SEZs need govt clearance to sell more than 49%

SEZs need govt clearance to sell more than 49%
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First Published: Sat, Aug 01 2009. 12 27 AM IST

Stricter laws: Land earmarked for industrial park at Jadcherla in Andhra Pradesh. The ministry’s proposal has evoked mixed reactions. Bharath Sai / Mint
Stricter laws: Land earmarked for industrial park at Jadcherla in Andhra Pradesh. The ministry’s proposal has evoked mixed reactions. Bharath Sai / Mint
Updated: Sat, Aug 01 2009. 12 27 AM IST
New Delhi: In a significant policy development, promoters of special economic zones (SEZs) now have to seek government approval if they want to sell more than 49% stake in the tax-free enclaves.
Stricter laws: Land earmarked for industrial park at Jadcherla in Andhra Pradesh. The ministry’s proposal has evoked mixed reactions. Bharath Sai / Mint
The commerce ministry on Friday said that SEZ promoters have to approach the Board of Approval (BoA) before they decide to decrease their shareholding to below 51%. BoA is an arm of of the commerce ministry that clears SEZ proposals and takes relevant policy decisions. It is chaired by the commerce secretary.
Currently, India permits 100% foreign direct investment (FDI) in SEZs through the automatic route, which means a promoter can exit from these enclaves without seeking approval of the Foreign Investment Promotion Board.
Some SEZ promoters consider this as a negative development. “This is the first time the government is trying to control the shareholding pattern of an SEZ. Though higher than 51% stake sell is allowed through BoA, there is no clear guidelines for this, which may bring in subjectiveness to clearances,” said Gyan Bansal, chief executive officer, SEZs and hotels at Uppal group, a realty firm.
However, Ganesh Raj, tax partner and national leader for policy advisory group at audit and consulting firm Ernst and Young, was in favour of the government’s move. “The SEZ approvals are given based on the backgroud and business plan of the promoter. However, developers are trying to enter into trading mode due to the liquidity cruch,” Raj said. “I welcome the government’s move because this is a standard norm in all infrastructure projects where the promoters must hold a minimum required stake in the project. This will not impact SEZs as government is still allowing them to sell up to 49% stake.”
The country’s tax-free enclaves have attracted FDI of over Rs10,900 crore in the past three years, junior commerce minister Jyotiraditya Scindia told the Rajya Sabha recently.
The commerce ministry has also notified norms to simplify procedures for SEZ developers. They will no longer have to approach the BoA to transfer in-principle or formal approval of an SEZ if there is no change in the shareholding pattern of the original developer, or if the approval is transferred to a wholly owned subsidiary of the developer company.
The ministry has also laid down guidelines for an administrative structure and process for clearing cargo in ports built within an SEZ. It has directed that the port must be located in the non-processing area of the SEZ and separate entry and exit routes should be secured for movement of SEZ cargo and domestic tariff area cargo. Domestic tariff area means an area within India which is outside an SEZ.
The ministry has also notified an earlier decision taken by the government to cap the size of all multi-product SEZs at 5,000 hectares. This will impact big SEZ projects like the Maha Mumbai Special Economic Zone, promoted by Mukesh Ambani and his close associate Anand Jain, which is proposed to be built on an area of 10,000 hectares. Exports from SEZs are likely to grow by about 10% to Rs1,10,000 crore in the year to March, Scindia told Parliament recently.
In 2008-09, SEZ exports were worth Rs99,689 crore.
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First Published: Sat, Aug 01 2009. 12 27 AM IST