This is slightly old but great news. For AP watchers Vizag information
should be music to ears.
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http://www.financialexpress.com/fe_full_story.php?content_id=104901
The last time in 2000, India's aspiration to emulate China in SEZs
failed miserably. The new SEZ Act 2005 has prompted 45 new projects
worth over Rs 1.5 lakh crore in investment. Who's doing what?
When the Mahindra & Mahindra group set up India's first private
sector SEZ in 2000 in Chennai, it struggled for 4 years to get its
first occupant. Today, in its new avatar Mahindra World City, there are
three SEZs-auto, apparel and IT-within the township. Its occupants
include Infosys, and BMW which has secured land inside the township
butnot in the auto SEZ. The TVS group is actively considering setting
up a facility in the city.
Mahindra World City is just one of the many cases that reflect a sudden
surge in interest in setting up special economic zones in the country.
Reliance Industries, ONGC, Mahindra & Mahindra, Reliance Energy, Wipro,
Biocon, Hewlett Packard, Nokia and the Adani group are prominent among
the 40 players who have announced SEZs of their own. If all these
projects go as per schedule, new SEZs in India will attract investments
in excess of Rs 1.5 lakh crore.
Truly a metamorphosis from the situation in 2000 when India's
original Act on SEZs yielded little more than a few crores. China has
over 600 SEZs while India has struggled to take the figure to even 10
in the last decade.So far, if the 7,000-acre Special Economic Zone in
Visakhapatnam gets functional in the next three to six months, as
planned, it could be the largest in the country.
So what has changed? BG Menon, CEO of Mahindra World City attributes it
to the recently passed SEZ Act by the Centre and the Tamil Nadu SEZ Act
which are trying to ''make investment options attractive''.
Companies within the zone get 15-year income tax holiday besides
benefits like zero customs duty on inputs, self-certification and
single window clearances.
Today, the Government of India, various State Governments as well as
those private business houses that have been in infrastructure domain
are turning SEZ developers. Reliance Industries Ltd has already got an
in-principle approval for a Rs 30,000-crore petrochemical SEZ in
Jamnagar - the largest in the country. It expected to be operational in
the next three years.
The public sector sector ONGC too will be setting up three
petrochemical SEZs in the next few years. These include a Rs 25,000
crore project in Mangalore, a Rs 6,000 crore project in Dahej, Gujarat
and a Rs 5,500 crore project in Kakinada, Karnataka. Even the Gujarat
government set up an SEZ for the petroleum sector to attract
multinationals and large corporates to set up base in the state. In
addtion, the textiles, chemicals, gems and jewellery sectors too are in
an expansion mode.
Can all this be attributed to the SEZ Act that was passed by the
Government of India in September 2005? SEZs are typically a means of
attracting companies to set up manufacturing or services bases within
the country. This becomes a major revenue earner for the country.
According to BP Acharya, Vice Chairman and Managing Director, Andhra
Pradesh Industrial Infrastructure Development Corporation Ltd (APIIC),
the promoter of SEZs in the state, the time is ripe in the country for
SEZs to take off in a big way. Moreover, in a bid to make SEZs more
viable, ''we are adopting a public-private partnership model,''
he pointed out.
Some states, though, have been more aggressive than others. Close on
the heels of VSEZ, recently Andhra Pradesh has announced the Kakinada
SEZ. The 9,000-acre SEZ has multiple stakeholders wherein ONGC and its
subsidiary MRPL will hold 46%, the AP government through APIIC 3% (by
way of land) Kakinda Seaport Ltd and IL&FS 51%.
Next on the cards is the Gangavaram port where there will be another
SEZ, completing the eastern corridor. The reason for the development of
SEZs in the area, the key elements needed for setting up and developing
SEZs like land, infrastructure, access to roads and more importantly
sea ports are all there. ''We are going to position Vizag SEZ as
the Pudong of the Indian east coast,'' claimed Mr Acharya.
While there are large, multi-product SEZ, the state is also looking at
product specific SEZs. For instance, an SEZ exclusively for gems and
jewellery in the IT Hardware Park near Hyderabad is being promoted by
Gitanjali, a well-known jewellery brand. Also, there is a Nanotech park
for related industries inside the Hardware Park. Similarly, Ramky
group, developers of the Pharma City near Vizag is mulling a pharma SEZ
inside the Pharma City.
But do product or industry specific SEZs work? ''If the economies
of scale are worked out properly, they would. Further, sharing common
infrastructure could be an advantage,'' said Mr Acharya. This is
typically true of succesful SEZs around the world.
Government enthusiasm and facilitation often boosts the success of the
facility. The AP government, in a bid to boost the SEZ rush is even
contemplating ordinances till the glitches in the state SEZ Act are
ironed out. Infrastructure is a definite must.
Projects like the Mundra Special Economic Zone (Mundra SEZ) which
already has the Port, Container Terminal, its own rail link and
airport, and its existing social infrastructure may have a head-start
and make a bigger difference. However, all of them in due course will
have a positive impact. ''Gas will be a key driver of the Kakinada,
Gangavaram and Vizag SEZs,'' Mr Acharya pointed out.
Are some sectors more suited to operating in SEZs than others? Says
Sanjay Gupta, CEO, Adani Exports, ''Prima facie, the most prominent
sector is the manufacturing sector which would gain the maximum from
SEZs - specially light and heavy engineering industries that are
oriented towards exports. We expect the electronics and light
engineering to ride the advantage of the SEZs and reach greater
heights. Auto and auto-components could also avail of the SEZ to create
the much talked about small car manufacturing hub of the world in
Indian SEZs making these as the in-gate and out-gate to the global
markets.''
Besides these, industries which are being impacted by reducing tax
breaks too are now moving towards SEZs. The gems and jewellery sector
will also find it more attractive to move into SEZ as their income tax
advantages will end by 2009. Some software firms are now considering
setting up SEZs since the income tax benefit available to them in a STP
will not be available beyond the 2009-10 assesment year, an STP
official in Kolkata said.
According to STP rules, firms enjoy 100% tax holiday for a period of 10
years or till 2009-10, whichever comes first. In contrast, units under
SEZs tax benefits for 15 years irrespective of the year of their
commencement. This apart, SEZ units are also exempted from paying
service tax. The drugs and pharmaceutical sector as well as the agro
and food processing sector too are seriously considering availing the
SEZ platforms.
Scale is important in ensuring adequate Return on Investment. This is
typically in the range of 15%. Of the 40 odd SEZs that have received
the in-principal approval, many of them tend to be sector specific and
small ranging from 5 acres to about 150-200 acres in size. These sizes
can only avail of the SEZ status to get the fiscal benefits of the
governments.
To truly benefit from scale of operations they need to be closer to
20,000 acres that is the international norm. The large ones,
particularly those of international size of over 20,000 acres can
create their own captive power plant, captive water supply and create
industry specific parks with industry specific common facilities within
the Zone. The existing sea port and other multi-modal infrastructure
make the zone leverage all the existing assets for greater synergies.
Sector-specific SEZs such as Manikanchan in West Bengal offer a new
business model. This SEZ for gems and jewellery promoted by West Bengal
Industrial Development Corporation Ltd and was the countrys first
sector specific SEZ in the country when the state government notified
its policy in June 2003. Jewellers at Manikanchan started operating
from July 2004. The units at Manikanchan started their operations in
July 2004, and within a year (till August 2005), they have been able to
generate Rs 400 crore of export revenue. The facility is exporting
close to Rs 40 crore of gems and jewellery a month, a state government
official said. Spread over an area of 5 acres, the faclity now houses
six jewellery manufacturing and exporting units while eight more are
expected to start operations soon.
A software development and IT enabled services SEZ developed by Wipro
Ltd too is being eveloped in the Salt Lake Electronic City near
Kolkata. This is expected to trigger other software companies to
abandon STPs in favour of developing their own SEZs.
Whatever the trigger, SEZs are certainly the flavour of the season.
Whether the central and state governments can harness the true
potential and wipe out the bitter memories of SEZ Round 1.
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