Commerce Ministry asks developers to set up SEZs in less developed states

NEW DELHI: Noting that achievements of SEZs are "below potential", the Commerce Ministry today asked the industry to look for opportunities in under-developed states for setting up special economic zones in manufacturing sector.

Speaking at an Assocham function, Joint Secretary in the Commerce Ministry, Anup Wadhawan, said that although the SEZs are contributing significantly to the country's exports, there is a need to focus on improving investment climate in the tax-free zones.

"The achievements are below potential. The gap between approved, notified and operational zones is more. SEZs are confined to only 6-7 states. If you take out the export performance of the IT sector and petroleum, what you left with is less than one-third of total exports," he said.

Till date, of 589 approved SEZs, 389 are notified and only 153 are operational.

He said that "some sort of path correction and modification" is required to make the SEZ model more relevant.

The SEZs have lost their sheen due to the global economic uncertainties and imposition of minimum alternative tax (MAT). The government had imposed MAT and Dividend Distribution Tax ( DDT) on SEZs in 2010-11, which were earlier exempted from almost all levies.

The Direct Taxes Codes (DTC) being considered by Parliament also proposes to do away with the income tax exemption given to them.

The tax incentives were the main attraction for setting up of these export enclaves.

"The whole issue of incentives in my view has undermine the issue of user friendly environment," the Joint Secretary said.

He said there are gaps and shortcomings which need to be addressed and the government is committed to resolving those.

"...to that extent, it has not been a complete success story...the entire issue of land has been a controversial area. The entire image of the sector has been suffered on account of land," he added.

Several developers are facing problems in acquiring land to set up SEZs.

However, the government is expected to come out soon with new norms to revive SEZs.

The initial phase of SEZ scheme, launched in 2006, saw developers lining up in big numbers for projects. It was also seen as a real estate opportunity.

To boost investors confidence in these zones, the government is planning incentives for developers who want to set up SEZs in remote and undeveloped areas.

Exports from SEZs stood at Rs 3.65 lakh crore in 2011-12. With investment of Rs 2.02 crore, these zones provide employment to over 8.45 lakh persons.