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Vivek AnandVivek Anand

"SEZ – Losing sheen"

Indian economy has witnessed a tremendous growth in last one decade and it is all poised to become one of the largest economies in the world along-with China and USA. Our growth recorded at 8% YoY for one decade is a proof of its standing among the top world economies. To fuel the growth, create more jobs & build export infrastructure for Indian Industry, Government of India had taken a proactive & significant move by introducing Special Economic Zones in India in 2006 which was passed by an act of Parliament. Government had offered attractive incentives in the form of Tax benefits (for 15 years) and single window clearances to the units to attract more investment in the designated zone. This was a much needed shot in the arm for an Indian industry and growth leapfrogged which can be seen from the table below.

Year Value (Rs. Crore) Growth Rate (over previous year )
2006-20007 34,615 52%
2007-2008 66,638 93%
2008-2009 99,689 50%
2009-2010 2,20,711.39 121.40%

Units & SEZ developers started heavily investing in the SEZ with a long term outlook however their euphoria did not continue, before long Government proposed Minimum Alternate Tax (18.5%) on book value. This was a big dampener for the units & developers alike. Developers started de-notifying their projects; even units do not see much benefit in taking up space in SEZ, which led to slowing down in space uptake in SEZ. Companies have either stopped or slowed down their expansion plans in SEZ in the absence of any clear policy framework.

This was a retrograde step taken by the government, not only will investors & companies think twice before investing in SEZ but also it is sending a wrong signal to the overseas companies about our rules not being consistent enough. It becomes a question of Government of India not honoring its commitment.

The ever changing regulatory framework in the SEZ front is putting a lot of doubt in the minds of investors and companies. Every investor/company invests with a long term view and decisions are based on current scenario. If the rules of game are modified arbitrarily then it would create a Lose-Lose proposition for both Government & companies in the long run. Government should clarify on the SEZ matter as to what would be its stand going forward. Rule of the game once decided should be followed in full spirit.

In the current global recessionary scenario which is affecting Indian economy as well, our growth has also slowed down in the past few quarters. In this uncertain environment, government should push for growth rather than becoming an obstacle in the path of progress. With clear guideline and rules in SEZ can really help to bring Indian economy back on track of fast growth. We are facing a big threat from China, if we have to boost our export potential and job creation then we need to give a holistic thought to SEZ policy and try to rationalize the policy to make it more potent which will revive the Industry sentiments.

Source: sezindia.nic.in