The biggest advantage would be easy regulatory clearances
Several special economic zones (SEZs) may have run into rough weather, but there is a ray of hope now.
The proposed national manufacturing and investment zones (NMIZs), the draft of which was released last week, actually promise a triple bonanza for SEZs: Easier access to land, flexible labour policies and various concessions proposed by the Department of Industrial Policy and Promotion (Dipp) in the manufacturing policy. The biggest advantage would be getting regulatory clearances easily.
According to a discussion paper on NMIZs, export-oriented units (EoUs) and SEZs can be located within the NMIZs. An SEZ located in NMIZs will also enjoy the incentives under the SEZ Act.
The basic difference between NMIZs and SEZs lies in the scale of operation. "SEZs could be a smaller entity within the NMIZs and would be governed by the SEZ Act. NMIZs, on the other hand, will be much larger in size," said a senior official in Dipp.
One of the major roadblocks for setting up SEZs has been land acquisition and it is here that NMIZs are likely to have an advantage. "The biggest challenge to SEZ is the ability of the private promoter to get a good parcel of land. The government will aggregate land to create manufacturing zones," said Chintan Patel, associate director, Ernst & Young.
While a single-product SEZ requires 100 hectares, a multi-product zone requires 1,000 hectare, except for the 'special status' states such as the north-eastern states, Jammu and Kashmir, Himachal Pradesh, Goa and all Union territories. In these states, the minimum area requirement for multi-product SEZs is 200 hectares.
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Patel said that given what the government was offering in NMIZs, there was no reason why an SEZ would not like to locate in the NMIZs. "These manufacturing zones would be very large and there might not be too many of them anyway," he added.
NMIZs are designed to push the share of manufacturing in the Gross Domestic Product to 25 per cent by 2022 from about 15 per cent at present.
"The government is looking beyond SEZs and EoUs. In NMIZs, the focus is not just on exports but manufacturing," said Chetan Bijesure, additional director of the Federation of Indian Chambers of Commerce and Industry. They are being encouraged for value addition and for that special incentives, concessions and infrastructure facilities which are not available outside would be provided. The government may come out with notifications on these, though it is not clear whether the proposed zones will be backed by legislation like the SEZ Act.
While there is still a certainty of policy in the case of SEZs, some industry experts believe the policy around EoUs is not very certain and benefits to these may be withdrawn. It, therefore, makes sense for future EoUs to come up in NMIZs.
In terms of other major advantages, Bijesure pointed out that the manufacturing policy proposes reduction in regulatory compliance, ranging from labour, environment and forest, registration and taxation. On the flexibility of labour laws, he said it was not that the new zones would be detrimental for labour. He cites the example of the Employees' State Insurance. "If the ESI benefits are not available to employees, there is a provision for them to get adequately compensated. Similarly, instead of an exit policy that gives rise to litigation, the policy proposes an insurance scheme which a manufacturing unit can subscribe to and use in case of closure of a unit," added Bijesure. These flexibilities are not available in the case of SEZs, except in a few states where they have been brought under essential services.
Another advantage the NMIZs might provide is the single-window clearances. "The single-window mechanism in SEZs has not worked especially at the state level, where there are a number of problems.
States like Haryana and Orissa have tried to do some work in this direction. NMIZs promise faster clearances," said Bijesure. Each NMIZ will be run by a special purpose vehicle, which will be empowered to issue or expedite approvals and pre-approvals.
Availability of finances for an NMIZ is also proposed to be cheaper. The policy proposes subvention of interest on working capital by 4 per cent to create parity with international counterparts. Viability gap funding through existing schemes would also be considered.
Wherever necessary, requisite budgetary provisions for creation of these linkages through the public sector will also be made. These make the proposed zones better investment havens than even the SEZs.
| MAJOR INCENTIVES AND FACILITIES |
| SEZ UNITS 1. Duty free import/domestic procurement of goods for development, operation and maintenance 2. 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 3. 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years 4. Exemption from central sales tax, service tax 5. Single-window clearance for Central and State level approvals. 6. Exemption from state sales tax and other levies |
| SEZ DEVELOPERS 1. Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA 2. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. 3. Exemption from central sales tax, service tax |
| EXPORT ORIENTED UNITS 1. No import licences are required and import of all industrial inputs exempt from customs duty 2. Supplies from the DTA to EOUs are regarded as deemed exports and are hence exempt from payment of excise duty 3. EoU can also import second hand capital goods without any age limit 4. 50% of physical exports can be sold in domestic market on payment of concessional duty 5. EoUs are allowed to utilise plant and machinery for job work in DTA units, provided the goods are exported directly from the EOU premises |
| NMIZS 1. Expenditure on training/retraining of the workers to be treated at par with R&D 2. Tax exemption on expenditure incurred in taking national/international process/product certification/approvals like ISO 9000, BIS 14000, BEE, etc 3. 50% of the expenditure incurred in filing international patents to be shared by govt 4. Interest subvention on working capital by 4% to create parity with international counterparts |
| The incentives available to SEZs and 100% EOUs would be app licable to SEZs/EOUs located in the NMIZs |