers. Of the 568 SEZs, 311 have already been notified. Notified means they can start working in the SEZ and 87 SEZs have actually started operating. As far as withdrawal of the proposals is concerned, we have received requests from DLF Limited for withdrawal of five proposals.
As I stated earlier, there is some slowdown but going by the fact that more than 568 SEZs have got formal approval, this figure is quite insignificant.
Even if two-thirds of these SEZs are actually implemented, one can imagine the exports, investment and employment the SEZs would be getting. So far, 87 operational SEZs have brought an investment of Rs 100,000 crore, increased exports more than four times in three years and provided direct employment to 250,000 people. Imagine the picture when 400 SEZs start operating! I am sure SEZs are going to play an important role in the next decade in generating employment, exports, attracting investment and creating world class infrastructure.
What are the issues being faced by SEZs that you feel need to be addressed immediately?
Well, if you see the performance of SEZs over the past three years, in terms of exports and employment they are doing very well but simultaneously certain issues have also been thrown up.
The most important is availability of funds for the developers. From 2006, the RBI has classified SEZs as Commercial Real Estate projects. These projects need to be classified as infrastructure projects by the RBI so that SEZ developers can get funds on the terms and conditions that are available to infrastructure projects.
When these projects are classified as CRE projects then as per the External Commercial Borrowing guidelines, they cannot get ECB funding. Hence, these projects need to be classified as infrastructure projects so that they can have access to ECB. This issue was considered by the Empowered Group of Ministers, constituted for the SEZs, under the chairmanship of Pranab Mukherjee wherein the finance minister, commerce minister, science and technology minister, defence minister, deputy chairman of the Planning Commission are members. The Empowered Group of Ministers had decided to recommend to the RBI that SEZs should be treated as infrastructure projects. This has still not been done.
There are other issues, like amendment to Section 10AA of the Income Tax Act, problems relating to exemption from service tax for SEZ units and SEZ developers, etc, which need to be resolved at the earliest. In respect of Section 10AA, the Empowered Group of Ministers had also agreed to amend it and this was announced in Parliament by Pranab Mukherjee.
This amendment needs to be carried out in the Budget that will be presented by the new government. In respect of service tax exemption, provisions of Section 26 of the SEZ Act need to be implemented immediately.
What would you expect from the new government for SEZs?
In addition to resolving these outstanding issues, the most important way to attract international investment is to send out a clear message that SEZs are here to stay. After enactment of the SEZ Act and SEZ Rules, on certain policy matters there were differences of opinion between the ministries of finance and commerce which were discussed and debated extensively. These differences created certain doubts in the minds of international investors and these doubts need to be set at rest.
I had the opportunity of making a presentation on the Indian SEZs at the World Free Zone Convention in Kuala Lumpur, which had participants from more than 40 countries where SEZs are operating. The Indian model on SEZs was appreciated. The Indian SEZ Act is quite comprehensive and the fiscal package is comprehensive and competitive to any such package provided elsewhere in the world. We need to give a clear message that the SEZ scheme will be implemented in totality. The single window facility envisaged in the scheme has to be implemented strictly in coordination with various state governments and different departments of the Central and state governments.
Source : www.thestatesman.net