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NOIDA: Noida & Greater Noida have fallen prey to the hollow policy developments of the government, which promised the city the holistic economic growth it deserves. After 20 years of hard work on Special Economic Zones (SEZ) and the Software Technology Parks of India (STPI), only the Software and IT industry have reaped its benefits, pushing other sectors on the edge.

Nasscom considers Noida & Greater Noida to be the fourth largest IT/BPO destination in India, accounting for almost five to six per cent of total IT-BPO exports. While Gujarat leads in SEZs state-wise contribution with 46.5 per cent share, UP comes among the lowest with a mere 3.8 per cent. The state SEZs are dominated by IT/ITES which is a concern indicating that other industries (apart from gems & jewellery, handicraft, leather & textiles) have failed to enter SEZs.

Even though the state has considerable number of single product or sector-specific SEZ units, it lacks even a single multi-product unit (MPU). Instead, there is a clean sweep by the sector-specific units with an area size of maximum 30 acres in most cases, and two or three just beyond 100 acres, a trend predominant in this area.

Vinay Sharma, co-chairman, SEZ committee, Assocham and owner of SEZ in Vizag, reasons out the problem saying, "In states like U.P. and Bihar, the land ownership is fragmented and so acquiring 250 acres of continuous land for single-product SEZ unit is a tedious job. And if someone thinks of setting up a multi-product SEZ unit which requires up to 2500 acres of land, he/she can just dream about it."

Noida Special Economic Zone (NSEZ) is the only multi- product SEZ created in 1985. It has done well with export revenues and grown tremendously in the past five years. Gems & and trading of goods have out-performed the software and the electronic hardware industry. Unfortunately, there is nothing optimistic about it since it was established by the central government.

CPS Bakshi, joint development commissioner, Noida SEZ, sheds some light to understand the real situation, "Although SEZs have seen a stupendous growth rate but have been a success only for the single-product and not the multi-product units.

The main reason for this lopsided impact has been the government's policy which favours certain sectors like IT/ITES, gems & jewellery, non-renewables which need just 25 acres to set up their SEZs. Other industries like agri-products, automobiles, garments for single or multiple-product need to acquire 250 or 2500 acres as the government urges for them to achieve economies of scale."

Primarily, investors who entered this zone lacked awareness about the uses and benefits of working in these units which led to the partial failure of the SEZ scheme. As a result, the SEZ promoters have either withdrawn or asked for more time to implement projects which reflects the growing lack of enthusiasm and interest in this arena.

"SEZs are completely export-import oriented business zones but due to the complete waive-off of taxes across the board and other incentives everyone saw it only as a tax-haven opportunity. This led to the sudden spur of SEZ applications for all kinds of businesses post 2005, without giving a thought to whether they are export-oriented or not," said Mr Sharma.

In addition, Mr Bakshi blamed the failure of multi-products SEZs on the nature of the industry saying, "IT/ITES industry is such that it can be set up anywhere and in no time but for industries which are capital intensive and raw-material dependant like cement, automobiles need to be set-up in the vicinity of their raw-material availability where SEZs may not be developed. So, location flexibility is a big issue for such industries."

But the problems are far from being solved. The watershed reform STPI which not only transformed the Software and IT industry but also gave India its biggest success story - Infosys, has lost its shine - the sunset clause 10A and 10B of the Income Tax Act (providing massive exemptions and tax holidays to the IT industry) after the Finance Minister announced its discontinuation in Budget 2011. This means the IT industry will now have to pay full corporate tax which amounts to a whopping 34 per cent.

The worst impact will be on the IT-SMEs who will not only lose their competitive edge but will never make it to SEZs because of exorbitant high rentals and tax rates. "The STPI reform has been the fundamental reason behind the phenomenal growth of the IT industry. The rollback of the sunset clause will not only have a long-term impact on the IT growth story but will also be detrimental to the IT SMEs (70 per cent of STPIs) who can become the future giants," said CVD Ram Prasad, director, Noida STPI.