New SEZ policy means business

Red tape cut; labour, bank laws not eased.

India's showpiece initiative to develop special economic zones takes off tomorrow, nearly nine months after an enabling Act was passed by Parliament.

Ambitious and wide-ranging, the policy framework for the zones promises to provide drastically simpler procedures for setting up and conducting business.

Announcing the rules for SEZs, Commerce Minister Kamal Nath said these zones would attract Rs 100,000 crore investment by 2009 and create 500,000 jobs by then.

"The rules have been vetted and are ready for notification. From May last year, when the Special Economic Zones Act, 2005, was cleared, we received over 600 suggestions of which 400 have been incorporated in the rules," he said.

As a measure of the government's policy intent for this initiative, Nath said any changes to the rules would require Parliament's approval.

Apart from providing a stable policy regime, the zones are expected to attract significant foreign investment. Exports from the zones are projected at $ 5 billion in 2005-06, from the 948 units operating in them. However, Nath emphasised that the law did not provide for any easing of labour laws.

"There is no special dispensation for labour laws. We have received representation from some states for relaxation on this front," he said. The minister added that the zones were "foreign" only on the Customs front and would have to follow all other laws of the land, including banking and capital market regulations.

The rules provide for the creation, within 15 days, of a Board of Approval, constituted by the Centre and with representation from agencies concerned and state governments. The zones, ranging from 10 hectares to 1,000 hectares and covering virtually every sphere of economic activity, will be regulated by this authority.

The post of a Development Commissioner, who can oversee one or more such zones and act as the nodal authority and single-window for all clearances, will also be created.

Developers of SEZ's will get a 100 per cent tax exemption for 10 years within a block of 15 years. The rules provide for up to 100 per cent sale of SEZ products in domestic tariff areas after payment of Customs duty.

The rules also provide for setting up of overseas banking units, which will have to comply with Indian regulations. Such units will also be exempt from income tax and NRI deposits in these banks will not attract tax deduction at source on interest payments.

Nath added that so far approvals had been given for the setting up of 117 zones, including three free trade warehousing zones, spread over 15 states and two Union Territories.

Seven of these new zones have become functional, including a Rs 1,200 crore Nokia zone that has gone into commercial production. 51 have been given final approval while the rest have received clearance in principle.

Of the approved zones, seven are multi-sector while 43 are specific to infotech, apparel, telecom, gems and jewellery and automobiles.

As a result of the enactment of the rules and provisions for large land holdings--there is no restriction on the number of zones that a single promoter can set up--many large, multi-product SEZ projects will now move forward quickly.

The largest approved zone till date is the 6,000 hectare tri-party consortium of SIDCO Maharashtra, Nikhil Gandhi and Mukesh Ambani. To be developed in two phases, the zone is coming up near Mumbai.

Reliance Industries, Reliance Energy, Nokia, Mahindra & Mahindra, Wipro, Ranbaxy, Biocon and Adani Exports are among the corporates to have already received approvals. Japanese and Singapore companies have also evinced interest.