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SMEs on target of SEZ developers


SMEs on target of SEZ developers

Last updated: August 27 2007
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  • SMEs on target of SEZ developers

    Reliance Industries is preparing itself in its full swing to meet the development challenges, making strategies to market its Special Economic Zones (SEZ) and the long-term growth plan in the new business. But what was baffling in the presentation was how India’s biggest private sector firm was acknowledging that it was impossible to grow without the support of small companies. One of the suggestions during the discussion that ensued was that if a small or medium-sized company (SME) was unable to pay the upfront costs towards setting up a unit (in the SEZ), Reliance could work out flexible conditions.

    Reliance Industries and DLF, the two big names among umpteen SEZ developers in the country, are working on dedicated strategies to attract the interest of SMEs. So much so, that in cases where an SME may find it difficult to pay the upfront costs towards setting up a unit, these developers have models where space could be let out to their smaller partners on flexible conditions.

    What’s more, a group of SEZ developers is heard to be now lobbying with the government for SME-friendly policies. Any other day, the big sharks would prey on these small companies. Now, they are protecting as well as nurturing them. Because in the latter’s well being, lies the mantra to their own success. “An ever-increasing real estate cost is indeed a prime concern as far as an SME is concerned. SEZs would help address this concern to a great extent,” says DLF group executive director Rajeev Talwar.

    Some other developers are also tying up with small exporters on a revenue sharing model, where the SME does not have to bother about the upfront cost for setting up a unit. “We are exploring various possibilities under this model. Some other developers too are looking at similar arrangements,” says Zoom Developers president & CEO Rumneek Bawa. The company is developing an SEZ in Indore, and expects more than 60% of the project to be taken by SMEs.

    And it’s not without reason. Nor is it a philanthropic garb that these developers are trying to don. It’s pure business — in all such projects, barring 8-10 anchor units, all others will be constituted by SMEs. “Many developers will be interested in the revenue-sharing model, as this will make them a partner in the growth process of their SME clients and get a share in their growth pie,” says Rajan Ahuja, director of infrastructure consultancy Realty Verticals. The company is a consultant for a prominent SEZ in Gurgaon.

    At the same time, as far as SMEs are concerned, it’s not just the real estate factor that’s been attracting them to SEZs. There is a plentiful of bounty on offer. For instance, in both its Navi Mumbai and Jhajjar SEZs, RIL is working on a single window clearance system for the SME units. The company is also in talks with some leading financial institutions for setting up SME lending counters within the premises of its SEZs. “The idea is to provide an end-to-end solution. All that the SME unit has to do is to focus on its core competence. The developer will take care of the rest,” said a source close to the development. An RIL spokesperson declined to comment.

    Last heard, an unofficial cartel of SEZ developers, RIL, DLF, Adanis and 3-4 other companies, are lobbying with the government for treating SEZs as union free zones and also extend labour reforms. Industry chambers like Assocham and FICCI are also working in a close tandem with developers on this issue. It goes without saying that trained and affordable manpower is a big concern for any SME. “If attempts succeed, these zones will be equally friendly for both, employers as well as employees,” says Assocham secretary general D S Rawat. Then, the government’s overall SEZ policy has its own attractions, as far as SMEs are concerned. “It’s a win-win situation for the promoters as well as the occupants. SEZs throw up attractive tax incentives, which are sought by the SME sector,” says union commerce ministry joint secretary Anil Mukim.

    For instance, there are no industrial licensing restrictions in SEZs on products reserved for the small scale sector. Then, there is a designated duty-free enclave, which will be treated as foreign territory for trade operations and duties and tariffs. No license is required for imports.

    In addition, SMEs also get exemption from customs and central excise duties on import of capital goods, raw materials, consumables and spares. Central sales tax paid by units on domestic purchases is also reimbursable. Units are also allowed to be repatriate profits freely without any dividend balancing requirement. There also aren’t any fixed wastage norms and units have full freedom for subcontracting in SEZs.
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