November 13, 2013

Special Economic Zones in India

Special Economic Zones or SEZs are areas singled out for large scale economic growth through the implementation of liberal laws which encourage development. The financial policies in these areas are far more business-friendly when compared to the central policies. This is a concept which has become very famous in developing countries like India.

Special Economic Zones in IndiaThe main objective behind this is to attract mass international funding in the real estate segment. Residential real estate, commercial properties, housing and township planning have all seen major investments due to these policies. Due to this success, the model of SEZs has become a huge hit in India. Many top companies are trying to establish SEZs in the country as they are benefitted hugely through this. In turn it helps develop the real estate and provides employment in areas where infrastructural development would not be possible otherwise.

The SEZ Act of 2005 was instrumental in instilling confidence in foreign investors. A comprehensive draft, it imparted stability to the system and convinced stakeholders about the Government’s commitment to encouraging businesses. Over the course of the last few years phenomenal growth has been seen in this sector. 2003-12 saw a growth of 50.5%. Major SEZ supporting regions are the South Indian states of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. Gujarat also has a good number of SEZs. SEZs have contributed greatly to economic development in these areas. Many outlying regions that would not have seen much development otherwise have become hubs of business and commercial activities. Real estate developers have shown much interest in SEZs. SEZs have been created to facilitate the building of two and three BHK luxurious townships, and low rise luxury apartments. The many benefits offered to developers allow them to cut down costs in the construction of such projects. The end result is that customers and clients get homes at cheaper rates too. Some of the major benefits for developers are:

1.    Custom and Excise duties are exempted.
2.    There is also an exemption of the Income Tax for a specified time period.
3.    Central State Taxes are also waived.
4.    No restriction of maturity on borrowings of up to 500 million US dollars per year.
5.    Plots leased to the SEZ developer are exempt from registration fees and stamp duties.

The government has also made changes in the SEZ act which have been be a boon for the real estate industry. In a move earlier this year, the government had done away with a law that required a minimum of 10 hectares of land to set up an SEZ. The new rules stipulated that area requirements would be 1, 00,000 square metres in major cities and 50,000 square metres in Category B cities. So developers who have already met the criteria can use the remaining land for residential projects. It will lead to the emergence of many walk-to-work localities. The push for equity companies to make foreign deals will also increase and this will lead to greater Foreign Direct Investment (FDI). It is a move that has given even more incentives for construction of SEZs – definitely a right move for the future.