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8/14/2019 C&W Special Economic Zones in India
1/20
BUSINESSBRIEFING
SpEcIal EcoNomIc ZoNES IN INdIa
Nveber 2008 | a c&W Ini pub it in
1 Eeutive Sur
2 dwn f Sei Eni Zne
3 Thrust f Inis SEZ Inititives
4 ativities within SEZ
5 pie(ing) The Zne
6 SEZ deveent Stne: an
ansis
7 Zn distributin f SEZs
8 Setr distributin f SEZs
9 Ert Brek-U
10 Eent Genertin
11 Investents
12 Re Estte prjetins
13 Vntge SEZs & chengers
14 Where It Stns
15 cnusin
The net f Sei Eni Znes (SEZ) in Ini n
be tre s fr bk s the 1960s. Inis e twrs
re struture rh twrs SEZs is hwever n
ver reent. Tking their hints fr vrius interntin se
stuies, the Inin SEZs re i f frts with the in
i being the retin f n envirnent fr eerte
inustri rutin. With the SEZ pi set in e, the
process of notication and approvals of SEZs has been swift
with the ke en river being IT/ITeS setr fwe
se b nufturing n uti- rut SEZs. The
etene eris f t his n the rresning
retraction of benets from IT parks have made the IT/ITeS
SEZ esei ttrtive fr uiers. In site f fir
ng eri f eistene f the SEZ i, Ini is sti in
the ress f evising new ens n ws f streining
reure f rvs n eveents. This er
evutes the SEZ grwth str u ti nw n hw the sg
wu unf in the future, keen bserving, the trens, the
iies n rhes n the henges Ini fes with
SEZ.
coNTENTS
daWN oF SpEcIal EcoNomIc ZoNE
Seeds of the present day SEZ model in India can be traced way back to 1965, when Asias rst
Export Processing Zone was set up at Kandla in Gujarat. The Industries Development and
Regulation Act (IDRA) in 1951 laid the foundations but had kept the licensing requirements
stringent, requiring multi-level clearances by a number of agencies. Early 1960s and 1970s
witnessed planned targets which were not met or failed to be even implemented. The scenario,
instead led to some more restrictive set of regulations and reservations instead of making it lessaccessible and thereby defeating the purpose of the regulation.
Reserh & Business antis Gru, Ini, cushn & Wkefie
ExEcUTIV E SUmmaRy
BUSINESS BRIEFING | NoVEmBER 2008
OppOrtunities and Challenges
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
THRUST oF INdIaS SEZ INITIaTIVES
The worlds fastest growing economies, India and China, have a varied approach towards the
Special Economic Zones (SEZs). China made an early move to set up SEZs in 1980s, two decades
before India announced the SEZ policy. The SEZ framework in China was instituted to promote
manufacturing sector and strategically planned at the coast line, in contrast to the approach that India
followed.
In India, the SEZ Act broadly specied the SEZ types - which either catered to a specic sector/
industry or is broadly categorised to identify the nature of activities intended to be carried out in the
SEZ. Basic categories of SEZs were identied and classied as multi-product, sector specic, portbased and warehousing zones. The Act also laid down the maximum and minimum area limits for
each category of SEZs based on the nature of industry or on geographical parameters.
THRUST oF INdIaS SEZ INITIaTIVES
Type of SEZ Requirements
muti-rut SEZ 1,000 hetres n iu 5,000 hetres butreue t 200 hetres in seet sttes*
SEZ for a specic sector / One or more services /prt r airrt
100 hetres but reue t 50 hetres in seetsttes*
IT/Bi-tehng/Nn-nventin energ inuingsr energ equients/es/Ges n Jeweer
10 hetres with iniu buit u ressing re:IT/ITES:100,000 sq., Ges & Jeweer:50,000sq, Biteh/Nn nventin energ:40,000 sq
Free tre n Wrehusing 40 hetres with iniu buit u ressing ref 100,000 sq.,
*Select states include Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal,
Sikkim, Jammu and Kashmir, Goa.
Source: Ministry of Commerce, Govt of India
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
It further provided for activities within an SEZ under broad heads of - manufacturing or tradingand services. Further within these categories, selected types of industries and activities are listed.
acTIVITIES WITHIN SEZ
acTIVITIES WITHIN SEZ
Manufacturing / Trading Service
are, Grents & lether IT enbe servies & Bitehng
autbie & aut cnents R&d Servies
Engineering - light, Hev & aitin Heth crephreutis Finni Servies
F pressing Knwege Servies
Tee Equient Entertinent, leisure & Reretin
cuter Hrwre & mir- eetrnis Srts & Rete ativities
cnsuer Eetrnis & aines orgnise Reti
Ges & Jeweer Business Servies
W, Rubber, psti & lether pruts Wrehusing & Tre Rete Servies
Hnirfts
Source: Ministry of Commerce, Govt of India
India leads the count with around 250 notied SEZs with the list continuing to expand; China has
only about six SEZs but on a much larger scale, which are in no way comparable to India. This made
the Chinese SEZs leverage onto the scale and infrastructure more successfully. However, the Indian
government is promoting the SEZs at relatively small scale, with minimum of 10 hectares of area,
permitting private participation and attractive tax incentives, all of it which has made this proposition
attractive for developers to build SEZs across India.
polIcE(ING) THE ZoNE
With the sector sizing up attractive investment and attention from various quarters, manning
the system and reducing the operational frictions has become vital. For providing a platform for
removing the structural impediments and easing the complicacies involved, the SEZ Rules were
framed for:
Simplied procedures for development, operation, and maintenance, and also for setting up units
and conducting business in SEZs;
Single window clearance for setting up an SEZ or setting up a unit in SEZ;
Single Window clearance on matters relating to Central as well as State Governments;
Simplied compliance procedures and documentation with an emphasis on self certication.
Different minimum land requirement for different class of SEZs.
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
Demarcating the processing and non processing zones wherein the processing area wouldcomprise of the SEZ units and the non-processing area will host the supporting infrastructure.
While the SEZ Rules smoothened the operational formalities, the SEZ Act further demarcated
the areas for foraying the SEZ domain. The Act provides for setting up of SEZs either jointly or
severally by the Central Government, State Government, or any person (including a private or public
limited company, partnership or proprietorship):
for manufacture of goods; or
for rendering services; or
for both manufacturing of goods and for rendering services; or
as a Free Trade and Warehousing Zone.
It further envisaged the role of the State Governments in Export Promotion and creation of
related infrastructure with a Single Window SEZ approval mechanism through a 19 member inter-
ministerial SEZ Board of Approval. The Act provides for certain scal and non scal incentives
both to the SEZ units and developers. Key scal incentives for developers/ SEZ units include:
exemption from customs duty;
exemption from excise duty;
drawback or such other benets (as may be admissible from time to time) on goods brought
from the Domestic Tariff Area (DTA) into a SEZ by the Developer or Unit to carry on the
authorized operations;
exemption from service tax;
exemption from the securities transaction tax in case the taxable securities transactions are
entered into by a non-resident through the International Financial Services Centre (IFSC);
exemption from levy of Central Sales Tax and Local sales tax/ VAT
exemption from Minimum Alternate Tax
Tax Holiday
o For SEZ units -100% of export prots for the rst ve years, 50% of the export prots for
the next ve years, upto 50% of the prot as is debited to the prot and loss account and
credited to the Special Economic Zone Reinvestment Reserve Account (subject to
conditions) for the following ve years.
o For SEZ Developers- 100% prots derived for 10 years, Exemption from Dividend
Distribution Tax
The policy and scal incentives were the prime motivators for the SEZ developments in India.
With the tax holidays for both developers and units, SEZs became an attractive investment
destination. Moreover, the exemptions from duties and lesser governmental interference further
facilitated in attracting investments in the segment.
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
SEZ dEVElopmENT STaNcE: aN aNalySIS
With the policy initiatives and reforms, the SEZs soon took dominance cutting across segments
and sector. Prior to the SEZ Act 2005, 19 SEZs across 9 states were operational in India. Of which
seven were Government EPZ which were later converted to SEZs. After the SEZ Policy came into
effect, formal approvals have been granted to 513 SEZ proposals, out of which, 250 SEZs have been
notied as on August 2008.
opERaTIoNal SEZ (pRIoR To SEZ acT 2005)
State SEZ Category
anhr presh Vishkhtn SEZ muti-prut
Gujrt Kn SEZ muti-prut
Surt SEZ muti-prut
Surt are
Ker chin SEZ muti-prut
mh presh Inre SEZ muti-prut
mhrshtr SEEpZ SEZ Eetrnis, Ges & Jeweer
Rjsthn Jiur SEZ Ges & Jeweer
Jhur Hnirfts
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
opERaTIoNal SEZ (pRIoR To SEZ acT 2005)
State SEZ Category
Ti Nu mrs SEZ muti-prut
mhinr cit, chenni IT, Hrwre & Biinfrtis
mhinr cit, chenni are & Fshin aessries
mhinr cit, chenni aut aniries
Srierubuur Tee Equient, R&d n Servies
Uttr presh NoIda SEZ muti prut
West Beng Ft SEZ muti-prut
mniknhn SEZ Ges & Jeweer
St lke Eetrni cit, Kkt Sftwre deveent & IT enbeservies
Source: Ministry of Commerce, Govt of India
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
ZoNal dISTRIBUTIoN oF SEZS
ZoNal dISTRIBUTIoN oF SEZS
Zones: South
State Formal Approvals In-Principle Approvals Notifed SEZs
anhr presh 94 3 56
Krntk 48 9 23
Ker 16 1 8
pniherr 1
Ti Nu 60 14 42
Tt 219 27 129
Source: Cushman & Wakefield Research & Ministry of Commerce , Govt of India
ZoNal dISTRIBUTIoN oF SEZS
Zones: West
State Formal Approvals In-Principle Approvals Notifed SEZs
dr & Ngr Hvei 4
G 7 3
Gujrt 45 9 22
mh presh 13 6 4
mhrshtr 95 36 35
Rjsthn 8 10 5
Tt 172 61 69
Source: Cushman & Wakefield Research & Ministry of Commerce , Govt of India
Suth
West
Est
Nrth
42%
17%
7%
34%
Fr arvs In prinie arvs Notied SEZs
20%
22%
14%
44%
51%
16%5%28%
Suth
West
Est
Nrth
Suth
West
Est
Nrth
Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
ZoNal dISTRIBUTIoN oF SEZS
Zones: North
State Formal Approvals In-Principle Approvals Notifed SEZs
chnigrh 2 2
dehi 2 1
Hrn 42 17 20
Hih presh 2
punjb 8 8 2
Uttr presh 29 4 12
Uttrnh 3 2
Tt 86 31 39
Source: Cushman & Wakefield Research & Ministry of Commerce, Govt of India
ZoNal dISTRIBUTIoN oF SEZS
Zones: East
State Formal Approvals In-Principle Approvals Notifed SEZs
chttisgrh 1 2
Jhrkhn 1 1Ngn 2
oriss 9 4 4
West Beng 23 13 8
Tt 36 19 13
Source: Cushman & Wakefield Research & Ministry of Commerce, Govt of India
A study of the SEZ developments across the four zones of India East, West, North and South
indicates that South India accounts for highest approvals with 219 formal approvals. However, the
state-wise analysis points out that Maharashtra has received the highest formal approvals at 95. West
India dominates with 61 in-principle approvals with Maharashtra, leading with 36 approvals followed
by Haryana, 17 and Tamil Nandu with 14 approvals. South India accounts for highest number
of notied SEZs standing at 129. Southern States of Andhra Pradesh leads with 56 notications
followed by Tamil Nadu at 42.
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
ExpoRT BREaK-Up
ExpoRT BREaK-Up
Exports from Special Economic Zones 00-0(INR
Crores)
00-0(INR
Crores)
00-0(Proj.)
(INR Crores)
Erts fr SEZs estbishe b centr Gvernent 25358.45 39275.11 42898
Erts fr privte/Stte Gvt. Sei Eni Znesestablished/notied prior to SEZ Act
9134.47 22167.44 30175.32
Exports from SEZs notied under the SEZ Act, 2005 121.64 5195.1321 52876.96
Tt Erts 34614.56 66637.6821 125950.48
Source: Ministry of Commerce, Govt of India
Sector wise Exports (%) in 2007-08 from SEZs
EmploymENT GENERaTIoN
As on June 2008, about 199,330 persons were employed in seven SEZs established by the Central
Government. Direct Employment in Private/State Govt. SEZs which came into force prior to SEZ
Act, 2005 stood at 48,988 persons. 100,885 direct employments were created in notied SEZs.
INVESTmENTS
Investent in ST/pVT/ SEZs Investment in Motied SEZs Investent in Gvernent SEZs
Investent e
FdI inv. me
Investent e
FdI inv. me
Investent e
FdI inv. me
Fvt. investent (deveers)
75%
25%
92%
8%
67%
14%19%
Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India Source: Cushman & Wakeeld Research & Ministry of Commerce, Govt. of India
Textile & Garments Computer software
Electronic software & hardware Engineering
Chemical and Pharmace uticals
Plastic, rubber, leather, sports goods & ceramics Food & Agro Industry
Trading & Services
Gems and Jewellery
Other (Biotech, Non ConventionalEnergy, Tobacco, Handicrafts & Misc)
6%2%
17%
2%
36%
2%1%1%
2%
31%
Source: Cushman & Wakefield Research & Ministry of Commerce, Govt of India
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
Liberal policy norms and scal incentives augmented higher investments in the sector making itan attractive destination. As on March 2008, investments to the tune of INR 69,538.451 crores
were made in Notied SEZs of which INR.29,618.7 crores is by the developers on infrastructure
development. Total investment made in Govt. SEZs were at INR.4,529.22 crore including FDI of
INR.865.5 crores (Including INR.629.73 crores Govt. investment).Investment made in 12 State/
Private SEZs stood at INR. 3,690.44 crores (of which INR.979.84 crores was FDI).Investment
proposed in notied SEZs stands at INR. 331,140.6 crores.
REal ESTaTE pRoJEcTIoNS
SEZ developments have a signicant impact on the real estate scenario in India. The minimumland requirement of 10 hectares has fuelled the supply with a number of developers in fray to tap
this segment. IT/ITES/Electronic Hardware/Semiconductor had the highest number of approvals
(including formal, in-principle and notied) standing at 499 approvals and also account for a major
share in the SEZs of relatively smaller sizes. Of the 513 Formal Approvals granted, IT/ITES sector
accounts for 322 approvals and about 165 approvals as notied SEZs.
In 2007, of the seven major cities of India, Ofce Space demand was highest in Bangalore
standing at 13.6 million sq.ft due to the continued demand for Grade A developments while the
supply was 9.02 million sq.ft. The supply was less due to the excess supply in 2006 being carried over
from the previous year in certain peripheral locations as Whiteeld and Electronics City. Supply was
higher than the demand in Pune (7.80 million sq.ft), NCR (11.53 milion sq.ft) and Chennai (10.01million sq.ft).
Source: Cushman & Wakefield Researc h
oFFIcE SpacE SUpply & dEmaNd IN 2007
den Su
millionSq.ft.
0
10
20
Bng
lore
chenni
Hyderbd
Ko
lkt
NcR
mu
bi
pune
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
Total SEZ Supply in 00
City Total Supply(Million sq. ft.)
SEZ Supply(Million sq. ft.)
SEZ as % of TotalSupply
Bngre 14.48 6.66 46%
chenni 12.39 3.87 31%
Herb 4.88 2.2 45%
Kkt 4.10 1.7 41%
NcR 17.80 1.75 10%
mubi 11.78 1.44 12%
pune 10.16 4.14 41%
Source: Cushman & Wakefield Research & Ministry of Commerce, Govt of India
SEZ supply is expected to be highest in Bangalore at 6.66 million sq.ft and Pune at 4.14 million
sq.ft in 2008. About ve of the ten notied SEZs in Bangalore are likely to account for 2.5 million
sq.ft by 2008. Moreover, supply demand scenario in Bangalore is expected to be in equilibrium by the
end of 2008. In 2007, SEZ space supply was the highest in Bangalore at 2.92 million sq.ft. followed
by Chennai at 2.42 million sq.ft and Pune, 2.19 million sq.ft. About 72% of the total SEZ supply
in Bangalore was pre committed in 2006. Chennai currently has three IT SEZs and an additional
1 million sq.ft is expected in 2008. Approximately 31% of total supply is accounted by IT SEZs in
Chennai.
In 2007, SEZ supply in NCR was relatively less but with new projects getting both formal
approvals and notications and by 2009, NCR is expected to have the highest SEZ supply at 8.66million sq.ft followed by Chennai at 8.3 million sq.ft. Bangalore witnessed highest absorption of
Source: Cushman & Wakefield Researc h
SEZ SUpply 2007-09
0
10
8
6
4
2
Bn
glore
chenni
Hyderbd
K
olkt
NcR
m
ubi
pune
2007 2008 2009
millionSq.ft
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SpEcIal EcoNomIc ZoNES IN INdIa
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over 3.2 million sq.ft in 2007 with areas -Whiteeld and Outer Ring Road attributing maximumabsorption and pre-commitments for 2008 are expected to be over 5.9 million sq.ft.
SEZ commanded the highest price of Rs.110 per sq.ft/ month in Mumbai followed by NCR at
Rs.65 per sq.ft/ month. In Bangalore, prices stood at Rs 48 per sq.ft/ month. Rentals in Bangalore
are likely to strengthen with the limited availability of ready to move in supply during the year.
VaNTaGE SEZS & cHallENGERS
India being primarily an agrarian economy, social issues formed the core concern while framing
stringent and radical economic legislations. The Second Five Year Plan of India with emphasis on
industrial developments paved the door for newer productive sectors in order to maximize long-
run economic growth. Major policy initiatives and landmark legislations to accelerate industrial
developments and promotion of export oriented units soon became prime determining factors. For
over three decades, export processing zones were present in India with stringent legislations policies
governing their operations. Indias SEZ policy was announced in 2000 and the Act implemented after
many deliberations has been an issue of several criticisms since its inception following the special
status and privileges granted to accelerate the growth momentum of the economy. Main advantages
which SEZs stands to reap can be highlighted as follows:
Flexible Labour norms and issues with lesser interferences from the Government and various
labour unions.
Infrastructure at par with international levels with class amenities in both industrial and civic
areas.
Incentives and benets by way of exemption with respect to customs duty, sales tax, excise duty,
income tax relief, etc. Lower operational costs due to the various benets.
Source: Cushman & Wakefield Research
SEZ pRIcING
Bnglore
chenni
Hyderbd
Kolkt
NcR
mubi
pune
0
20
40
60
80
100
120
INR / Sq.ft. / nth
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
Flexible Government policy with regard to clearances, approvals, etc. Helps in integration of various processes as a unit dealing in various business activities can
engage in related business within the sector.
Easier accessibility to various inputs and reduction of logistics complications.
The segment with vast potential was in need of a breather to support its existence and survival in
the fast changing and competitive scenario. Though SEZs are associated with major activities in the
economy, the sector is faced with a number of challenges in its way ahead. The SEZ policy of India
has faced both criticisms as well as praise since its implementation. On the one hand with the liberal
policies and several incentives both scal and non-scal, the segment grew in leaps and bounds
generating more employment, attracting foreign investments and creating class infrastructure buton the other hand is faced with criticisms with regard to exploitation of the weaker sections of the
society and defying the underlying purpose of the Act.
With various business activities brought within the scope of SEZs, number of applications to set
up SEZs has seen a tremendous rise. But granting approvals to a signicant number of projects can
entail serious imbalances in government revenues due to the various incentives and relief s awarded
to the units in the segment. There is need to implement changes with regard to issues like minimum
area as very small units or zones are not feasible and do not lead to economies of scale.
Besides, there are vital issues like acquisition of land for setting up SEZs are of major concern
today. Proper feasibility study along with necessary rehabilitation programme for the people who
would be displaced from their habitations needs tremendous caution. Issue and cases like the
Nandigram in West Bengal need to be looked into or else it may severely affect the balance of the
region and poise serious problems. Acquisition of agricultural land should be avoided and proper
and fair market value should be awarded to the landholders to reduce frictions and work out models
so that the appreciation and future benets can be transferred or shared with the land holders fearing
displacement.
Also, withdrawal of approvals as in Goa wherein the State Government decided to scrap the 12
SEZs and further recommended de-notication of 3 notied SEZs comes in the purview. The issue
has brought into perspective the extent to which the respective state governments has powers to
regulate SEZs which are located therein and whether the state has any powers to repeal or award a
ruling beyond the SEZ Acts provisions.
Emulating and replicating a model similar to international trends is not viable from the Indian
socio- economic and political perspective. The scene in the international spectrum may be much
different from the ground realities in India. Though SEZs operate with liberal policy regimes and as
free trade zones, certain policy guidelines and regulations vital to the region, the SEZ has to abide.
Moreover, the countrys international trade relations and standing are also vital determining factors.
Then there are also factors like the positioning of the SEZ, status imparted and location issues in
comparison to emerging hubs and regions and accessibility to various inputs which are also keydeciding factors and poses as serious challenges to the development of the SEZs in a region.
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SpEcIal EcoNomIc ZoNES IN INdIa
a c & W I N d I a p U B l I c a T I o N
WHERE IT STaNdS
Prior to the SEZs, the STPIs had a dominant position with a number of parks being set up across
the country. STPIs too like the SEZs had a number of incentives but with the nearing of the end of
its tenure of income tax reliefs, the segment is witness to a lesser activity.
STpI & SEZS dIFFERNTIaToRS
STPI (Software Technology Park of India) SEZ (Special Economic Zone)
100% Ert oriente Units (EoU) prir bjetive is erts f gs nservies
Sftwre eveent f IT-enbe servies frs inIni Specically delineated duty free enclaves, deemedt be freign territr fr the urse f tre,ertins n uties, tes n triffs
Either singe unit r gru f units in buiing reveent
Can be either product specic or generic
No minimum area dened miniu size f SEZs is 10 hetres (25 res)
Tring nt eritte Tring eritte
Ine t ete eete u t 2010 100% of prot exempted for rst 5 years;50% for the next 5 years;50% of reinvested prots for next 5 years fromine t
100% custs dut eetin n cit gs,hrwre n sftwre (irte/ erte)
100% custs dut eetin n gserte n irte int r servie rvie
in n SEZ100% centr Eise T (cST) reiburseent in gssure fr dTa (desti Triff are)
cete eetin f centr Eise T (cST)n se r urhse f gs
Servie T is eete in reset f ert f Tbeservies
100% eetin n servies rvie t SEZunit r eveer
dTa eritte ut 50%f FoB* vue f ertsubject to condition dened
N iit t dTa ses
artistin f cit Gs is we ver erif 8 ers
artistin f cit Gs is we ver eri f 10 ers
More thrust today is to set up and operate SEZs. Though the Indian SEZs are similar in certain
basic respects pertaining to liberal policies, functioning, etc to the global SEZs, but its focus areas
in India is more oriented on services with IT/ITES accounting for a signicant share in the SEZ
pie. Manufacturing too is fast catching up. Beside the IT/ITES segment, multi product SEZ which
has accounted for the highest in-principle approvals with their larger scale and size will soon dawn
a newer avenue for SEZ growth. SEZs with world class infrastructure and facilities has spurred
development with removal of infrastructural constraints and easy access to various facilities.
SEZ has augmented the real estate activities in India with a number of real estate projects of
signicant size kicking off. The spur is not only in the commercial ofce space supply but has also
pushed the residential and retail properties to a new high. The commercial ofce space supply were
the prime beneciaries with class infrastructure at their disposal. The sector has attracted and isattracting investments from both the domestic and foreign entities.
FOB* - Free on Board
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The Old Order Changeth, yielding place to new- an excerpt from one of Lord Alfred Tennysons poemsaptly describes the current state of India SEZ Policy. In India there have been many successfully
implemented tax incentive regimes such as the EOUs, EPCG, EPZs, STPI, etc., and Special
Economic Zone (SEZ) is geared towards bringing another gamut of inducements for the economy.
However, when compared to previous initiatives, the SEZ policy is characteristically different.
Recognising their inability to provide for physical infrastructure, the Government has turned towards
the private sector for bringing in the infrastructure foundation over which the entire SEZ policy has
been based. Thus SEZs will not only be giving very deep ended tax incentives to the various sectors,
they will also become almost independent conclaves which will nurture and grow investments in the
country. Incentives are also extended to the SEZ developers, operators and occupiers making it an
economically viable proposition for all sections involved in the process.
While on one hand, private participation has been extremely encouraging, on the other hand there
are a few concerns stemming out of the unprecedented enthusiasm for SEZs. In certain instances,
such as in the IT/ ITES sector, an over supply situation is expected in the next 18-24 months due
to the fact that maximum number of approved/ notied IT/ITeS SEZs far outweigh that for other
sectors. The expected supply of IT/ITeS specic SEZs is 47 million sq.ft. by 2009. Multi -sector
SEZs seem to be slower off the blocks - possibly plagued by real estate acquisition challenges.
While the IT/ ITeS sector is clearly the faster moving, space consuming, employment generating
segment of the Indian economy, it does put India on a lop-sided path of over-dependence and one-
dimensional growth.
The other major sector which is likely to benet from the SEZ policy would be the manufacturing
sector. As per recent estimates approximately 44 SEZs spread across approximately 294, 000 acres is
likely to come up for this sector. This is expected to give the much needed boost to the sector going
forward.
Another trend which we may witness in the coming years would be the de-notication of some
SEZs. It stems from the fact that SEZ developers could evaluate the market conditions to nd it
unviable to develop the SEZ, there will be a natural inclination to develop products that have higher
marketability or are more nancially viable. The de-notication provision would give the developer
an exit route.
SEZs in India have a long way to thread as the real pace is yet to pick up. Though SEZ conceptin India is at the initial stages, more experimentations are expected with regard to formats, policy
issues,etc. With more approvals and notications and more activities being brought within the scope
of the SEZs, more reforms being introduced to the segment to facilitate development of the core
sectors, the demand to set up SEZs are relatively high and it has further propelled India as the most
favoured and attractive business destinations.
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This rert hs been rere se fr infrtin urses. It es nt urrt t be ete esritin f the rkets r eveents ntine in thismaterial. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently veried such information
n we nt gurntee tht the infrtin is urte r ete.
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On the developer side, the story is expected to unfold as one of consolidation where we expectlarger real estate developers/ funds to acquire smaller sized SEZ or small SEZ developers, primarily
because of the fact that an SEZ is a perpetual entity and its operations have to be managed, thus
in case of developers who are not keen on managing the operations and would want to exit smaller
SEZs once they are developed.
An auxiliary trend which is likely to happen is that large SEZs are likely to develop into mini
-townships. While such trends are already proposed by some IT /ITeS SEZs, essentially promoting
the concept of walk-to-work, most developers would take the opportunity to develop residential,
retail and also hospitality services in the same SEZ so as to provide corporate occupiers and
employees a holistic solution towards a better work-life balance.
The economic emphasis on SEZs leaves us to answer the vital question of the fate of the IT/
Software Parks under the STPI (Software Technology Parks of India) Scheme. The fact is that most
of the large space occupiers are expanding or setting up new operations in the SEZs, and clearly,
the supply of IT Parks outstrips the IT/ ITeS SEZs. In the event the STPI Scheme is extended, the
IT Parks will be able to sustain for a bit longer, but in the medium to long term they will eventually
face usage obsolescence, leading to high vacancies. The occupiers prole of the IT Parks will change
with the SME sector looking towards continuing occupation of these IT Parks, until they have the
wherewithal to set up operations in the SEZs. It is important for local development authorities
to plan ahead to look at alternate permitted usages of these IT Parks, enabling the IT Parks to
rejuvenate themselves.
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