Companies queued up for SEZs. Today, one-third have changed their minds and the rest are unhappy campers. Even as SEZs lose appeal, the department of commerce is bracing for one last push.
Three years is a long time in business. This affirmation came to Rajesh Sonthalia when his company commissioned its new solar panel unit in Falta Special Economic Zone, in Kolkata, this September. Sonthalia's choice of location, made in 2008, was based on economics made favourable by all manner of tax giveaways.
But this February, finance minister Pranab Mukherjee pruned some of those benefits to SEZs, leaving entrepreneurs like Sonthalia fretting. "Having already made a significant investment of Rs 200 crore, we couldn't have pulled out," says Sonthalia, vice-chairman & managing director, Sonthalia Group of Companies. Sonthalia represents India Inc's growing disenchantment with SEZs the previous government's big idea to drive exports and, in turn, employment and growth.
China was reaping the benefits of such a policy crafted in the eighties and UPA-I felt SEZs could redefine India's status as an exporter. It rolled out a 15-year SEZ plan in 2006. Land on a platter. Speedy approvals. No income tax for five years and concessions for another 10 years. No tax on inputs.
Except after two years, the promises started coming unstuck, like the one on income tax. "We don't know what the government might do next," says Sonthalia. Faced with a harsher business climate and a government that is wavering on SEZ laws, companies are unsure whether they can plan for 15 years. About one-third of companies that held the rights to build an SEZ 202 of 583 have raised their hands and walked away.
The pace of withdrawals is increasing, with 60 leaving in the past two years alone. These include companies that were looking to set up SEZs for captive purposes (Bata, Dr Reddy's and Essar) or to lease it out (DLF, Omaxe and Unitech). It's no different for tenants. "Most units are evaluating their tax arbitrage before deciding whether to go to an SEZ," says Anshuman Magazine, managing director, CB Richard Ellis, a real estate consultancy.
About one-third of India's exports come from SEZs. Impressive as that headline number is, it is boosted by some migrating exporters for example, IT companies moved from software technology parks to SEZs. Further, it hides the skew of just five states and five sectors account for 90% of exports from SEZs. It hides the fact that SEZs are anything but nonurban and manufacturing conclaves, as they were conceived to be.
Source : economictimes.indiatimes.com