A raft of policy measures will be taken by the Manmohan Singh government in the coming days to help the corporate sector which has started feeling the pangs of the global slowdown. This comes after the series of steps taken recently to ease the financial crunch in the banking system.
The Empowered Group of Ministers (EGoM) on special economic zones, which met here on Friday, agreed to lift the 5,000-hecatre cap and took steps that will bring down the cost of developing these tax-free zones. Relief for exporters is next on the cards.
As the global economic meltdown spreads beyond the stock markets to the real economy, businessmen are faced with dwindling demand and an unprecedented liquidity crunch. Leading industry associations are planning representations soon to the government to get some concessions.
Strong signals that the government had already swung into action and more measures may be taken came from the discussion at the Friday meeting of the EGoM. When some ministers said they would be wary of these moves under normal circumstances, they were told their apprehensions would have to be suspended in light of the extraordinary global situation.
It was senior manager and the head of the EGoM, Pranab Mukherjee, who expressed the collective mood on Friday: “These are difficult times and we have to address the concern of the corporate houses. We have to take a political call now.”
On Friday, the EGoM eased borrowing norms for SEZs with certain conditions. SEZs will now be treated as infrastructure projects for purposes of bank credit for all borrowing, except acquisition of land. “This will only be for infrastructure related activities within the zones, and not for procurement of land for SEZs,” said a commerce ministry official.
This is a significant change. The Reserve Bank of India, in September 2006, had decided to treat SEZs and the real estate sector on a par for purposes of bank credit. As a result, the cost of borrowing went up nearly 2 per cent. Moreover, banks were not able to lend to SEZs as the money they had set aside for real estate was already used up.
In another move, the EGoM allowed conditional relaxation to the maximum area limit of 5,000 hectares for SEZs. The Adani Group was permitted to consolidate its three existing SEZs at Mundhra in Gujarat into one single SEZ which will have a total area of around 7,000 hectares. “This means that if other zones want to have area in excess of the current cap of 5,000 hectares, it could be allowed on a case-to-case basis,” the official said.
The limit was put last April by the same EGoM in the backdrop of widespread protests against land acquisition for a tax-free chemical hub at Nandigram in West Bengal.
Official sources said the commerce ministry will shortly approach the finance ministry for its intervention on lending to exporters. This comes after fears have been expressed that export growth in September could shrink to 10 per cent, from the earlier month’s record of nearly 27 per cent. The commerce ministry estimates that lending to exporters may have shrunk by as much as 5 per cent in the recent past.
