SEZs lose sheen amidst credit crisis

A shrinking export market and the squeeze on credit in the wake of the global financial crisis are forcing many companies to shelve plans to set up special economic zones, report Arnab Hazra and Vandana Ramnani.

A shrinking export market and the squeeze on credit in the wake of the global financial crisis are forcing many companies to shelve plans to set up special economic zones.

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They are either going slow or asking the government to postpone notification for the SEZs that they have been allowed to set up.

“The slowdown is because of demand contraction and uncertainty in the macroeconomic environment,” said Anshul Jain, India head of property consulting firm DTZ.

A large number of these SEZs – 531 have been approved and 270 of these notified so far – were to be set up for export of software services, or the outsourcing industry, a sector in which the outlook has turned gloomy.

Several SEZs involved realty companies, which have been hit hard by the squeeze on credit availability in the country, especially for construction projects. "The market is slow. We are going slow," said VVS Murthy, chief financial officer of Dishman Pharmaceuticals and Chemicals. The company has got approval to set up two SEZs in Gujarat, expected to be notified by December. These could be delayed by couple of quarters, Murthy said.

“There could be concern on whether additional orders would come in, whether the new US administration policy would encourage outsourcing," said Amit Mitra, Secretary General, FICCI. "If any of these things happen, there could be a slowdown.”

SEZs in India are promoted as self-contained economic spaces. They can be located near existing cities but would not be under their governance. On the flip side, once notified, an SEZ puts obligations on a developer, who must construct a minimum built-up space in three years and invest at least Rs 250 crore for a sector-specific SEZ or Rs 1,000 crore for a multi-product SEZ.