Infosys started discussions to set up an IT SEZ in Kolkata in early 2008, when the Tata Nano project was still under construction at Singur. By the time land was allotted in November 2010, Nano had deserted Singur. And before Infosys could start the construction of the campus, the State policy had changed.

After assuming power mainly on the back of anti-land acquisition movements in May 2011, the Mamata Banerjee government took a firm stand against SEZs. Though IT SEZs do not require vast swathes of land and are merely an instrument for extracting tax breaks, Banerjee had become ‘allergic’ to SEZs.

The deadlock was broken just this Tuesday as Infosys decided to invest in a campus without the SEZ status. “Infosys will invest ₹100 crore in Bengal,” Chief Minister Banerjee said. Highly placed sources told BusinessLine that the government has decided to compensate the IT major through “matching fiscal benefits”. A Cabinet proposal in this regard is underway.

No clarity

The State government is yet to announce the added benefits it has promised the IT major. But the question is what kind of benefits can the State offer?

Exports are anyway duty free. Banerjee has in the past offered to relax floor area norms and stamp duty, and waive property tax, to woo Infosys. But the company hadn’t found them adequate enough compared with the benefits available under an SEZ scheme.

According to the SEZ Act 2005, IT SEZs receive 100 per cent income tax holiday for five years, 50 per cent tax break for the next five, and 50 per cent of the ploughed back export profit during the next five years.

This is over and above duty free imports, a host of indirect tax exemptions and access to a pre-approved external commercial borrowing (ECB) window of $500 million.

According to the CFO of an IT company, the cumulative impact of tax breaks enjoyed by an SEZ amounts to 20-22 per cent on a export turnover of ₹100 crore. “This is a ballpark figure. Actual benefits will vary,” he added.

The State government doesn’t have control over the direct taxes or the ECB window, and a mere concession of some State levies or taxes cannot match the huge SEZ benefits.

Inspired by Nano?

Yet, there is a way.

To attract auto investments into Nano in West Bengal, in the face of income tax exemptions in Uttarakhand and Himachal Pradesh, the then Buddhadeb Bhattacharjee government had offered a loan of ₹200 crore at 1 per cent interest repayable after 20 years.

Tata was also offered electricity at nearly half of the industrial tariff.

The government rated Nano as a path-breaking investment and wanted to use it as a foundation stone to attract future auto investments into the State. But Banerjee, then in the Opposition, had questioned such State largesse to a private enterprise.

Industry watchers are expecting Banerjee to open her purse for Infosys — good if it helps attracts more IT investments in the State. But that would also revive the question: Was she fair in agitating against Nano?

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