Nobody is sure of what to blame for the near collapse of the great SEZ dream. While many blame it on the global economic slowdown, some see policy confusion as the major culprit and for many others, its lack of comprehension in coordination. While all is said and done, the fact continues to hurt the industry’s growth expectations as the story of Special Economic Zone (SEZ) in India are dying a slow death.
The idea of SEZ just shot to glory as India was considered an ideal destination for investment a few years back. Investors across the globe lined in for investing in the Indian market and the hype around SEZ was celebrated much to its fame. But due to several factors leading from global economic slowdown to unstable policy environment created a gap that is increasing growing wider between the new SEZ proposals getting approved and those becoming operation in the given timeline.
Going back to history, India became the first Asian country to come up with an Export Processing Zone and years down the line many more of such exporting hubs came up in the country. Country’s Special Economic Zone policy was announced in 2000 and the SEZ act came into effect in 2006 which simplified procedures drastically and allowed for a single-window clearance.
Investors across the globe welcomed the SEZ policy with open arms and India saw a surge of investment coming to the country. Hundreds of proposals came knocking the government’s door and many got approval, many were pending and a few went operational over the years. According to the current statistics, there are 583 approved SEZs, 381 of them are notified; 148 zones went operational with 3,308 units. However, the dark truth is that the investors’ honeymoon with SEZ did not last long as many filed for de-notification of their projects. Between December 2008 and July 2011, as many as 33 developers surrendered their SEZ projects. Many reasons were highlighted including economic slowdown, scarcity of skilled work force, poor market response, decreased demand for IT/ITeS, and imposition of minimum alternate tax and dividend distribution tax on SEZs. The de-notification requests are from some of the giants in the industry such as Bata India, Unitech Infopark, Maytas Ventures, DLF, Essar SEZ Hazira, and Satyam Computer Services etc.
The growth rate of exports also reduced comparatively over the year. During 2009-10 period, exports from SEZs increased by 121.40 percent at 2,20,711.38 crore as compared to 99,689 crore in the previous year. But a year later exports could only generate a 43.11 percent growth year-on-year at 3,15,868 and later during April-September 2011-12 period, exports registered a 26.20 percent growth over the corresponding period last fiscal.
In what seems to be an attempt to revamp the lukewarm response to the much-hyped SEZ, the Ministry of Commerce & Industry is busy promoting National Investment and Manufacturing Zones (NIMZs), which is said to be just another avatar of SEZ itself. However, the fundamental difference between both is that SEZ are purely for exports while the central theme of NIMZs is to boost domestic manufacturing. Keeping SEZ alive seems a necessity for India’s ideal economic growth though many term SEZ as the graveyard of democracy.