New Delhi: Policy makers need to re-visit the policy on special economic zones (SEZs) and focus on promoting them as destinations for domestic and global investors to set up manufacturing and service facilities, industry body ASSOCHAM said today.
Huge investments have been made in SEZs across the country and frequent changes – especially relating to tax matters and land acquisition – are eroding confidence among investors, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM) adding there is still lack of awareness about SEZs.
The country started setting up SEZs in 2006 to improve industrial and social infrastructure by attracting investments, give impetus to employment generation and boost exports. But absence of clear guidelines in many states leads to different interpretation of laws by various authorities.
For example, Haryana has a provision for re-notification of SEZs after having notified by the central government under the SEZ Act 2005. The impact of such provision can be gauged from the fact that only three to four SEZs have become operational out of the 34 notified.
In Union Budget for 2011-12, the finance ministry imposed 18.5 per cent minimum alternate tax on SEZ developers and units besides 15 per cent dividend distribution tax on developers. “This move will make it unviable for most investors,” said ASSOCHAM secretary general D.S. Rawat. “Hence the levy of these taxes should be removed.”
Export oriented units located in SEZs are not eligible for other export promotion schemes and have to pay full customs duty on what they sell in domestic market. “It would not make commercial sense for them to operate in SEZs without tax exemptions,” he said.
SEZ developers may be encouraged to set up their units in rural areas rather than concentrating in urban and semi-urban areas. The government must ensure single-window clearances, flexible labour laws, uninterrupted power and water supplies at economical rates along with other infrastructure facilities like good roads and efficient ports so that SEZs can emerge as global hubs for manufacturing and service companies.
Exports out of SEZs in 2010-11 moved up over 43 per cent over previous year to Rs 3.16 lakh crore. Nearly 6.77 lakh workers are directly employed in these zones that have attracted investments worth Rs 2.03 lakh crore. The government allows 100 per cent foreign direct investment through automatic route.
With project viability of many SEZs being a major risk, financial institutions are channeling funds into more promising asset classes like highways, bridges and power projects. “Recent judgements on acquisition and requisition of agricultural land for non-agriculture purposes have made all stakeholders to re-look at legal, policy, environmental and social aspects governing the setting up and operation of these pivotal industrial development projects such as SEZs,” said Mr Rawat.
There are 124 SEZs in India and most of them are concentrated in Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharashtra and Gujarat. On a global scale, there are more than 3,000 SEZs in 120 countries accounting for 600 billion dollars of exports and 50 million direct jobs.