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'India far away from real SEZs'

Govt has already received over 100 applications for SEZs, but a policy-change is needed, says Morgan Stanley.

india Updated: Jun 22, 2006 17:35 IST

Two mega special economic zones being set up by Reliance Industries and a big rush to build other such projects has opened a new chapter in India's economy, but there is still a long road ahead when it comes to "real" large SEZs, the economists feel.

Ever since the new SEZ policy was approved in February this year, the Government has already received over 100 applications to set up SEZs, but no serious efforts are being made so far to build "real" large SEZs and the policy needs to be reworked to achieve this target, global investment banking major Morgan Stanley said.

One of the key purposes of SEZs is to build scale-related advantages, but most of the proposed SEZs are minuscule in size, said Morgan Stanley's India-based senior economists Chetan Ahya and Mihir Sheth in a latest India-focused report of the US-based firm.

The report said many of these proposed investments could be mere substitution of investments that would have otherwise taken place outside the SEZ area and the new SEZ investments are unlikely to provide the much-needed boost to the Indian small and medium sector competitiveness.

Indicating that the current policies do not adequately promote large SEZs, the economists said small SEZs appear to have lost their relevance with the rapid globalisation of the manufacturing scale.

The existing policy allows the minimum area for the SEZ area to be 1,000 hectares for multi-product zones, 100 hectares for product specific zones and just 10 hectares for IT, gems and jewellery and biotechnology zones.

Among the already announced projects, there are probably only two medium-scale SEZs being taken up for development and both these zones are being set up by Reliance Industries, India's largest private-sector company, the report added.

RIL's 12,000-hectare SEZ project near Mumbai, which is the largest in terms of size, is a merger of Navi Mumbai SEZ and Maha Mumbai SEZ and the first phase envisages an investment of $1.1 billion.

Given its proximity to Mumbai, this SEZ should be able to leverage the city's infrastructure and will have easy access to quality manpower, Morgan Stanley said.

The other large SEZ is being set up by RIL in Haryana with a size of 10,000 hectares.

The Morgan Stanley economists said RIL's both SEZ projects should be a big improvement over the current SEZs and better than most other new SEZs announced in the country.

However, they would still be smaller than the major SEZs operating in China -- as the top three SEZs in China cover 126, 51 and 47 square miles in Shenzhen, Xiamen and Zhuhai, respectively, as against 46 square miles for RIL's project near Mumbai and 38 square miles for the Haryana SEZ.

Earlier, the SEZ-related laws were scattered among different acts and rules and the new legislation provides a uniform SEZ policy, the economists said.

SEZs are broadly considered as a means for creating larger inroads into small and medium scale manufacturing and for quick support to high-quality infrastructure with a liberal and positive business environment, leading to the much-needed fillip to the manufacturing exports.