An investment to the tune of Rs 1.5 lakh crore employing over 500,000 people with a staggering incremental growth rate of 127 per cent in exports in 2009-2010 over the previous year — the special economic zones (SEZs) have delivered well and their role as a growth catalyst in developing India cannot be overlooked.
This was also acknowledged by our finance minister in his Budget speech 2010: “The SEZs have attracted significant flows of domestic and foreign investments. In first three quarters of 2009-10, exports from SEZs recorded a growth of 127 per cent over the corresponding period last year. The government is committed to ensuring continued growth of SEZs to draw investments and boost exports and employment.”
But the above commitment is not evidenced in the revised discussion paper released by the government on June 15. The revised discussion paper envisages grandfathering of only the existing SEZ units, that too which are operational, before the implementation of the Direct Taxes Code i.e. April 1, 2011 for the period remaining unexpired.
It is important to look at the numbers here. Out of a total 578 formally approved SEZs, 353 are notified and only about 111 are operational, which themselves are not fully developed yet. The developers have already committed huge amounts towards land and are at various stages of development. But will they be ready to house operational units in the next nine months? Will the new units be operational in the next nine months? If not, then, are the developers still ready to commit huge amounts towards developing the zones with a risk of not finding any takers at the end? Will the developers with developed facility start charging premium? Does this mean the end of large multi-product SEZs where development is spread over many years?
These factual questions lead to another set of questions — can one arm of the government arbitrarily put an end to a successful policy initiative by another arm duly passed by Parliament as an Act by subsequently withdrawing what was committed under the Act? Is the government ready and willing to take the risk of sending a message of unstable policies to the global investors? By moving to investment-linked incentives, does the government want to promote only the capital-intensive industry and not the labour-intensive industry, especially keeping in mind the population statistics in India?
Though the discussion paper acts a saviour, at least for the existing SEZ units, as against the earlier discussion paper, wherein there weren’t any tax benefits envisaged for SEZ units. However, there exists a silence among the developers and investors about uncertainties surrounding SEZs and a pessimistic view is that this is the beginning of the end for a phenomenon called SEZ despite bringing in significant contribution to exports, investments and employment in the country.
But I am still optimistic that the government will see through this and all arms of the government will come together and cohesively support SEZs, keeping in view the economic growth and need for generating employment aspects of the country and am specially optimistic that my finance minister will walk the talk.
Shyamal Mukherjee Executive Director & Joint Leader of Tax Practice, PricewaterhouseCoopers