SEZ exports lag overall rate in April-November, shows govt data

India's overall exports rose nearly 36% YoY, while those from SEZs posted 31% growth in this period

Exports from special economic zones (SEZs) grew at a slower pace as compared to the growth of overall outbound shipments from the country during the first eight months of the current fiscal year, government data showed.

India exported goods and services worth $418.56 billion during April-November, up nearly 36 per cent as compared to a year earlier, while exports from SEZs witnessed a 31 per cent rise to $87.95 billion.

This is a reversal in trend in at least six years. SEZ exports comprised a fifth of India’s total exports during the same time period.

Growth in outbound shipments since the beginning of the fiscal year indicates that impact of the first wave of the pandemic has waned, and demand from the external market has picked up due to opening up of economies, some of which can also be attributed to pent-up demand.

A look into the details of SEZ exports this year show that software and service exports account for the lion’s share at 64 per cent followed by merchandise exports that comprises manufacturing.

Software and service exports grew 17 per cent, to $51.46 billion, while merchandise exports grew 62 per cent on year to $31.61 billion, signalling a recovery in manufacturing after a pandemic-induced recovery and some impact of a low base as well as commodity price increase.

Share of manufacturing exports from such zones continued to remain low, while software and services exports continued to shine and did not decline sharply despite the outbreak of the pandemic. Even in manufacturing, petrochemicals and gems and jewellery comprised more than 60 per cent of exports, according to industry estimates.

“Several direct tax benefits that were provided to SEZs were withdrawn over a period of time. As a result, investments got affected due to policy instability. No one thought over a period of time, there were huge policy changes and this shook the confidence of investors. Manufacturing (sector) requires long-term investment, which is not the same in case of services, which has more natural advantages of cheap labour cost and well-trained professionals in India,” According to Alok Vardhan Chaturvedi, director general of Export Promotion Council of EOUs and SEZs (EPCES).

It is at this backdrop that the government is working towards rewriting the SEZ legislation. The government wants to go beyond the export-oriented approach and use SEZ infrastructure for domestic industrial activities as well. The idea is to utilise large amounts of vacant land in these SEZs to boost economic activity in the country.

The SEZ Act was passed by Parliament in 2005, with export promotion as its main objective. Along with that, the idea was also to develop these zones as strategic instruments to encourage investments, create employment opportunities and develop quality infrastructure.

Even as the contribution of exports from special services economic zones (SEZs) to a country’s overall exports have performed decently over the last decade, apart from lack of income tax benefits, industry officials and experts pointed out that such zones were losing their appeal also due to infrastructure bottlenecks such as connectivity issues. There is also a need for rules to be compliant with World Trade Organization (WTO) norms.

In spite of a rapid rise in the number of such areas, on the request of private SEZ developers, 101 cases of de-notification were approved between 2008 and 2020. The government had attributed the reason to poor market response, lack of demand for space and withdrawal of fiscal benefits. Only 268 entities were operational, as on January 27, government data showed.

Chaturvedi, however, said while new legislation on SEZ was a step in the right direction, lack of details on what it will entail can result in uncertainty. “Investors will find it difficult to come in unless there is a clarification from the government regarding the details, unless it comes in the next six months,” he said.