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

SEZS MAY GET NEW NORMS

THE latest episode in the ongoing saga of hostility between the ministries of finance and commerce over special economic zones (SEZs) could bring tears to the eyes of developers riding high on the new SEZ policy. The government would have to rewrite the SEZ policy and all approvals would need a fresh look, if the finance ministry's latest proposal is accepted.

In a missive to the commerce ministry, North Block has asked for a policy to select SEZ developers. The ministry of finance (MoF) has raised concerns that SEZ licences could be challenged in courts as there are no clear guidelines for selection. It has also said that any move, as suggested by the commerce minister, to raise the cap on the number of SEZs should be put in abeyance till clear guidelines are formulated and adopted. The SEZ Act only specifies a minimum area and export commitments. At present, the board of approvals grants licences. The finance ministry has also said that a policy framework would be desirable in order to counter charges of discrimination, even for the current lot. The comments are expected to be debated at the meeting of the empowered group of ministers (EGoM) on SEZs headed by defence minister Pranab Mukherjee later this month.

The differences between North Block and Udyog Bhawan will have serious implications for the corporate sector. Real estate, IT and even infrastructure companies such as power have become major SEZ enthusiasts. Several states have extended additional sops to SEZ promoters. The finance ministry has pointed out that there has been a massive rush for SEZ projects. It has also said the review is necessary as it will not be possible to accommodate all fresh requests, in view of the revenue loss and possible misuse of tax benefits.

Government sources said MoF has also questioned the basis on which in-principle approvals have been given beyond the cap of 150 in some cases.