India and China have finally signed the much-awaited memorandum of understanding (MoU) on the creation of industrial parks, with the Indian government agreeing to grant them the same status in line with the special economic zones (SEZ) and National Investment & Manufacturing Zone (NIMZ).
“The parties confirm that the cooperation on industrial parks shall enjoy the support that the Chinese government grants to overseas economic and trade cooperation zones, as well as the benefits not lower than that envisaged under the prevailing policy frameworks in India, such as Special Economic Zone (SEZ), National Investment & Manufacturing Zone (NIMZ), and existing policies of the state governments, as applicable,” stated the MoU, signed in Beijing during the visit of Vice-President Hamid Ansari to that country.
The decision to set up Chinese industrial parks was approved by the Cabinet Committee on Economic Affairs last week. According to a senior official, who refused to be named, said according same status to the industrial parks as SEZs and NIMZs is bound to result in an uproar. “Don’t forget these are Chinese. They have been flooding our markets for ages now. India has filed the maximum number of anti-dumping cases and duties on Chinese goods. Now, if we are inviting them to come and produce here, coupled with tax relaxations, there is bound to be sharp criticisms and protests. However, we need to keep in mind that India needs investment and we must allow them to come in,” the official told Business Standard.
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Some of the incentives enjoyed by SEZs and NIMZs are related to tax relaxations. SEZs enjoy 100 per cent income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50 per cent for the next five years thereafter and 50 per cent of the ploughed back export profit for next five years. These conclaves also enjoy exemption from minimum alternate tax (MAT) under section 115JB of the I-T Act. However, in 2011 the government had imposed 18.5 per cent MAT on the book profits of special economic zone developers and units. The matter is under litigation now. Besides, NIMZ, under the National Manufacturing Policy, has provisions of tax incentives to small and medium enterprises (SMEs).
The MoU also stated the parks will be monitored by an Industrial Park Cooperation Working Group, which will meet alternately in India and China to assess the quantum of investments and progress of the various investment proposals that comes in. The working group will have equal number of representatives from both countries to identify and agree upon the detailed modalities for implementing the cooperation under this MoU.
The idea to have Chinese industrial parks was mooted by the previous United Progressive Alliance (UPA) government to lessen the soaring trade deficit with the country. During the 5th India-China strategic dialogue held in August 2013, both sides had identified five states — UP, Andhra Pradesh, Gujarat, Maharashtra and Karnataka — where the parks would be set up. In October, a Chinese delegation had visited the potential sites in these states. However, the plan got delayed with severe resistance from some parts of the Indian industry, especially SMEs which were apprehensive that this will give China leeway to dump goods into the markets here. And a government, which was then heading for the general elections, did not take the risk of going ahead with the proposal any further.
According to officials, the Chinese embassy had even written to the Uttar Pradesh State Industrial Development Corporation seeking 400 acres for the project, with special focus on manufacturing electronics.
The Chinese government is learnt to have even approached Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) to set up industrial parks in the state. In December 2013, the Haryana government had floated a proposal to set up a Chinese Industrial Park. The state government had at that time offered 500 acre of land to the Chinese with single window clearance to investment proposals of over Rs 100 crore.
Apparently, China is keen to set up manufacturing units related to agro-processing and electronics. The government believes such a move will help in reducing the widening trade deficit that India suffers with China. India faces a humongous trade deficit with China as a result of which the government is pushing China to source more products from here. In 2012-13, India suffered a historic trade deficit of $40.78 billion with China, compared to $39.40 billion in 2011-12 and $27.95 billion in 2010-11, according to ministry of commerce and industry data.