The Commerce Ministry has said that Special Economic Zones (SEZ) need to focus more on the manufacturing sector in lesser developed areas.
“We need to create competitive economic zones. Fiscal incentives for SEZs have undermined their user-friendly regulatory environment. You are sitting on what is supposedly an incentive-based regime. But in reality, the regime is tied to many regulations that make it inflexible,” Mr Anup Wadhawan, Joint Secretary at the Ministry, said at an Assocham event on Wednesday.
The Finance Ministry had criticised tax holidays for SEZs saying these are leading to huge revenue losses. It had also wanted more SEZs in the manufacturing sector.
Commenting that achievements of SEZs were “below potential”, Mr Wadhawan said there was need for a “path correction”.
He said there was a huge gap between approved, notified and operational zones. So far, though there are 589 approved SEZs and 389 notified, only 153 are operational.
An Assocham study showed that the percentage of operational SEZs out of the total formal approvals had gone down drastically in 2010, 2011 and 2012 against 2008 and 2009.
“SEZs are confined to only six-seven States. If you take out the export performance of the IT sector and petroleum (SEZs), what you are left with is less than one-third of total exports,” Mr Wadhawan said.
Investments into SEZ projects had fallen following the Government’s move to impose minimum alternate and dividend distribution tax as well as the proposal in the forthcoming direct taxes code to move from a profit-based incentive regime to investment-linked regime. Besides, global economic uncertainties also added to their troubles.
The Government is said to be working on new norms to revive the SEZ growth story.