New Delhi: Two mega special economic zones being set up by Reliance Industries and a big rush to build other such projects has opened a new chapter in India's economy, but there is still a long road ahead when it comes to "real" large SEZs, the economists feel.
Ever since the new SEZ policy was approved in February this year, the government has already received above 100 applications to set up SEZs.
However, no serious efforts are being made so far to build "real" large SEZs and the policy needs to be reworked to achieve this target, global investment banking major Morgan Stanley said.
50 per cent of the profits ploughed back would be exempt from tax in the final five years.
The report said, many of these proposed investments could be mere substitution of investments that would have otherwise taken place outside the SEZ area and the new SEZ investments are unlikely to provide the much-needed boost to the Indian small and medium sector competitiveness.
Indicating that the current policies do not adequately promote large SEZs, the economists said small SEZs appear to have lost their relevance with the rapid globalization of the manufacturing scale.
The existing policy allows the minimum area for the SEZ area to be 1,000 hectares for multi-product zones, 100 hectares for product specific zones and just 10 hectares for IT, gems and jewellery and biotechnology zones.
Among the already announced projects, there are probably only two medium-scale SEZs being taken up for development. Both these zones are being set up by Reliance Industries, India's largest private-sector company, the report added.
RIL's 12,000-hectare SEZ project near Mumbai, which is the largest in terms of size, is a merger of Navi Mumbai SEZ and Maha Mumbai SEZ and the first phase envisages an investment of $1.1 billion.
Given its proximity to Mumbai, this SEZ should be able to leverage the city's infrastructure and will have easy access to quality manpower, Morgan Stanley said.
The other large SEZ is being set up by RIL in Haryana with a size of 10,000 hectares.
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The Morgan Stanley economists said RIL's both SEZ projects should be a big improvement over the current SEZs and better than most other new SEZs announced in the country.
However, they would still be smaller than the major SEZs operating in China - as the top three SEZs in China cover 126, 51 and 47 square miles in Shenzhen, Xiamen and Zhuhai, respectively, as against 46 square miles for RIL's project near Mumbai and 38 square miles for the Haryana SEZ.
Earlier, the SEZ-related laws were scattered among different acts and rules and the new legislation provides a uniform SEZ policy, the economists said.
SEZs are broadly considered as a means for creating larger inroads into small and medium scale manufacturing and for quick support to high-quality infrastructure with a liberal and positive business environment, leading to the much-needed fillip to the manufacturing exports.
While SEZs appear to be a right concept to encourage the manufacturing exports, the existing policy lacks much needed push, particularly in the small and medium enterprise sector, Ahya and Seth said.
A large number of new SEZs in the pipeline are primarily aimed at gaining tax benefits, they added.
The new law provides tax exemption for 15 years compared with 10 years previously.
Under the existing rules, the SEZ units are entitled to 100 per cent exemption from corporate income tax for the first five years and 50 per cent exemption for the next five years; while 50 per cent of the profits ploughed back would be exempt from tax in the final five years.
Corporates are also rushing to SEZs as the existing tax exemptions for export-oriented units set up in non-SEZ areas - like software technology parks - would expire in 2008-09.
While expressing concern over the private sector's inability to undertake development of large SEZs, they said most of the infrastructure facilities for SEZs tend to be public.
In addition, investment returns from SEZs tend to spread over a long period and these investments are best suited for the government balance sheets than the private sector, they added.
The government needs to take the lead in developing large SEZs, which could be done through a tripartite structure with Central and state government pooling in some public funding while engaging private sector players as major partners, who in turn can take up the execution as well, the report said.
Taking inspiration from the mega power project plans, the economists said the government can take responsibility of land acquisition, lay out the plan on basic infrastructure, and implement it with state government and private sector partnership.
Some policy makers have suggested similar views but it is believed that there is no serious effort being taken to work on building such 'real' SEZs, they added.
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