Opportunities In SEZs In India

<p>VSEZ was set up at Visakhapatnam as Visakhapatnam Export Processing Zone (VEPZ) over 360.5 acres in 1989. Later with the promulgation of SEZ Act and Rules in 2005, &amp; 2006, VSEZ came into existence with its jurisdiction over AP, Telangana and, Chattisgarh, Yanam UT and started regulating the set-up, operation, and regulation of SEZs in these states. During the year (2021-22), despite the lockdown and pandemic, VSEZ has achieved exports to the tune of Rs 53410 Cr (Rs 16885 Cr in Merchandise, Rs. 36525 Cr in services) up to 20th September, which is 26% higher than the previous year for the similar period.&nbsp;</p><p>Merchandise recorded a growth of 21% and services of 26% during 2021-22. The investment made during this period was Rs. 78242 Cr, and the employment generated was 4.50 lakhs.</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Country&rsquo;s Perspective (2021-22)</span></h2><p>Of 427 formally approved SEZs in India, 379 were notified, and 267 are operational. The number of operational units is 5559. Total area under SEZs is 47480 ha. &nbsp;</p><p>Employment generated as of 30th June 2021 was 24.46 lakhs, the investment made was Rs 6.24 lakh Cr and exports made were Rs 7.59 lakh Cr (2020-21) at the country&rsquo;s level. Exports in the first quarter of 2021-22 were Rs. 2.84 lakh Cr. Change from the previous year is -4.66% (due to the impact of covid), but VSEZ had no impact on its performance, despite covid due to all-out efforts by the Government.</p><p>&nbsp;</p><p>New units set up during 2019-20 and 2020-21 in VSEZ</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="" width="621" height="224" /></p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Exports During 2020-21 Vs 2021-22 (Up to 20th September 2021) </span></h2><p>The sector wise contribution and growth as on date in VSEZ is as under</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="" width="588" height="426" /></p><p>&nbsp;</p><p><strong>SEZ &ndash; Minimum Area Requirements-Slashed</strong></p><p>The government of India has slashed the area norms to enable the setting up of SEZs with even lesser investments. Now the area norms are as under:</p><ul><li>Multi Product: 500 hectares</li><li>Sector-specific: 50 hectares</li><li>Free Trade and Warehousing: 40 hectares</li><li>Food and Agri based Product SEZs: 10 hectares</li><li>Bio-Tech or Health Services: No minimum requirement &nbsp; &nbsp; &nbsp; &nbsp;</li><li>IT/ITES: No minimum requirement. &nbsp; &nbsp; &nbsp;</li><li>Minimum Built-up space norms (City Wise): Cat-A: 50,000 Sq. Mts<br />For IT Units: Cat-B: 25,000 Sq. Mts<br />&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Cat-C : 15,000 Sq. Mts</li></ul><p>&nbsp;</p><p>All existing notified SEZs are deemed to be multi-sector SEZs.&nbsp;</p><p>&nbsp;</p><p>Few SEZs that achieved exceptional growth during Covid are</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="" width="708" height="349" /></p><p>&nbsp;</p><p>APSEZ was in 1st place in terms of merchandise exports</p><p>&nbsp;</p><p><strong>APSEZ, Atchutapuram</strong></p><ul><li>APSEZ Atchutapuram a Multi-product SEZ with manufacturing units of Ferro Alloys, Pharma, Chemicals &amp; Bulk Drugs, Engineered Stones, Spares, Engineering Industries, etc,. An investment of about Rs.4000 crores has provided direct employment to 3,200 people. The total exports from these units touched Rs. 5427 crores last year and recorded a growth of 23%.</li><li>With exports to the tune of Rs 2986 Cr, compared to last year, achieved 56% growth during the current year.</li></ul><p>&nbsp;</p><p><strong>VSEZ</strong></p><p>VSEZ at Duvvada's investment was Rs. 1621 CR, Exports: Rs 1898 Cr, and Employment: 3921 during 2020-21. VSEZ contributed to exports of Rs 1898 Cr against the last year's Rs 1641 Cr and showed a growth of 16 % up to September 2021. During 2021-22 800 Cr exports were achieved up to August 2021.</p><p>Opportunity for new units under VSEZ: 60% of spaces vacant</p><p>Total Area of SEZs :10276 ha<br />Total Utilized area: 4333 ha<br />Vacant Land: 5943 ha &nbsp;</p><p>&nbsp;</p><p><strong>Status During Lockdown</strong></p><ul><li>Despite the lockdown for the industries for nearly 60 days, the SEZ Units and EOUs contributed to the nation's exports. During the lockdown, 489 SEZ Units were made operational quickly after observing strict SOPs</li><li>As far as IT/ITES units/SEZs are concerned, the work was not hampered as the majority of the workforce in IT/ITES were working from home</li><li>Most units have started vaccinating their employees on their premises, and so far, 89001 persons have been vaccinated in VSEZ</li><li>What we did was:<ul><li>Didn't shut down the office in the last year despite covid</li><li>All approvals were granted online</li></ul></li><li>The services sector contributed to 68%</li><li>Pharma and Biotech sectors contributed to 20%</li><li>Metal and Minerals 4%</li><li>Apparel 2%</li></ul><p>&nbsp;</p><p><strong>Strategies adopted to mitigate the crisis in SEZs during the lockdown</strong></p><ul><li>With the imposition of the Lockdown, VSEZ has allowed broad banding of activities to Units for making Covid related articles, such as Face Masks 3.1 Cr, PPEs 1.42 Cr, Medical and Surgical gowns 90 lakhs, Sanitary Napkins 6 Cr (Pals plush), and Medical Apron Kits of 1 lakh to various units</li><li>In the wake of Covid-19, the Central and state governments have accorded an unprecedented priority to improving the business environment in the country</li><li>The country has jumped to rank 63 from 142 in the World Bank Doing Business report, indicating the success of this effort</li><li>VSEZ has a single window mechanism for SEZs, and approval for a license is granted within a month</li><li>VSEZ was far ahead of simple &ldquo;Atmanirbar Bharat&rdquo; as the units exported more than 1.13 trillion Rs. of exports last year, which was the highest in the previous 32 years despite the whole world was reeling under economic recession</li><li>We exported Chrome Alloy wheels to General Motors, Chrysler, Ford of USA, and all premier segment vehicles of India from the premises of VSEZ at Visakhapatnam. Exports to the tune of Rs 400 Cr worth of wheels/annum were carried out</li><li>We have supplied Rs 20500 Cr worth of pharma to the world from VSEZs 58 Units besides supplying 11.47 mi. HCQ to USA, South Africa, Singapore, Malawi, and Belgium</li><li>Tata Advanced systems SEZ, Tata Boeing Air space ltd., Tata Lockheed Martin EoU, and Tata Sikorski EOU at Adibatla in Hyderabad are supplying to USA, Switzerland (Pinatus aircraft complete body), Rolls-Royce, GE Engines, Lockheed &amp; Martin (US Defence)all essential parts and components</li><li>Also, VSEZ supplies CH 47 Chinook Aircraft Structure, Helicopter structure, Fuselage, Tile cone, Empennages &amp; Centre wing box, and Apache aircraft helicopter body complete. We supply spare parts to Boeing and Apache helicopters</li><li>We from Brandix, near Visakhapatnam, supply Apparel to 20 odd countries of the World with international quality in the brand name of Victoria secrets, Uniqlo, Calvin &amp; Klein, PVH etc., and employ about 21500 people and last year exported about Rs 1504 Cr worth apparel and during 2021-22 exported goods worth Rs. 2160 Cr</li></ul><p>&nbsp;</p><p>1.5 Cr pairs of shoes are made from Apache at Naidupeta out of which 40% are exported to USA and 30% to Europe and employs around 12000 manpower.</p><ul><li>Exports are to the tune of Rs 1548 Cr. During 2021-22 and doubled the exports during the year</li><li>Facility of MRO operations to aircrafts exist at GMR Aero space SEZ. Which is the India&rsquo;s first, Inflatable Hanger for Air crafts, imported from Spain at a cost of Rs 11.75 Cr. and is set up in 3 years and has a life of 10-15 years</li></ul><p>&nbsp;</p><p><strong>Actions Expected From State Of AP: DEMAND OF Units/Developers</strong></p><ul><li>Implementation of effective Single Window Mechanism by Govt. of AP</li><li>Formulation of state SEZ Act/Policy</li><li>Exemption from payment of Electricity Duty</li><li>Exemption from payment of Labour Cess by SEZ Dev and SEZ Units</li><li>Exemption from payment of Land Conversion Fee by SEZ Developers</li><li>Exemption from payment of Seigniorage Fee by SEZ Developers</li><li>Exemption from payment of Property Tax by SEZ Dev and SEZ Units&nbsp;</li></ul><p>&nbsp;</p><p><strong>Infrastructural Issues</strong></p><ul><li>Power, Sufficient Water, Road Net Work, Transportation facilities</li><li>Clearance of Pending Cost Recovery Charges</li></ul><p>&nbsp;</p><p>Exports achieved during last 5 years from VSEZ were</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="" width="614" height="282" /></p><p>&nbsp;</p><p>VSEZ has shown a growth of 81% in just three years, i.e., 2018-19 to 2021-22, thus giving scope for further expansion of SEZ activities.</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href=";external_control=ViewProfileLink&amp;external_app_instance=b32536f6-f5a1-4551-b705-c7ecd19594a5&amp;external_page_instance=&amp;experiment=displayLinkedInDataPrebind" target="_blank" rel="noopener">R M Reddy</a></em></span></p><p>&nbsp;</p><p><span style="font-size: 18pt;">Frequently Asked Questions Answered by R M Reddy</span></p><p>&nbsp;</p><h2><span style="font-size: 12pt;">1. What are the strategies to achieve sustainable economic growth?</span></h2><p>Special Economic Zones in the country contribute to about 102.32 Billion USD - approximately 21% of India&rsquo;s total exports basket. Provide direct employment to about 25 million people.</p><p><strong>Strategies</strong></p><ul><li>Ensure stimulus packages shape a sustainable future</li><li>Invest in the future</li></ul><p>Rather than bail out the &lsquo;past&rsquo;, the better response is to enable businesses to become leaders in the future by enabling investments in technologies such as batteries, hydrogen, electric transportation, and AI, and in areas as diverse as sustainable agriculture, clean environment, and clean food.&nbsp;</p><ul><li>Empower the consumer!</li></ul><p>The more engaged the consumer, the greater the likelihood that stimulus packages will make positive impacts. Transparency is important, and product efficiency standards for household goods or automobiles help provide this to consumers. Incentives and fees can also shape consumer behavior and drive clean investment.&nbsp;</p><ul><li>Create a level playing field for clean energy</li><li>Modernize existing infrastructure</li><li>Simplify government bureaucracy</li><li>Encourage state-of-the-art electricity system installations</li><li>Incentivise energy sector restructuring</li></ul><p>&nbsp;</p><h2><span style="font-size: 12pt;">2. What are the main benefits of special economic zone investment to the surrounding communities?</span></h2><p>SEZs are Geographically delimited areas within which the governments facilitate industrial activity through fiscal and regulatory incentives. Investment in SEZs results in the following benefits to the surrounding communities:</p><ul><li>Generation of economic activity &nbsp;</li><li>Promote the export of goods and services from the country</li><li>Generate employment opportunities for the local communities</li><li>Promote investment from domestic and foreign sources. Local communities can go for setting up SMEs in the SEZs</li><li>Create world-class infrastructure in the vicinity of Local communities. It generates indirect employment of 2 to 3 times the actual employment</li></ul><p>&nbsp;</p><h2><span style="font-size: 12pt;">3. What are the current challenges faced by VSEZ (or SEZs)?</span></h2><p>SEZs should have an incentive structure similar to what is available in Dubai, Singapore, Vietnam, China, and even in Bangladesh if we want to compete with them in exports and global investments. If SEZs have better incentives in other countries, the global investment will flow to SEZs in those countries and not to Indian SEZs. SEZs in India should be provided same fiscal&nbsp;</p><ul><li>incentives as are provided to our competitors in Bangladesh, Vietnam, Dubai, Singapore, and China</li><li>For normal goods, if supplied from SEZ to the domestic market should be charged on the &ldquo;Duty Foregone principle&rdquo; rather than full customs duties</li><li>But if anyone in the domestic market buys from Services units in SEZ, he has to pay in Foreign Currency. This is not the case with goods. In case of a supply of services from SEZ to the domestic market, we request that this requirement be immediately done away with</li><li>There should not be any need to ask for permission to manufacture this or that good. This should be left to the units. There can be a small negative list of goods and services which are not allowed. Except for them, it should be a choice of units, what goods they manufacture and what services they provide as long as they satisfy all other general requirements</li><li>All Sectoral Parks should be brought under SEZ concept</li></ul><p>&nbsp;</p><h2><span style="font-size: 12pt;">4. Is special economic zone good for the economy?</span></h2><p>Special economic zones provide Employment, Economic activity, Infrastructure development, and Exports (EEE). Exports from the country on a large-scale lead to earning foreign exchange. Exports from the country during 2021-22 were to the tune of Rs 2.84 lakh Crores from 267 operational SEZs and 5559 Units.&nbsp;</p><p>The total area under SEZs is 47480 ha, the employment generated as of 30th June 2021 is 24.46 lakhs, the investment made is Rs 6.24 lakh Cr and Exports are Rs 7.59 lakh Cr (2020-21). &nbsp;</p><p>Approximately 1/3rd of total exports from the country are contributed by SEZs alone. It generates foreign exchange and leads the country to a comfortable balance of debt position. Leads to GDP Growth.&nbsp;</p><p>The following indicates the quantum of SEZ exports in the last 10 years. Exports from SEZs have constantly been increasing, and even during the pandemic, the SEZs have excelled in their exports, whereas the Domestic Tariff Area exports have come down to some extent.</p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p>
KR Expert - R M Reddy

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