Centre shelves plan to impose export obligation on SEZ units

NEW DELHI: Here is some good news for units located in special economic zones (SEZs). The government has dropped a proposal for imposing a minimum 51 per cent mandatory export obligation on such units. There would be no changes in the present SEZ rules, which lay down that SEZ units need to be only net foreign exchange earners.

The decision taken at a recent meeting of the empowered group of ministers (eGoM) on SEZs would come as a huge relief to investors in SEZ units, both foreign and domestic, as they would not be forced to start exporting from the first year of operations.

“There are a number of cases, like the Nokia unit in Sriperumbudur, where investors did not export much in the first year. However, they started exporting a huge chunk of their total production subsequently. A minimum export obligation would take away this flexibility which units enjoy at the moment,” an official of the commerce department said.

It was the finance ministry which had proposed that the net foreign exchange earner criteria for SEZ units — which means that each unit’s exports should be more than its imports — was not enough to ensure that substantial exports take place from the units.

It said that some units could also escape by not exporting anything if their import content was low. The commerce department, however, argued that since units in SEZs get tax benefits only on the products they export, they would, on their own, want to export as much as possible. In fact, at present, more than 80 per cent of goods produced in SEZ units are exported, the official pointed out.

The proposal was debated at a number of eGoMs but no decision could be taken earlier. However, with the chairman of the Prime Minister’s Economic Advisory Council, C Rangarajan, stating earlier this year that export obligation on SEZ units was not necessary, the commerce department’s case got strengthened.

“In the recent eGoM meet earlier in August, everybody agreed that it was not necessary to impose an export obligation on SEZ units and the idea should be given up,” the official said. Exports from SEZs were estimated at Rs 66,638 crore in 2007-08. This was 92 per cent higher than exports of Rs 34,615 crore from the zones in 2006-07.