Tamil Nadu - Chennai

Government wants RBI to change SEZ classification

CHENNAI: The government has asked the Reserve Bank of India to change its classification of special economic zones from real estate to infrastructure projects, according to L.B. Singhal, Director-General of the Export Promotion Council for Export-Oriented Units and SEZs.

This will spur exports and, through backward integration, give a boost to investment, the construction industry and employment generation, all badly hit by the global economic crisis, he said, speaking at an ASSOCHAM summit on SEZs here on Tuesday.

Mr. Singhal said the empowered Group of Ministers had decided to make the recommendation at a meeting held in August, after which the Commerce Ministry made a written request. An RBI decision is still pending.

The RBI now considers SEZs on a par with the commercial real estate sector. This means promoters cannot access external commercial borrowings and have to pay a higher interest on bank loans, since banks need to provide higher provisioning for the risky real estate sector.

“We need to be able to access funding in the form of debt, not just equity or internal accruals,” said R. Sannareddy, chairman of Sri City, an SEZ developer, explaining the rationale behind the demand for the infrastructure status. He pointed out that SEZs developed large areas of industrial infrastructure, and wondered why industrial parks were given infrastructure status, while SEZs were not.

Mr. Singhal said the economic slowdown was showing in the delay in several planned SEZ projects, but these were long-gestation projects, so they could hold on until the economic tide turned in “six-eight months.” The immediate problem was the non-availability of funds, and this could be solved by a change in status.

Through backward integration, SEZs could be the one sector which could “break the inertia,” Mr. Singhal said.

The government was also working on other demands of the SEZ industry, including service tax exemption being extended to services provided outside the tax-free zones, extending tax refund benefits to SEZs under the duty entitlement passbook scheme and the duty drawback scheme, and providing CENVAT credit benefits to manufacturers supplying SEZ developers. The Finance and Commerce Ministries were working to implement these decisions, Mr. Singhal said.

S. Ramasundaram, Chairman and Managing Director of the TIDCO, said the government was also working on a long list of projects. The government decided to create an aerospace investment region on a 3000-4000-acre site near Chennai. An IT investment region would also be created in the region to the south and west of the city.

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