Free territory

The Cochin Special Economic Zone boasts one of the best infrastructure facilities among its peers in India.

WHAT strikes visitors at the 103-acre, artistically landscaped Cochin Special Economic Zone (CSEZ), about 6 km from Kochi, is perhaps its small size compared with the six other special economic zones (SEZs) established initially by the Central government.

The CSEZ is one of the single largest employment destinations in Kerala, with a diversified export product catalogue, including software, hardware, garments, processed food, rubber products, gems and jewellery. It started functioning as an export processing zone (EPZ) in 1986, about the same time as the EPZs in Noida, Madras and Falta (near Kolkata) and long after the Kandla Free Trade Zone in Gujarat (1965) and the Santa Cruz Electronics Export Processing Zone (near Mumbai, in 1974) were established. The seventh such zone approved by the Central government became operational in Visakhapatnam in 1994. The Cochin Export Processing Zone became an SEZ in 2000.

The Centre has so far invested Rs.95 crore, out of which Rs.55 crore was invested in the zone in the past five years. The CSEZ pioneered public-private participation in developing infrastructure for information technology, and a Rs.40-crore software park, Technopolis, is nearing completion on its premises.

The CSEZ has its own power station, an integrated water management plant with a 1.5 mld (million litres per day) water supply system and a 1 mld common effluent treatment plant. VSNLs 15 Gbps (Gigabytes per second) gateway provides internet connectivity; the zone has a state-of-the-art telephone exchange, a video conferencing studio, a foreign post office, an off-shore banking unit and a dispensary.

Special economic zones are primarily meant to provide an operating environment free from legal hassles relating to import and export, boost manufacturing and augment exports, earn foreign exchange and generate employment opportunities. SEZ units are allowed to import construction material, capital goods and raw materials without paying duty or import licence. They are exempt from Central and State sales tax and service taxes.

SEZ projects have only to ensure that their export earnings exceed foreign exchange outflows (by way of imports and import content of sales to the Indian market). There is no need for prior approval to bring in foreign equity. SEZ units in manufacturing are exempt from paying corporate tax on their export income 100 per cent for the first five years and 50 per cent for the next two years. Fifty per cent of profits reinvested in the SEZ for the next three years also enjoys such exemption.

CSEZ units can also import plant and machinery (including second-hand equipment), the only stipulation being that they have to be utilised within five years. Indian-made capital goods and raw materials meant for the SEZ are exempt from duty. Supplies from within India are considered exports, allowing domestic suppliers to obtain export-related benefits.

SEZ units are permitted to maintain foreign currency accounts and hold the entire export proceeds in foreign currency. There is no time limit to bring export proceeds to India. These units can resort to external commercial borrowing for funding and running projects without prior approvals, and have preferential access to the Indian market for their products and services.

According to a 2006 study, the nature of major exports from the CSEZ was as follows: electronics hardware, 28.3 per cent; food and agro products, 22.3 per cent; plastic and rubber goods, 10.3 per cent; engineering goods, 8.3 per cent, gems and jewellery, 6.2 per cent; textile and garments, 5.9 per cent; and electronics software, 3.4 per cent. The CSEZ (then not an SEZ) registered only $0.2 million in the first five years of its establishment but the average investment rose to $58.6 million during 1998 to 2003. Average employment generated during the same periods were 1,050 and 4,962, respectively.

According to State government figures, export earnings of the 85 units employing over 7,800 people in the CSEZ during 2006-2007 amounted to Rs.1,037.52 crore as against Rs.696 crore the previous year, a growth rate of 49.07 per cent.

Union Commerce Ministry figures indicate that in India, after the notification of the SEZ Act, 2005, 439 SEZs have been given formal approval, 138 SEZs have in-principle approvals, while 195 are notified SEZs. The current investment in SEZs is Rs.67,347 crore and the employment generated is 61,015.

In Kerala, the CSEZ was the only such zone before the SEZ Act, 2005, came into being. After the Act came into force, 11 SEZs received formal approval, two got in-principle approval and eight were notified.

Of the eight SEZs that have already been notified, two are port-based (under the Cochin Port Trust in Puthuvypeen and Vallarpadam islands); three are IT/ITES SEZs (two under the Electronics Technology Park in Thiruvananthapuram and one under Infopark, Kochi) and three are under Kinfra (one each for animation and gaming in Thiruvananthapuram, for food processing in Kakkancherry near Kozhikode, and for Electronics Industries in Kochi).

On March 21, the Board of Approval for SEZs of the Union government also announced the granting of SEZ status to 136 acres (of a total of 236 acres) of the Kerala governments prestigious joint venture IT project in Kochi, Smart City.