eGovernance in India

Improving eGovernance in INDIA

Seeding SEZs

Posted by egovindia on June 24, 2006

Seeding SEZs

With the introduction of the Special Economic Zone (SEZ) Act in India in February, the SEZs are set for vigorous growth. There is renewed interest amongst pharma and biotech companies as they prepare to tap this opportunity, learns Sapna Dogra.

The government had introduced the policy for setting up Special Economic Zones (SEZs) in the country way back in 2000 with the intention of providing an internationally competitive and hassle-free environment for exports. But it took a good six years for it to mature. It was only this year, on February 10 that the Special Economic Zone Act came into force.

SEZs play an important role in attracting companies to set up manufacturing or services base in the country thereby becoming a major revenue earner. The absence of an SEZ Act was a deterrent to the flow of private investment into these zones. However, now that rules are officially notified, it is believed that more companies will set shop in SEZs, which will help attract FDI. Joining this race are top-notch pharma and biotech companies, like Ranbaxy, Dr Reddy's, Zydus, Jubilant, Biocon, Divi's Labs and Nicholas Piramal.

Emulating China

The SEZ model has been borrowed from China, which has about 600 SEZs and is doing remarkably well in terms of FDI. Can India replicate the same success story? "It is too early to comment on this," says Vivek Mehra, Executive Director, PriceWaterhouseCoopers. "However, the initial response to SEZs, as evidenced by the number of approvals that have been sought, would suggest that SEZs will be successful in India as well." To make it successful, it is essential that the policy remains stable and robust. He warns that frequent changes and review of policies would have a very adverse impact.

According to Dr Sunil Kumar Bansal, Joint Development Commissioner, Indore SEZ, the SEZ Act was enacted only in February and the entire process is gradually gaining momentum. He predicts that more companies will join the bandwagon soon. "The Act will surely bring in more FDI because foreign investors always look for legal and governmental framework. With the Act, the rules have been made, which will instil confidence in foreign companies," says Bansal.

India will certainly catch up with China because the world is looking at India for its expertise and talented manpower. "Of course, it is true that in the past India has not been able to attract FDI but things will change. With SEZs, more foreign investors will come here," avers Bansal.

Clamour for SEZs
Divi's Laboratories received approval for setting up and developing a sector-specific SEZ for pharmaceutical ingredients at Chippada near Bheemunipatnam in Andhra Pradesh.


Jubilant Organosys has also received an approval from the Government of India to set up an SEZ in Gujarat for chemicals and pharmaceuticals and in Karnataka for biotech and drug discovery. According to a company official, "We have not yet acquired the land and hence we would not be able to give the exact place." However, he informs that the company is exploring the possibilities of Vilayat, Bharuch in Gujarat and Mysore in Karnataka.

Ranbaxy Laboratories is yet another pharma bigwig to set up units within the ‘product-specific’ pharmaceutical SEZ at Mohali. The pharma SEZ in Mohali’s industrial estate is spread over 80 acres and is poised to become a preferred destination for export-oriented pharma industries and R&D facilities. The Zydus Cadila group is coming up with a pharmaceutical SEZ in 120 hectares on the outskirts of Ahmedabad.

The Indore SEZ developed by MPAVN (Madhya Pradesh Audyogik Vikas Nigam) is witnessing the entry of quite a few big and small pharma and biotech companies to take advantage of the situation. For instance Ecolife Pharma has been allotted an area of 4,000 square metre for manufacturing basic drug intermediates and the proposed investment here is Rs 5 crore. IPCA Labs (basic drugs formulations) has been allotted 52 acres of land with a proposed investment of Rs 110 crore. The unit is under construction. Nicholas Labs has acquired 20 acres land for formulation of life-saving medicines with an estimated investment of Rs 120 crore. Windlass Chemicals has been allotted 3,000 square metre land for formulation of tablets and capsules with an estimated investment to the tune of Rs 5.07 crore. Cipla is also in the process of procuring land. According to Ashish Shrivastva, Managing Director, MPAVN, there are other small and big companies in the pipeline and IPCA is in the final stages of completion. "With the best possible ambience and facilities given here, there will be more players in the offing," he adds.

Advantage SEZ

The major advantage, according to Mehra, is the smaller area required for setting up the zone. Besides, sector-specific SEZs offer infrastructure required by the biotech and pharmaceutical companies such as R&D facilities. The companies will now have a choice to select a location, whereas earlier, they were bound to use facilities shared with other companies. Also, private players will be able to reap the benefits of regulatory and fiscal incentives both as developers and as unit holders. (See box: Benefits Galore).

"For pharma and biotech industries, this is an opportunity that would bring in international business," avers Dr S C Jain, Senior Vice-President, International Panacea Biotech. However, he adds that biopharma is a capital-intensive business and it is too early to predict the future.

Benefits Galore
The SEZ Act gives many benefits to the developer (who develops the SEZ), as well as units (set up in the SEZ to undertake manufacturing/ service activities). These include:

The developer's perspective:

  • 100 percent income tax exemption for 10 years
  • No Minimum Alternate Tax (MAT)
  • No Dividend Distribution Tax (DDT)
  • Exemption from all indirect taxes (customs, excise, VAT or sales tax and CST) on construction of the zone and also operations and maintenance in the processing area of the zoneThe unit's perspective:
  • Income tax exemption on profits earned through physical exports of goods out of India: 100 percent for first five years, 50 percent for next five years and up to 50 percent for next five years on creation of special reserve
  • No MAT (this is being reconsidered by the Empowered Group of Ministers, and may be restricted only to profits earned through physical exports of goods out of India)
  • Exemption from all indirect taxes (customs, excise, VAT or sales tax and CST) on capital goods and other goods and services required for manufacture or service activities including RM
  • No Capital Gains Tax on transfer of assets and land on relocation from urban area to SEZ (this is being reconsidered by the Empowered Group of Ministers, and provisions may be introduced to actively discourage migration of existing units to SEZs)
  • No minimum export commitment. Only required to be Net Foreign Exchange earner at the end of five-year period
  • Simplified procedures for assessment and examination of export-import cargo and reporting. Single window clearance for all requirements (through unit approval committee headed by the development commissioner)


List of companies that have got approval


Final approval
Cadila Final approval
Biological-E Deferred
Divi's Laboratory Final approval
Biocon Final approval
Serum Institute Final approval
MIDC (4 SEZs) Final approval
Jubliant Organosys (2 SEZs) In-Principal approval
Ramkey Pharma City Final approval
(Source: Price WaterhouseCoopers)

Role of state governments

The state government has a very important and critical role to play in the approval and functioning of SEZs. The state government's recommendation is a pre-requisite for final approval to the developer. The state government should endeavour to grant fiscal benefits to the SEZ (in respect of the taxes within its purview like VAT or sales tax, octroi, electricity duty, stamp duty exemptions or concessions). It is the state government, which takes the decision if the proposed SEZ area is environmentally fragile or not. Also, the state government should put in place proper policy and regulations governing SEZs. Incidentally, many states have enacted SEZ laws and others are in the process of doing so. It is difficult to get a private partner in the development of any SEZ, says a senior official at Indore SEZ. And it is because of this that a vast majority of land is still lying undeveloped and vacuous.

As of now, there are no operational or functional pharma or biotech SEZs. But the idea has caught the imagination of the industry, says Dr Bansal. Now, both the centre and the state governments along with the industry have to harness the potential to make it successful.


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