IT SEZs may have minimum area clause

The empowered Group of Ministers on Special Economic Zones is likely to restore the minimum area restriction of 10 hectares for information technology SEZs. Several sections within the government are veering round to the view that having only a built-up area requirement may make the SEZ policy too liberal.

"The e-GoM may restore the earlier SEZ norms - of minimum land size and built-up area criteria. There is a view that it may be easier to have similar norms for IT, gems and jewellery, biotechnology and non-conventional energy SEZs," a top government official said.

The Gems and Jewellery Council has recommended a built-up area criterion of 500,000 sq m while the department of science and technology has recommended an area restriction of six hectares and a built-up area of 400,000 sq m for bio-technology and non-conventional energy SEZs.

The e-GoM, which is likely to meet on Tuesday, had earlier recommended doing away with the area restriction for IT SEZs.

However, officials said varying built-up area norms for cities classified on the basis of their population were likely to be retained - it is one million sq ft for tier I cities, 500,000 sq ft for tier II cities and 250,000 sq ft for tier III cities. The e-GoM will also take a view on employment as a criterion for IT SEZs.

Officials said the e-GoM headed by Defence Minister Pranab Mukherjee would also take a view on the minimum processing area criterion within a multi-product SEZ.

Another contentious issue to be taken up is reservation of housing and social infrastructure for SEZ users. While the SEZ rules 2006 stipulate that the minimum area to be earmarked for processing within a multi-product SEZ should be at least 25 per cent of the total area, the revenue department wants it to be increased to at least 50 per cent, as is the case in sector-specific SEZs.

The commerce ministry contends that the experience of globally integrated SEZs in Shenzhen in China or Jebel Ali in UAE shows that such zones do not have any minimum area requirement for processing and this aspect is left to market forces.

The ministry has also developed economic models of a 1000-hectare SEZ having 25 and 50 per cent of its area allocated to processing. The model shows that increasing the processing zone to 50 per cent of the total area reduces the internal rate of return to around 9 per cent compared with an IRR of 18 per cent when it is just 25 per cent.

Similarly, the ministry is against reservation of housing and social infrastructure within an SEZ for users of the zone.

"The ministry has pointed out that even if a certain percentage of the housing was to be reserved for SEZ workers, this could only be at the time of initial allotment. Since most SEZs would have a floating workforce, it would be impossible for developers and co-developers to implement any specific stipulation," an official said.