CAG report on SEZs performance eye-opener : PHD Chamber

CAG report on SEZs performance eye-opener : PHD Chamber

CAG report on SEZs performance eye-opener : PHD Chamber


December 30, 2014
New Delhi

CAG report on SEZs performance eye-opener : PHD Chamber

lack of a robust policy design, efficient implementation and an effective monitoring seriously jeopardized one of India’s efforts to industrialize through SEZs, said the industry body

Mr. Alok B Shriram, President, PHD Chamber of Commerce and Industry while appreciating the findings of the CAG report on SEZs, recently tabled in the Parliament, said the report pertains deep insights for the growth and productivity of the manufacturing sector in India as well as provides road for the development and expansion of the MSMEs sector. 

Research Bureau of PHD Chamber also participated in the CAG report on SEZs and provided feedback response of Developers, Units within SEZs, Trade and Industry, and mainly pointed towards, a need for revamping single window clearance system, efficient tax administration and review of the decision to introduce DDT and MAT.

A new regulatory framework was announced in April 2000 as a part of the EXIM Policy, which was formalized by apparently a more comprehensive SEZ Act in February 2006.  Continued endeavor of the Act was to promote economic growth and development in the form of greater economic activity, promotion of exports, investments and creation of employment and infrastructure.  However, the fact is that the SEZ initiative could never take off in the country, said Mr. Alok Shriram.

The findings of the report are important building blocks for Make in India, Smart Cities, NIMZ, Economic Corridors etc. The lack of a robust policy design, efficient implementation and   an effective monitoring seriously jeopardized one of India’s efforts to industrialize through SEZs. Other policy initiatives need to be wary of it, he said.

The report has observed that there was a requirement of multiplicity of approvals for SEZs with just around 39%  of them becoming operational after their notification.  Seventeen States were not on board in implementing the SEZs Act with matching State level legislations, which rendered the single window system not very effective.

Generation of employment opportunities, encouraging investment (both private and foreign) and increasing India’s share in global exports are the three important objectives of the SEZ Act. C&AG’s report has also found certain nonperformance of targets in employment (ranging from 45% to 96%), investment (ranging from 24% to 75%), and export (ranging from 46% to 94%).

As the report finds, it is a well-known fact that the SEZs attracted the STPIs and EOUs due to its attractive taxation policy and sun setting clauses of the erstwhile STPI and EOU units. The achievements of SEZs in the country are contributed by a few SEZs located in some developed States, which were mostly established prior to enactment of the SEZ Act.

Over a period of time, the growth curve of SEZs had indicated preference for urban agglomeration by industry, undermining the objective of promoting balanced regional development.

As the CAG report finds, the lack of cooperation from state governments also added to the woes of investors. Investors’ confidence was completely shaken, discouraging them from investing in SEZs. The real estate developers who had an edge over the industrial units, in acquiring land, managed to get SEZs approved. Soon their euphoria also died down and they started seeking de-notifications.

Land appeared to be the most crucial and attractive component of the scheme. Out of 45635.63ha of land notified in the country for SEZ purposes, operations commenced in only 28488.49ha (62%) of land.

SEZs involve a wide range of activities that spread over various ministerial domains and different layers of government. Coordination at all these levels is crucial for their success, said Mr. Alok Shriram.

SEZ developers have largely blamed declining performance of these zones to the levy of minimum alternate tax and dividend distribution tax in the 2011 budget.

According to the respondents (98%), MAT/DDT should be discontinued so as to keep the developers/units encouraged. They felt that operating in Domestic Tariff Area (DTA) has become more beneficial as compared to operating within SEZs especially after withdrawal of exemption for Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) for the SEZs. Therefore, they considered it as a big blow to the promotion of SEZs in the country.

In the light of these existing issues, the government should undertake sound policy measures viz. a clear cut exit mechanism is to be framed; redressal of grievances is to be made more effective, withdrawal of exemption of MAT/DDT should be discontinued and once the policy towards benefits is made then it should not be changed till “time frame” is over.



Koteshwar Prasad Dobhal
Consultant (PR)