SEZs in trouble: 22 more request approval to exit

The government's much-touted SEZ policy that was supposed to be one of its main economic drivers for trade and industry appears to be in the doldrums with 22 more developers including majors like the Tamil Nadu Industrial Development Corporation and New Delhi-based Sunwise Properties said to have approached the government with a request to surrender their tax-free zones.

What has shocked many in government quarters is the fact that of the 22 SEZs, 19 are from the IT and ITeS sectors, widely recognized as one of India's booming sectors and a mainstay of its exports. Some of the affected sectors include: multi-product, engineering, hardware and software.

A formal Board of Approval, helmed by the commerce secretary Rajeev Kher is likely to take a decision this new lot of SEZ withdrawal requests in its meeting scheduled for later this month.
 
However an agenda note of the BoA meeting explained, "In these cases, a formal approval has been granted by the Department of Commerce. Since there is no significant progress made by the developer/co-developer, the concerned DC (development commissioner) has proposed for cancellation of formal approval granted to the developer."

In the case of the Tamil Nadu Industrial Development Corporation which had put forth a proposal for the development of a multi-product special economic zone, the formal government approval for the project had been granted way back in 2011.

"The developer was given ample opportunities to apply for extension, if they are serious about implementing the project. But the developer has expressed their unwillingness and requested a cancellation of the formal approval, which was later approved by the DC,” the note explained.

Similarly in the case of Sunwise Properties Pvt Ltd, the developer has put forth a proposal to develop an IT/ITeS zone in Gurgaon, which was subsequently notified in 2009. "...Approval Committee decided to forward the case to DoC with the request to take necessary action for cancellation of formal LoA/denotification of SEZ," it said.

Some of the other leading developers who have filed requests for cancellation include: Township Developers India, Raaga, Mayuri Builders, Progressive Buildestate, GHI Finlease and Investment, Mikado Realtors, Mohan Investment and Properties, Uppal Housing and Sarv-Mangal Real Tech.

Another group of 27 developers that includes big names like Indiabulls Industrial Infrastructure, Vedanta Aluminium, Gulf Oil Corporation and Navi Mumbai SEZ have also asked for more time to implement their respective projects in this category.
 
The deluge of requests for cancellations is being seen as a waning interest in the government's SEZ policy and an erosion of investor interest for these zones, which once emerged as the country's dedicated export hubs.

It may be recalled that in February this year, the government had approved the applications of as many as 56 special economic zone (SEZ) developers, including JSW Aluminium and Parsvnath, to surrender their projects. Of these, 35 tax-free enclaves were from the IT/ITeS sector, while others belonged to domains like engineering, biotechnology, gems and jewellery, pharmaceuticals and textiles.

In all these cases, formal approvals had been granted. However, since there was no significant progress made by the developer/co-developer, the concerned development commissioner had proposed for cancellation of formal approval granted to these developers.

Other developers who had sought the government's approval to cancel there allotted SEZ zones include Navi Mumbai SEZ, Deccan Infrastructure and Land Holdings, Gujarat Industrial Development Corporation and Delhi Metro Rail Corporation. Earlier, over 60 SEZ developers have already surrendered their projects. Before surrendering their projects, the developers have to refund duty benefits if they have availed any.

SEZs, which emerged as major export hubs in the country, started losing sheen after the imposition of a Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) by the finance ministry. To revive investor sentiment, the Commerce Ministry has suggested the Finance Minister to remove these duties, following a formal request from various industry bodies.

Exports from these zones increased from INR 22,840cr in 2005-06 to INR 4.94 lakh cr in 2013-14. The Commerce Ministry is struggling to increase exports as the country's shipments in the last three years have been largely stagnant around the US$ 300 bn mark.