SEZ polices: Fine tuning needed for greater impact

Mr. Surendra A. Sharma (surendrasea@gmail.com) is a veteran who has been covering cargo logistics and infrastructure projects since more than two decades. He is advising leading fund managers for investment assessment.

India is a diverse country with different terrains, from the great Himalayan ranges, the northern plains, peninsular plateau to the coastal plains. Each terrain offers different challenges and scope. Different regions in the country have specific issues and limitations while also enjoying a certain advantage in natural resources. Development is also not uniformly with certain states having excess power supply and better infrastructure while many struggling to cope up. Hence, while the SEZ policy may be common, there is a need to fine tune it as per the location's potential and limitation.

SEZ's are the internationally accepted approved format for export development which ensures global recognition and easy acceptance which many other export oriented schemes may not have, hence there is a need to promote and develop it while also integrating it with the local region. This can ensure SEZs act as a catalyst for the development of the region adding more value. This can be achieved with fine tuning of polices.

SEZs offer a ready format with supporting infrastructure which is very important for India to remain competitive and develop its export. SEZ's offer various benefits like Duty free import, Exemption from Central Sales Tax /Service Tax, 100 per cent Income Tax exemption on export income for first 5 years, 50 per cent for next 5 years thereafter and 50 per cent of the ploughed back export profit for next 5 years and many other benefits.

Fine tuning Small Scale Industries (SSI) plays a very important role in the industrial development and contributes with over 40 per cent towards the country's exports. India has a traditional base of products and goods spread over different location be it textiles, pharmaceuticals, chemicals, leather, brass works, carpets or sports goods, etc. These are covered mainly by small scale units with limited capacity and resources which lack the global expertise, be it marketing, selling or delivery. These SSI clusters can with the help of SEZ export more products while the SEZ units can also act as an export house buying goods from them to build up volumes. This can give economies of scale benefits while also ensuring continued supply leading to export order. Many small units have a limitation with their global orders which requires round the year production and certain standards, especially in chemicals which the small units are unable to provide.

SEZ existing policy allows for purchase of goods from domestic companies for development, operation and maintenance of SEZ units. This provision can be fine tuned with some additional specific incentive linked to such activities (which may be product and region specific).

The SEZ's are in a better position to face the challenges of the global market as they are export oriented and can help increase exports by using the SSI capacity also. For the SSI units export becomes very easy as it is next door delivery, while the SEZ can buy from many DTA units to ensure adequate supply.

Such region and product based polices linked with SEZ can be for a limited trail period after which their performance can be evaluated to check and asses their contribution in social-economical development and maintaining the capability of the SSI units.

This will ensure linkage of the SEZ with the SSI units putting a large Indian capacity (SSI) in the global market including reviving sick SSI units. This will also give cost advantage as goods will be produced by SSI while exports will be with the help of SEZ units supported by global scale offices and network. This will ensure a win-win situation for all stakeholders including the government.