Tuesday, June 17, 2008

Republic of SEZ?

Vinayak Chatterjee and his team sweat it out to bring up a status report on SEZs in Business Standard. Excerpts -

Bare facts : 207 zones spanning 26,825 hectares have been notified under SEZ Act, 2005. Another 246 zones spread over 30,900 hectares have been given formal approval and further 136 zones over 33,500 hectares have been accorded approval in-principle. Total area over 91,225 hectares - enough to comprise a mini Republic of SEZs with separate passports and visa requirements...? Might as well be.
They also check some facts out -
IT and BPOs at the forefront: accounting for 66 per cent by number, and about 15 per cent by area — of notified SEZs (excluding their share in multi-product/service zones. Implications for commercial real estate space outside SEZs?

Five coastal states Gujarat, Andhra Pradesh, Maharashtra, Karnataka, and Tamil Nadu, in that order hoard as much as 90 per cent of the total notified area. Gujarat and Andhra Pradesh, having the largest concentration of private ports hold over 60 per cent notified area. Development imbalance?

Applicant profiles indicate excessive non-manufacturing (white collar) job creation than blue collars. One of the main argument behind widespread displacement was the rationale that it will create significant job ops for both skilled and unskilled workers. Now that assumption gets beaten. Nearly 70 per cent of the direct employment created by exporting industry will be in ‘white-collar' services sectors. Specifically, the IT sector will account for nearly 5.5 million of the total employment across all notified SEZs.

Utility supports: Currently notified SEZs require more than 15,000 mw of power generation capacity, 2,500 million litres per day of water supplies, and logistical capacity to handle nearly 1 million TEUs of export traffic annually. Tough call given the precarious predicament of power sector now.

Cost-benefit debate: Notified SEZs project a pre-tax profitability of nearly Rs 2000 billion ($47 billion) annually. Nation to forego nearly Rs 660 billion ($15.53 billion) of yearly tax revenues (or Rs 440 billion if MAT is enforced). Further SEZ developers aim for tax benefits totalling to Rs 350 billion for their initiatives. So what could be the sacrificial lamb when so much of revenues are foregone? Something is gotta’ give!

Why not government go the UMPP model, taking upon SEZ development upon itself before letting it go private – just as they did for UMPP?

I see something else. IT companies coming into SEZ over time will be shrewd real estate managers. Later when their own outsourcing businesses face a downturn (India can’t be the world’s outsourcing hub forever), they can develop these large tracts of land and glistening towers and cash out handsomely. If you agree with me, Infosys at Rs.1900 and TCS at Rs.900 are pretty cheap buys now because they are a play on IT + precious real estate. Get nibbling them as they relocate (oops, sorry, they are not allowed to relocate existing units!) ....errr, when they start moving in, one by one, leaving a shell behind that is ready possession, plug and play…

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