The Special Economic Zones (SEZs) are coming up all over the country after the big tax breaks announced for both developers and export units in such zones. The new SEZ Act 2005 has prompted 45 new projects worth over Rs 1.5 lakh crore in investment. Mahindra World City in its new avatar house three SEZs? Auto, apparel and IT? Within the township. Its occupants include Infosys, and BMW which has secured land inside the township but not in the auto SEZ. The TVS group is actively considering setting up a facility in the city.



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, comparing with the situation in 2000 when India’s original Act on SEZs yielded little more than a few crores.

China has over 600 SEZs unlike India which has struggled to figure afew. 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. BG Menon, CEO of Mahindra World City attributes the growth of SEZs 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.

The Government of India, State Governments as well as private business houses 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 addition, the textiles, chemicals, gems and jewellery sectors too are in an expansion mode.

SEZs are 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, and 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%. 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 true of successful 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. Charta pointed out.

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. Electronics and light engineering get 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 assessment 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. Whatever the trigger, SEZs are certainly the flavour of the season.