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Sunday, August 26, 2007

Why Special Economic Zone (SEZ) promoted by a real estate developer is destined to fail?

Because 75 per cent of land acquired under SEZ will be used for construction of houses, airport, trading and business houses and hospitals, SEZ looks like a golden opportunity for a real estate developer to exploit huge profits.

"But a developer of SEZ with the mindset of a real estate developer is destined to fail!" says Mr Yogesh Ashar, who has recently co-authored with Mr Kanu Doshi ‘Treatise on Special Economic Zones’. Mr Ashar and Mr Doshi, both chartered accountants, are associated with Welingkar Institute of Management, Mumbai as faculty.

D. Murali & V.R. Vinod Kumar of Business Line interacted with the authors for their views on some of the current issues relating to SEZ. Here are excerpts from their interview.

"The system as created by Special Economic Zones Act, 2005 is bound to strike back at such attempts. This concern is very legitimate. Many developers of SEZs are afflicted with real estate syndrome. But SEZ under the present regime shall have to be a business venture in infrastructure development (as against real estate venture) with its own dynamics, if it is to succeed."

If you conspire to profit by converting the world-class infrastructure within non-processing area of SEZ in to a real estate scam, the whole exercise is bound to collapse under its own weight.

The non-processing area by default is meant to serve the legitimate needs of the processing area of the SEZ. If this does not happen, the viability of the SEZ shall be defeated. And the first hit shall have to be taken by the developer himself.

The checks and balances under the law are bound to defeat such attempts and deny the benefit of concessions and tax exemptions to clever developers.

This reminds me, what Mr.Gurcharan Das has said about SEZ in his article "Tipping Point" in TOI.

"SEZs are export zones to get around the problem of our bad infrastructure.

Why do we need special zones — why not reform the whole country? It is not easy to reform in a democracy with vested interests; at our current pace, it will take 20 years to get there, and by then we shall lose another generation.

But why restrict SEZs to exports? In an open economy with low tariffs, shouldn’t domestic activity be as valuable as exports, especially when we have plenty of foreign exchange reserves?

True, but history teaches that industrial revolutions in all countries were led by exports. No country, not even China, has a large enough domestic market to shift its people rapidly from farming to industry."

God bless all Pune Real Estate developers who are venturing into infrastructure development! Jai Hind!!

Related Stories:

1.HDFC, GE Capital, Indiareit and now 'Taj Business Hotels' join hands with Paranjpe Schemes' integrated township at Hinjewadi in Pune (India)

2. 40 km from Pune, India; 1500 farmers seek SEZ status for their village

3. "Pune can absorb up to $2-3 billion in Foreign Direct Investment annually" Lalit Kumar Jain, president, Promoters and Builders’ Association of Pune

4. SEZ developers need to win farmers' trust.

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