However, developers of the zones are skeptical of finance ministry proposals, which seek to reduce fiscal incentives provided under the Act and maintain that investments of $75 billion, lined up in the next five zones, could be at stake.
The finance ministry has proposed imposing export obligation in excess of 51 per cent on SEZs as well as imposing direct tax measures like Minimum Alternative Tax and Dividend Distribution Tax.
"Investors, including ones from abroad like Nike, have lined up long-term investment plans. If fiscal incentives are trimmed, proposed investments would be in jeopardy as investors would back out," said Ajay Nijhawan, convenor of the panel of SEZ developers within the Export Promotion Council for SEZs and EoUs (export-oriented units).
According to LB Singhal, director general, Export Promotion Council for EoUs and SEZs, stability of any policy is a prerequisite to create investor confidence. "SEZs have been in existence since 2000 while export promotion zones have been since 1965.
Export and investment growth in these zones were minimal before the SEZ Act came into force in 2006," he said.
Singhal points out that between 2003-04 and 2005-06, total value of exports from SEZs stood at Rs 50,000 crore (Rs 500 billion). "In 2007-08, we are likely to have exports worth Rs 67,088 crore (Rs 670.88 billion) from SEZs and in 2008-09, these are likely to cross Rs 1,00,000 crore (Rs 1 trillion).
According to developers, the issue of revenue leakage due to SEZs is notional. "The export processing zones, which preceded the SEZs, entailed infrastructure development and maintenance by the government. Investments worth $75 billion are lined up for creation of zones by the private sector," said Nijhawan.
Other issues pertaining to the SEZs include classification of SEZs as real estate projects by the RBI. Developers claim this is leading to restricted access to credit. "Moreover, there is at least a 2 percentage point difference in infrastructure and real estate loans," he added.
According to Singhal, SEZ units and developers are also not being exempted from service tax on permitted services, even though the provision is mentioned in the SEZ Act.
"Moreover, the single-window system, which envisages a single-point approval mechanism for a host of permits required, has also not been functioning properly," he adds.
India's great rush for SEZs
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