Date:10/02/2006 URL: http://www.thehindubusinessline.com/2006/02/10/stories/2006021003010100.htm

Back New SEZ rules come into effect — Kamal Nath hopeful of Rs 1 lakh crore investments

Our Bureau

New Delhi , Feb. 9

THE much-awaited Special Economic Zones Act 2005 would come into effect from Friday with the requisite SEZ rules providing for simplification of procedures, single window clearance, easy compliance procedures and documentation and the number of services to be rendered from SEZs and areas governing SEZ all having been put in place.

Announcing this at a news conference here, the Union Commerce & Industry Minister, Mr Kamal Nath, said investment of Rs 1,00,000 crore over the next three years with an employment potential of over five lakh would be likely from the new SEZs, besides indirect employment during the constructing period of the SEZs. He said heavy investments would be likely in sectors such as information technology, pharma, biotechnology, textiles, petro-chemicals and auto components.

The SEZ rules announced today provide for, among others:

Simplification of procedures for development, operation and maintenance of SEZ and for setting up and conducting business in SEZs.

Single window clearance for setting up of an SEZ and a unit in SEZ and on matters relating to Central as well as State Governments.

Documentation for various activities of the units cut to the barest minimum with a stress on self-certification.

No requirements for providing bank guarantees in a bid to reduce transaction cost.

Contract manufacturing for foreign principals allowed. Option to obtain sub-contracting permission at the initial approval stage.

Import-Export of all items, through personal baggage allowed.

Fiscal incentives: Mr Nath also spelt out the various fiscal incentives being extended to units in SEZ as also SEZ developers, including tax holidays.

He said that for the first time such fiscal incentives for exporters have been put into the Act and any changes need to be brought only through an amendment to the Act, giving stability of policy regime to units.

Provision for OBUs: He further said the Act provides for setting up offshore banking units (OBUs), which would be governed by the RBI regulations.

The OBUs would also qualify for tax exemption on the lines of the SEZ units and non-resident Indian deposits in these banks would not attract tax deduction at source on interest income.

On flexible labour laws for SEZs, the Minister clarified that the Act or rules framed, though do not extend any such flexibility, it was up to the State Governments to do so to attract investment, including foreign direct investment.

Minimum area requirements: On the question of minimum area requirements stipulated for various categories, he said multi-product SEZs would have an area of 1,000 hectares or more. Service-sector SEZs must have an area of 100 hectares or more.

To bolster sectors where the country commands competitive advantage such as gems and jewellery, IT, bio-technology, sector-specific SEZs in these sectors could be set up over an area of 10 hectares or more, he said adding that for all other sectors, the area must be at least 100 hectares. He clarified that the area requirement for multi-product SEZ has been relaxed to 200 hectares and for sector-specific SEZs to 50 hectares for certain special category States of North East, Himachal Pradesh, Uttaranchal, Jammu & Kashmir, Goa and Sikkim and all Union Territories keeping in view the difficulty in finding large tracts of adjacent land in such places.

New SEZs: Mr Nath said so far approvals had been granted for setting up 117 SEZs, including three free trade warehousing zones spread over 15 States and two UTs, of which seven new SEZs have become functional, with the rest of them being in various stages of implementation. The seven new SEZs, currently operational, have areas ranging from 5 acres in the case of Manikanchan SEZ (West Bengal) for gems and jewellery to 2,600 acres (first phase 132 acres) SEZ at Indore. The Mahindra City SEZ in Chennai has an area of 665.68 acres specialising in IT, hardware and bio-informatics.

The Minister said exports from the SEZ last year were $4 billion and during the first three quarters of the current fiscal $3.5 billion. Currently, 948 units are in operation in the SEZ, providing employment to more than a lakh.