c&w special economic zones in india

8/14/2019 C&W Special Economic Zones in India

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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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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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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


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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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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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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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



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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


Zones: West


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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Zones: North


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


Zones: East


chttisgrh 1 2

Jhrkhn 1 1Ngn 2

oriss 9 4 4

West Beng 23 13 8

Tt 36 19 13


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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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


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%



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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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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%


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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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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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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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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coNclUSIoN

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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Disclaimer

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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