Positive impact of SEZs is larger than what numbers show
Nov 23 2012
Interview: B K Subbaiah, COO, Mahindra world City Jaipur
What according to you are the causes of sudden fall in the SEZ story?
Over one-third of India’s exports are contributed by special economic zones (SEZs). As on 30th September, investments worth Rs 2,18,795.41 crore have been made in SEZs and this sector has generated employment to 945,990 persons. Given these facts, we can say that SEZs are very strong and unique vehicles of economic growth.
But, the recent imposition of MAT and Dividend Distribution Tax on SEZ units and overall slowdown in world economy has curtailed the growth and potential of SEZs in India. Also, various other policies of the government such as EOUs and other export incentives available to the units in domestic tariff areas are also restricting export oriented companies to set up their units in SEZs.
How has M&M been able to overcome the problems of land, environment, bureaucratic hurdles in setting up the two SEZs in Jaipur and Chennai, and what is being done to get approvals for the phase II of development at Chennai? Are you looking at more SEZs anywhere in India?
We share our vision for the project with relevant government authorities and work with them to transform the economic landscape of the regions we set up our projects in. While availability and acquisition of suitable lands with required connectivity and infrastructure support is a challenge, we are committed to this business and have identified a few potential locations for setting up industry hubs and new urban nodes. Whether or not these new developments will be under the SEZ umbrella, the target industries and such considerations shall be driven by market forces and the supporting policy framework.
What are the main priorities that a corporate house should have planned before they venture into the business of SEZ, so they do not face problems like many of the big companies like RIL are facing?
As mentioned earlier, availability of contiguous land is the prime requirement for any development project and hence a hassle free acquisition of land is exceedingly important. Market driven prices and a fair mechanism of compensation to the landowners must be planned to give them adequate and long-term returns. It is also important to educate and involve the stakeholders in the development and sharing the larger picture and its positive impact on them. Measures such as training and development of the local people to become ‘employable’ in the new industries being set up goes a long way in winning their trust, it also benefits the customers as a skilled work force is available in close vicinity.
How are SEZs considered to improve the overall economy of the region and the country, and what kind of returns companies are getting by investing into your SEZs?
If we look at three key parameters on which SEZ can be evaluated — exports, investments and direct employment — we see extraordinary performance in each of these. However, the socio-economic impact of these zones is even larger than demonstrated by the numbers. The SEZs contribute to improving the peripheral infrastructure and increasing the base of vendors, and suppliers (largely in the SME sector) that support the SEZ units and their employees. SEZ have also been addressing the urban challenge for India by developing new economic nodes away from the established city centres thus enabling more planned and distributed urbanisation.
SEZ customers across Mahindra World City have been growing at industry beating pace. Even through the downturn, the number of employees working in our locations, have been increasing indicating healthy financial returns and growing confidence in the ecosystem that we spoke about.
MWC Chennai has grown from Rs 1,540 crore in exports in 2008-09 to Rs 4,581 crore to 2011-12 and the employment increased from 12,000 to 30,000 employees.
The location of an SEZ plays a vital role in its growth. Any location, which has certain inherent strengths like availability of qualified and trained employable human resources, power, water, and excellent air , rail and road connectivity, would grow at a faster pace. Keeping the above in mind, geography becomes extremely important.
Does it help to mitigate losses in turbulent times if companies are located in an SEZ?
Apart from the fiscal benefits, SEZ can also provide companies with host of operational benefits, which can act as a shield in turbulent times. The cost of production in SEZs is lower due to direct tax benefits, which accrue upfront.
In terms of cost how do companies benefit by working in an SEZ, and which are the sectors that can flourish?
In terms of fiscal benefits there are some tax holidays, exemption from customs duty and excise duty, central sales tax as well as local levies and octroi and road tax. Also, there are no capital gains tax on shifting units to SEZs. It is also noteworthy that our infrastructure and facilities along with a collaborative approach towards improving the overall competiveness of our customers ensures higher productivity and lower downtime, which currently mars the Indian industry. Some of the key sectors that are currently flourishing include IT, auto and auto ancillaries and light engineering.
What needs to be done to improve the overall outlook of the SEZ sector?
To preserve the credibility of India’s commitment to sustainable economic development, it is necessary that initiatives like SEZ, which have a proven record of unstinted growth in exports, investments, infrastructure development and employment should be nurtured and encouraged to grow rather than curtailed through uncalled policy changes.