Slowdown fails to suppress SEZ sizzle

Even in the midst of a liquidity crunch, Special Economic Zones (SEZs) still remain a lucrative investment option among developers. The government today cleared 22 of these tax-free industrial enclaves.

The inter-ministerial Board of Approval on SEZs headed by Commerce Secretary Gopal K Pillai formally approved 19 out of the 38 proposals that were considered by it today.

All the 19 proposals cleared today have land under possession.

Besides, three zones were given the in-principle nod, as they are yet to acquire land.

When asked about the impact of liquidity crunch on the zones, Pillai said, “I do not think there is a decline in interest for these zones. We had 38 proposals today.”

According to a commerce ministry press release, 531 zones have been formally approved since early 2006, out of which 271 have been notified, which means that they can start construction activity and enjoy the tax benefits.

As much as Rs 83,450 crore have already been invested in the notified zones.

The Board of Approval, which meets at least once a month, takes up SEZ proposals forwarded by the state governments. Currently, there are no outstanding proposals with the board.

Meanwhile, developers of existing zones continue to face problems in accessing credit from banks because of the Reserve Bank of India’s categorisation of SEZ projects as a real estate activity, which invites stringent capital adequacy norms. As a result, the zones have to incur higher borrowing costs on loans. Moreover, banks have lesser money available for lending to real estate activity.

An Empowered Group of Ministers (EGoM) on SEZs has already recommended that the construction of the processing area should be recognised as infrastructure development, which will allow the zones to access cheaper loans.

The commerce ministry release added that 1,13,426 people are employed in the zones set up after the SEZ Act was notified in 2006. In addition, seven government SEZs employ nearly 200,000 people.