SEZ Policy still nonviable
Special Economic Zones (SEZs) alike the dams constructed in yester years can be deemed as the temples of the modern Indian economy. With norms pertaining to SEZ policies recently being amended to give a boost to these temples, the minimum land holding norms were relaxed however, uncertainty about tax rebates still prevail.Indian policymakers appear to have had the attributes of inspiration and desperation while constituting policies for SEZs. In 2005, following some policy flip-flops, subsequently a robust SEZ Act was passed. This act attracted investments and inflows alike. The act was able to achieve an impressive investments of above Rs 2.39 lakh crore along with exports worth Rs 4.76 lakh crore.
However, in a detailed examination of the facts, it is revealed that 589 SEZ units were formally approved, out of which 389 were formally notified and only 170 are of this is actually operational. Accumulation of all the above factors in addition to the current gargantuan account deficit and the ever depreciating rupee rate forced the Government to recently amend the policy for SEZ units.
With the state governments as well as industry’s citing problems pertaining to land acquisition, the Government relaxed the minimum area requirement for more sectors within the final amendments in the SEZ rules. The revised policies further included relaxed norms for establishing SEZs within the hilly regions, North Eastern states, Goa and other Union Territories; as well as the establishment of exclusive SEZs for electronics software and hardware, agro-based food processing and handicrafts.
The present policy permits land parcels having pre-existing structures which are not in commercial use to be treated as vacant land for notifying as a SEZ. The debut of sectoral broad-banding proffers the flexibility to establish additional units within related or similar areas in a sector-specific SEZ.
Grey areas of the SEZ policy:
Although, these amendments appear to have been included a tad too late they would certainly not allure a significant amount of dollars overnight. Further, the governments effort of keeping mum on the withdrawal of dividend distribution tax (DDT) and minimum alternate tax (MAT) is not helping matters.
In accordance to Section 27 of the SEZ Act, 2005, along with the Second Schedule to the Act, tax breaks to these units have been proposed at hundred per cent for the first five years and fifty per cent for the next five.
However, the exaction of MAT and DDT on these units from the fiscal of 2011 soured the deal and in turn made potential investors apprehensive. Investors were further driven away due to the DDT’s proposal of an investment-linked deduction as compared to the more popular profit-based deduction system.
Importance of SEZs
Based on an analysis conducted by leading researchers on the performance of SEZs with India; to study the role of SEZs in liberalizing the economy as well as their impact on economic growth; the exports and FDI growth hold a positive and statistically significant impacts on the growth of economy in India. SEZs provide numerous employment opportunities, increase the export numbers, increase the standard of living as well boosts the real estate market of the region where they are located.
SEZ units play a very significant role in our reprising economy, considering the same the Government needs revisit the entire Act and make it a really attractive proposition to attract investments. Once this has been achieved, the Government should not make any amendments to the policies for a minimum of five years. Only after such steps are taken would the present perception within certain quarters, that investments within SEZ units are more like real estate projects with slightly lower taxes, change.
