The Minister of State for Commerce & Industry Dr.E.M.S. Natchiappan convened a performance review meeting of Export Promotion Council for EOUs and SEZs (EPCES) here today to discuss the issues of EOUs and SEZs sector and to carry out consultations towards formulation of Foreign Trade Policy and Union Budget 2014-15. The Minister said that EOUs and SEZs are the engines of economic growth of the country and they are performing exceedingly well in terms of exports, manufacturing, investments and employment for the country. He said that he has recognized that there are certain Policy and operational framework in addition to State level issues in respect of SEZs which needs immediate consideration.

Shri Rajeev Arora, Joint Secretary, Department of Commerce highlighted the fact that policy decisions such as withdrawal of exemption from MAT and DDT for SEZ entities and continuing uncertainty in issues such as imposition of CST on SEZ sales, non-refund of SAD etc. has dented the investor friendly image of SEZs and created uncertainty in the minds of foreign investors, SEZ Developers and SEZ Units in the country.

Shri Sanjeet Singh Director General EPCES highlighted that EOUs and SEZs have consistently contributed to nearly one-third of the country’s exports and urged the Minister that it was imperative that certain steps were immediately taken which would demonstrate Government’s continued support to SEZs. Such steps could include extending benefits under Chapter III of Foreign Trade Policy to SEZs which include Focus Product and Focus Market Scheme, VKGUY etc. Such incentives while available to all other exporters are not available to SEZ Units, putting them at a great disadvantage. Dr. Natchiappan was informed that the total cost of extending benefits under Focus Product Scheme, Focus Market Scheme and VKGUY Scheme to SEZ Units is not likely to exceed Rs. 400 crores and could be met under the existing budgetary allocation of the Ministry of Commerce & Industry.

Further, SEZs are being treated as ‘Real Estate Projects’ and are not being extended the benefit of ‘Infrastructure Lending’ by banks which makes their cost of borrowing extremely prohibitive. This could be rectified by asking RBI to categorize lending to SEZ Developers as ‘Infrastructure Projects’. It was also requested that it needs to be urgently examined as to how to ensure that domestic industries located in SEZs are not adversely affected by India’s signing of FTAs with different countries. One measure in this direction could be to provide the same concessions to SEZs which offered to the FTA countries so as to ensure that SEZs continue to attract investment, boost exports and augment employment.

Shri Rahul Gupta, Regional Chairman, EPCES flagged the difficulties being faced by SEZs at the State Level, such as stamp duty, electricity duty, VAT. He requested that necessary instructions may be given to State Governments for early settlement of claims for refunds. The Minister was requested that State Governments, who have not implemented SEZ Acts in their States may be requested to implement SEZ Policy in their States. He also mentioned that some nationalized banks in India had opened Offshore Banking Units (OBUs) in SEZs but these could not sustain and the issues which can ensure viable OBUs in SEZs must be examined.

SEZ policy reform: extend export-scheme benefits and reclassify SEZ lending to reduce costs and restore investor confidence. Policy and operational uncertainties affecting SEZs and EOUs include withdrawal of certain tax exemptions, uncertainty over sales tax treatment and non-refund of duties. Stakeholders recommended extending Chapter III Foreign Trade Policy incentives (Focus Product, Focus Market, VKGUY) to SEZ units, reclassifying lending to SEZ developers as infrastructure lending, directing states to address stamp duty, electricity duty, VAT and refund delays, ensuring parity of concessions vis-a -vis free trade agreements, and examining measures to make Offshore Banking Units in SEZs viable.