INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

SEZ PROCESSING AREA REDUCED TO 25%

IN A move that comes as a major bonanza to India Inc, the government has decided to allow 75% of the total area of special economic zones (SEZs) to be used for non-export activities such as schools, hospitals, banks, housing and entertainment. The Board of Approval, which clears SEZ applications, has been authorised to allow this concession in the case of multi-product SEZs.

The information technology (IT) sector has also been provided a major relief with the scrapping of the minimum employment criteria stipulated earlier by the Prime Minister's Office (PMO). Minimum generation of 10,000 jobs was recommended by PMO in the case of IT SEZs coming up in mega cities.

While reduction of ‘processing area' or export-production facilities to 25% of multi-product SEZs will benefit big players like Reliance, scrapping of the employment criteria for IT SEZs will provide relief to leading companies like Infosys and Wipro.

The Board of Approval has been informed that it could clear minimum processing area of 25% for multi-product SEZs, government sources said. The lower processing area threshold, however, is to be allowed only on a case-to-case basis. The board has been told that the reasons for allowing lower processing area is to be recorded in writing, the sources said. The flexibility will allow SEZ developers like Reliance, DLF and Unitech to go ahead with large-scale plans for developing airports, cargo handling facilities and other support infrastructure for export activities. At the same time, they would get more land area for developing schools, entertainment facilities, hotels and housing facilities for SEZ employees.

 The group of ministers (GoM) on SEZs had specified that the processing area for multi-product SEZs should be 35%. This floor level would be applicable to all cases while the Board of Approval can now bring it down to 25% if the developer seeks such a concession for a specific reason.

The original proposal was to fix the processing area for multiproduct SEZs at 25%. The finance ministry, however, wanted the floor level fixed at 50%. Then, the GoM, headed by defence minister Pranab Mukherjee, set 35% as the minimum processing area. .