IT majors go slow on SEZ expansion

The top three information technology service providers — Tata Consultancy Services (TCS), Infosys Technologies and Wipro Ltd — have cumulatively got approvals for developing 15 special economic zones (SEZs), but both analysts and the companies say these will be delayed due to the economic slowdown.

Most Indian IT majors planned to shift their operations from Software Technology Parks of India (STPIs) to SEZs, as the government plans to do away with the STPI scheme (that has been extended only by a year till 2010), which provides for tax benefits under 10A/10B that allows deduction of export profits. SEZs allow deduction of export profits for 15 years in a phased manner.

India’s largest IT services provider, TCS, which has approval for four SEZs in Andhra Pradesh, Gujarat, Chennai and West Bengal, confirmed it will go slow. “It will depend on the economic scenario,” said S Mahalingam, CFO and Executive Director.

Analysts and real estate experts reasoned that with the US being the primary market for Indian IT firms, it is natural if they chose to go slow. “Developing these SEZs requires financial investments, as well as other strategic planning. A small delay is fine, but they will have to take it for development some time. Firms have a window of five-six years for developing of SEZs. They cannot delay beyond this,” said Vikram Nadkarni, partner, Economic Laws Practice.

Pranay Vakil, chairman, Knight Frank, believes further expansion in the SEZs will be delayed by at least one to two years, with demand for these centres going down. According to Knight Frank, an international property consultant, in the next two years, 163 million sq ft of A-class office space (SEZ) will be delivered, whereas the demand is for 122 million sq ft.

Infosys has approvals for five SEZs, totalling an area of around 1,013 acres. Wipro, too, has an area of 242.6 acres spread across six SEZs in various parts of the country. When asked, both Infosys and Wipro declined to comment.

For the financial year 2007-08, Infosys commenced operations in two SEZs — one each in Pune and Mangalore. In financial year 2007-08, 11 per cent of Infosys’ revenue came from SEZs. Wipro had earlier said it would develop all the SEZ units where work had commenced, but any new unit will be put on hold. Presently, close to 80 per cent of the company’s revenue comes from SEZs.