Indian State Woos Investment With SEZs

by Mary Swire, Tax-News.com, Hong Kong

09 October 2001

In a bid to compete with rival states, India's Maharashtra government (the state which contains Mumbai) is attempting to lure private investment through the establishment of a number of special economic zone (SEZs). Investors will be entitled to a host of tax and labour law concessions.

State Industries Secretary Vishwas Dhumal said that the Santacruz Electronics and Export Processing Zone (SEEPZ) had already been converted into an SEZ, while the state-run City and Industrial Development Corporation (CIDCO) and Maharashtra Industrial Development Corporation (MIDC) have already begun the development of SEZs in Navi Mumbai and other parts of the state respectively.

According to Mr Dhumal, the various clearances required for investors in SEZs would be provided by the designated development commissioner (DC) of the SEZs in an effort to sidestep the usual bureaucratic processes. The powers of the State Labour Commissioner would be delegated to the DC, and there would be a single point within each SEZ at which permissions required from the Directorate of Industrial Safety and Health and the Directorate of Steam Boilers could be sourced.

Establishments within the SEZs will be exempt from all state and local taxes and levies including sales tax and purchase tax. SEZ enterprises will be exempt from stamp duty and registration fees until March 31, 2006.

The minister said that all establishments within SEZs would would be designated 'public utility services' under the provisions of the Industrial Disputes Act.

In addition, the SEZ authority would ensure the provision of adequate water and power supplies within the SEZs. According to the SEZ policy, public sector enterprises and join ventures promoted by them could establish independent power projects which would be permitted to set up dedicated provision of power to the SEZs including generation, transmission and distribution and fixing of tariffs for the zone. The SEZ authority would have to ensure standby arrangements.

These independent power projects would also be permitted to establish grid connectivity to draw power from the grid in case of standby arrangements subject to their entering into a separate agreement with the Maharashtra State Electricity Board (MSEB) on 'mutually acceptable terms'.

It was recently reported that the Indian government had asked the Reserve Bank of India (RBI) to look into the possibility of transforming Mumbai into an offshore banking centre, rather than establishing such a centre in an SEZ, whether in Maharashtra or elsewhere. Some fairly sizeable changes would need to be made to India's regulatory regime in order to accommodate an offshore banking centre, including the liberalisation of exchange control rules for foreign entities.

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