State government staff may be posted at SEZs for faster clearance

State could soon get an active role in the functioning of special economic zones, with the commerce department considering posting a state government official at the duty-free enclaves to address clearance related hurdles.

The contemplated move is part of the government's proposed SEZ reforms, which are aimed at making these enclaves attractive for business and enhancing domestic manufacturing. A senior official said the commerce department will also hold talks with other departments and states to operationalise the online single-window approval mechanism for these zones.

It is also pushing for optimal utilisation of infrastructure and excess manufacturing capacities in SEZs by the outside units. The matter is being discussed with the revenue department as it will require duty exemption benefits. "Units in SEZs are not functioning. This will ensure optimal utilisation of machinery and related infrastructure," said the official. Earlier this year, the government allowed SEZ developers to open infrastructure facilities like schools, colleges, housing and banks to those living outside the zones to ensure optimum utilisation of SEZs and help developers get early returns.

Of the 352 notified SEZs, only 168 are operational, which is defined as having at least one functional unit. "We are working on a comprehensive strategy to enhance the performance of SEZs, which includes getting states on board, singlewindow online system of clearances and integration of power plants and ports. We need to sell SEZs better and improve the clearance part," the official told ET.

This could help improve land utility in SEZs, given that of 45,635.63 hectares notified for the development of SEZs, actual operations have taken place only in 28,488.49 hectares, or 62% of the notified land. Developers are struggling to attract units. Commerce secretary Rajeev Kher is expected to hold a meeting with the state governments this month to discuss ways to enhance approvals and productivity of these zones. The commerce department will likely propose that the joint development commissioner of the SEZ be a state government official to facilitate clearances.

"We need to involve state governments more as we know that land, labour and environment is a state issue. State governments are not willing to give power to our development commissioners, so this could help," said the official.

Towards promoting ease of doing business in these zones, the government will also come out with integration of customs procedures on a single online window. "We are aiming for least interference of manpower in SEZs," he said. SEZ units enjoy zero import tariff but can sell in a domestic tariff area (DTA) only at full customs duty of the final product, making the products uncompetitive.

Source: PropertyatNeoDevelopers.Wordpress.Com

State of special economic zones is warning for land acquisition

There is strong evidence that past acquisitions of land for development have gone awry. That should serve as a warning, as the Prime Minister Narendra Modi's government enters the second year in office and proposes to continue its battle for a new, controversial land acquisition law.

A 2012-13 report of the Comptroller and Audit General of India, the official auditor of the central government, revealed these key findings:

No more than 62 percent of land, much of it acquired from farmers, for special economic zones (SEZs) has been used for its intended purpose: to boost manufacturing, exports and jobs.

Most SEZs are populated with information technology (IT) and IT-related companies, while manufacturing accounts for only 9 percent of all SEZ projects.

SEZs fell short of their job, investment and exports targets by wide margins. For instance, they generated less than 8 percent of the jobs expected.

The auditor analysed a representative sample of 187 developers and 574 SEZ units spread across 13 states (Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal) and the union territory of Chandigarh for the period 2012-13.

The new land acquisition bill piloted by the government of Prime Minister Modi has been sent to a parliamentary committee for reconsideration after facing opposition and accused of being against farm interests.

The government's argument is that India needs to fast track the bill, so that land can be made available for industries-to generate employment and power economic growth.

What about SEZs? They were created, with motives similar to those expressed by the government, under the Special Economic Zone Act, 2000. This was enacted in 2005 to make SEZs growth-engines of the economy. An SEZ is a specifically delineated duty-free enclave, deemed foreign territory for the purpose of trade operations, duties and tariffs.

The previous United Progressive Alliance (UPA) government cleared 576 SEZs covering 60,375 hectares, of which 392 SEZs covering 45,636 hectares were notified (approved land) till March 2014. But on the use of land, of the 392 notified zones, only 152 are operational, accounting ro4 28,489 hectares.

The land allotted to the remaining 424 SEZs (31,886 hectares) has not been put to use (52.8% of total approved SEZs), although approvals and notifications in 54 cases date back to 2006. A look at some states and the percentage of idle land, based on the audit report:

• Odisha 96.6 percent
• West Bengal 96.3 percent
• Maharashtra 70.1 percent
• Karnataka 56.7 percent
• Tamil Nadu 49 percent
• Andhra Pradesh 48.3 percent
• Gujarat 47.5 percent

In 30 SEZs (1,858 hectares) in Andhra Pradesh, Maharashtra, Odisha and Gujarat, developers made no investments; the land is idle and has been in their custody for between two and seven years.

This apart, jobs, investment and exports also fell short of targets by a wide margin, the audit report found.

• Employment fell short by 93 percent: SEZs generated 0.2 million jobs instead of 3.9 million.
• Investments fell short by 59 percent: SEZs were to attract investments of Rs.194,662.5 crore ($36 billion) and no more than Rs.80,176.3 crore ($14.8 billion) was invested.
• Exports fell short by 74 percent SEZs exported goods valued at Rs 100,579.7 crore ($18.6 billion) instead of the projected Rs.395,547.4 crore ($73. 2 billion).

Manufacturing was supposed to be a key focus of SEZs, but that did not happen. Of the 625 approved projects, only 152, or 24 percent, of the approved projects were operational. In IT/ITES, out of 354 notified projects, 91 were operational, in multi-product zones, out of 60 approved, 13 percent operations. It was 31 and a mere one for biotech, 26 and nine for pharma and 153 and 38 for others.

Almost 56 percent of the approved projects are from the IT sector, while only 9 percent are in the multi-sector, manufacturing business. While 59 percent of of the operational SEZs are in the IT sector, only 8.5 percent are from the manufacturing sector.

"The large number of IT/ITES SEZs coincides with the expiry of the 10-year income-tax break period allowed to IT sector under Software Technology Park Scheme which gave a fillip to the sector. Several units closed and shifted to SEZs to avail of the benefits offered in SEZ area," the report said.

Among the states, out of the 392 notified SEZs in India, 301 (77 percent) are located in states regarded to be developed. Andhra Pradesh (now bifurcated into Telangana and Andhra Pradesh) has 78 units, followed by Maharashtra (65), Tamil Nadu (53), Karnataka (40), Haryana (35) and Gujarat (30).

A key reason for the uneven spread of the SEZs across the states, according to the audit report, was the absence of single-window clearance in many states. This led to approval delays.

SEZs are mainly located close to urban areas. For example, in undivided Andhra Pradesh, of 36 operational SEZs, 20 were close to the capital city, Hyderabad.

The report, in conclusion, said: "The SEZ policy and procedures need to be integrated with the sectoral and state policies with the involvement of the unique advantageous points therein."

Source: PropertyatNeoDevelopers.Wordpress.Com

SEZ: Commerce Ministry to take up denotification, extension proposals tomorrow

The Commerce Ministry will tomorrow take up 22 proposals of SEZ developers that have approached it to surrender their tax free zones.

The 22 developers include Tamilnadu Industrial Development Corporation and Sunwise Properties.

The Board of Approval (BoA) chaired by Commerce Secretary Rajeev Kher would take a decision on these applications in its meeting tomorrow.

Besides, the board would also take decision on the applications of 27 special economic zone developers that have sought more time to execute their projects.

Those who had asked for more time include Gulf Oil Corporation Ltd, Vedanta Aluminium Ltd, Kandla Port Trust and Indiabulls Industrial Infrastructure.

About the developers wanting to surrender their projects, the BoA meeting's agenda note said: "In these cases, a formal approval has been granted by the DoC (Department of Commerce). However, since there is no significant progress made by the Developer/co-developer, the concerned DC (development commissioner) has proposed for cancellation of formal approval granted to the developer".

In February, the government had cancelled 56 tax free enclaves.

The BoA would also consider the proposal of Infosys Ltd to set up a new IT/ITeS zone in Karnataka.

SEZs, which emerged as major export hubs, started losing sheen after the imposition of minimum alternate tax ( MAT) and dividend distribution tax ( DDT).

Industry has sought a reduction or removal of these taxes to boost investments.

Exports from these zones increased from Rs 22,840 crore in 2005-06 to Rs 4.94 lakh crore in 2013-14.

The Commerce Ministry is struggling to increase exports as the country's shipments in the last three years have been hovering around $300 billion.

Source: PropertyatNeoDevelopers.Wordpress.Com

Commerce Ministry take steps to improve ease of doing business in SEZs

Seeking to improve ease of doing business in SEZs, the commerce ministry has permitted units in these zones to send goods for purposes such as repair and maintenance to outside market or abroad on a self-attestation basis.

"With a view to promote the ease of doing business further, it is advised that SEZ units are now allowed to remove goods for repair, replacement, testing, calibration, quality testing and research and development purposes also on self attestation basis under intimation to the specified officer and on giving an undertaking to the authorised officer for return of such goods," the ministry said.

Earlier units in the special economic zones would have to take an undertaking from a recognised laboratory or institution to send the goods for purposes such as repair and maintenance.

The move is part of steps the ministry is taking to revive investors confidence in SEZs.

In a bid to promote exports from Special Economic Zones, government has extended all the incentives to such units that are available to exporters outside such enclaves.

Exports from SEZs have gone up from Rs 22,000 crore in 2005-2006 to Rs 4,94,077 crore in 2013-14.

The government is also taking steps to improve India's ranking in ease of doing business. It is aiming to improve the ranking within 50th position in the next two years from the current 142nd.

Source: PropertyatNeoDevelopers.Wordpress.Com

Irdai allows applicants to set up insurance office in SEZ

The Insurance Regulatory and Development Authority of India (Irdai) has brought out the Irdai International Financial Service Center Guidelines, 2015.

According to these guidelines, an applicant can set up an IFSC Insurance Office (IIO) in the Special Economic Zone (SEZ) to carry on reinsurance business.

The regulator said these insurers or re-insurers can accept reinsurance business of all classes of business within the SEZ and from outside the country. They can also accept re-insurance business from the insurers operating in the DTA in accordance with the Irdai regulations on reinsurance.

Here, the IIO may retrocede upto 90 per cent of its reinsurance business. The surplus available after such retrocession arrangements shall be held in the form of government securities issued or in deposits with scheduled banks.

An applicant being an Indian insurer may (except a statutory body) also establish an IIO to transact specified Direct Insurance Business within the SEZ. However, the same IIO granted Certificate of Registration may also transact specified Direct Insurance Business.

Source: PropertyatNeoDevelopers.Wordpress.Com

‘Finance SEZs’ on the horizon to win back Nifty, Re trading abroad

When the SEBI board meets on Sunday, it will discuss a policy framework for establishing dedicated ‘FINANCE SEZs’ in the country as part of a plan to lure back the large-scale rupee and Nifty derivatives trading taking place abroad.

Roughly half of the global trading in rupee and Nifty takes place in locations such as Singapore, London and Dubai. It is felt that a substantial part of the trading in rupee and Nifty derivatives market can be captured by Indian firms, if appropriate regulatory and tax regimes are provided within the country.

Since last December, intense discussions have been on between officials of the FINANCE Ministry, SEBI and other regulatory agencies on the ideal policy framework necessary for this. With the broad contours of this policy initiative in place, the upcoming SEBI board meeting will take it forward, sources told BusinessLine.

Also, FINANCE Minister Arun Jaitley is slated to address the SEBI board on Sunday as part of customary post-Budget meeting.

Already, GIFT City in Gujarat is looking to emerge as an “offshore haven”. The international exchange of National STOCK EXCHANGE is expected to be set up within the SEZ area of GIFT City. If the fund management activity on India-related financial products is brought back to the country, there could be multiple benefits such as enhanced revenues for local authorities.

But it remains to be seen if the Center will hand out incentives such as exemption on Securities Transaction Tax on TRADES put through in the international bourses located in the ‘finance SEZ’, said experts. With the implementation of new Indian financial code and full capital account convertibility seen as inevitable for economic reforms in India, it would make sense to have a policy framework around ‘finance SEZs’, the sources said.

This could be the first step towards a larger objective and long cherished goal of creating an international financial services center in India.

The Percy Mistry Committee report in 2007 had recommended fundamental reform of finance to enable India compete with London and New York.

Source: PropertyatNeoDevelopers.Wordpress.Com

Union Budget must have a SEZ revival plan

In the run up to Budget FY16, there have been speculations, expectations, apprehensions and wish-lists from all quarters. But since the Modi government stormed to power on the plank of economic growth and job creation, it will be of particular importance to see how this budget sets the tone for achieving these strategic goals. Expectations are high that the budget will unveil initiatives to promote manufacturing, crucial to ensure high growth with job creation. The government has recently launched the Make-in-India mission (MIIM) as “a lion’s step towards making the country a destination for global manufacturing business”. Indeed, a number of measures have also been announced to make doing business in India easier as part of the mission. But, unfortunately, announcements to revive special economic zones (SEZs) - which could be central to the MIIM—are still pending. The critical question is, “Will there be announcements to restore some tax incentives to SEZs in this budget?”

The SEZ Act - launched in 2006 with great expectations - was the first giant step towards promoting large-scale industrialisation. The accompanying table shows that despite changing global conditions and unstable policies, it has made phenomenal progress in terms of employment and investment, based on the incentives offered by the government. But after the MAT and DDT incentives were withdrawn in 2011, it has become difficult for SEZs to attract new units. The table shows that the number of SEZs has declined sharply, and more than 15,000 hectares of the SEZ land has already been denotified since 2012. This means that a large chunk of industrial land has been diverted to mostly real estate use. The available data shows that over 57% of the processing area in notified SEZs is lying vacant. Can India, with its manufacturing ambitions, afford this?

Ever since the new government has taken over, there have been hints that the SEZs will be revived. After the MIIM was launched in September, these expectations were further fuelled. However, no announcements have come. It was recently reported in the media that the budget is likely to kick-start financial services SEZs, the first of which is to come up in the Gujarat International Finance Tec-City GIFT) in Ahmedabad. The National Institute of Public Finance and Policy that vehemently criticised SEZs for revenue foregone in the past seems to have recommended several tax incentives to these SEZs. But the fate of a large number of SEZs, covering over 56,000 hectares, remains uncertain.

Further, surprisingly little mention has been made of SEZs on the MIIM website. Is it that no complementarity between the two is seen? In the present global scenario, when industrial capital is becoming increasingly mobile, SEZs can be a potentially strong tool to promote investment in particular by foreign investors. Restoring fiscal incentives and integrating them with the MIIM will be vital to promote high value-added manufacturing. This calls for three fold policy measures.

One, adopt a smart approach to tax (or even MAT) incentives. It is time that we drop the ‘all or nothing (horizontal) approach’ to tax incentives and adopt smart incentives that are selective and focused. This means that the incentives should be linked to priority industries as are covered in the MIIM.

In a comparative analysis of SEZs in Korea, Taiwan, and China, I find that all these countries have used tax incentives imaginatively to promote industries of strategic importance. In Taiwan, for instance, in the initial phases of SEZ evolution, all export processing zone (EPZ) enterprises were exempt from taxes for a period of five years. During the 1970s, traditional export items ceased to be eligible for tax incentives; only the upcoming export industries could avail them. In the late 1980s, the focus of incentives shifted to technology-intensive industries. In China, the early SEZs aimed at attracting any type of investment activity but later the focus shifted to high-tech industries which were considered eligible for tax benefits. South Korea has a differential tax regime within its zones wherein tax incentives differ across industries. It must also be noted that in most countries, the first year of production (not approval) is counted as the first year of tax holiday for SEZs units. This benefits technology-intensive, risky industries in entering into SEZs.

Two, allow domestic market sales (DTA) by SEZ units, after the payment of corresponding taxes on the raw materials that they have foregone. This practice is followed in many countries including the USA, China and the Philippines. In the cases where there are no domestic suppliers, DTA sales may be allowed without any payment of duty. One caveat is that the SEZ units will continue to pay income tax on the profits from sales to DTA units. DTA sales strengthen SEZs’ linkage with regional industries and facilitate technological transfer from SEZs to domestic companies. Under various RTAs, imports of agreed products from partner countries to India enjoy nil or negligible duties. But the SEZ policy subjects all SEZ exports to DTAs to the full range of duties. This is a perfect recipe to export jobs from India.

Finally, don’t approve new SEZs unless they are located in NIMZs. Location of SEZs in NIMZs will create economies of scale and better backward linkages with domestic industries.

The new government has promised growth and job creation. Reviving economic activity in SEZs with imaginative policy making and political will may be an easy way to deliver on that pledge.

Source: PropertyatNeoDevelopers.Wordpress.Com

Govt gives time relief for 211 SEZ developers

The Centre has given more time to 211 special economic zone (SEZ) developers during the last three years to execute their projects, Parliament was informed on Wednesday.

The letter of approval granted to SEZ developer is valid for three years within which "effective steps" are to be taken by the developer to implement the approved project.

"The Board of Approval (BoA) may, on an application by the developer, extend the validity period of the letter of approval. In last three years and current year, 224 developers have sought extension of time for the execution of their projects," Commerce and Industry Minister Nirmala Sitharaman said in a written reply to the Rajya Sabha.

"Out of 224 applications, 211 developers have been granted extension of time," she said.

The BoA, a 19-member inter-ministerial body headed by Commerce Secretary Rajeev Kher, deals with SEZ related issues. It provides single window clearance mechanism to developers and units in these zones.

The high number of extensions also reflects the losing interest of investors due to reasons including global economic slowdown and imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) on these zones.

So far, 352 such zones have been notified by the BoA out of which 199 are operational.

Recently, in a BoA meeting, government approved the applications of as many as 56 special economic zone developers to surrender their projects.

Exports from these zones increased from Rs 22,840 crore in 2005-06 to Rs 4.94 lakh crore in 2013-14. The Commerce Ministry is struggling to increase exports as the country's shipments in the last three years have been hovering around $300 billion level.

Replying to a separate question on trade deficit, the minister said that in 2013-14, the gap with China has widened to $36.21 billion.

"India's exports to China are characterised by primary products, raw materials and intermediate products. The exports to China face tariff and non-tariff barriers for agricultural products and limited market access in other products," she said.

In order to boost exports and address the widening trade deficit, Sitharaman said the government has taken a number of measures including market study initiatives to identify specific product lines with export potential, actively taking up issues relating to tariff and non-tariff barriers in bilateral meetings.

"The two sides agreed to take positive steps towards rebalancing bilateral trade and addressing the existing structural imbalance in trade that has a bearing on its sustainability," she added. In 2013-14, the bilateral trade stood at $65.85 billion.

Source: PropertyatNeoDevelopers.Wordpress.Com