27 July 2010 | By: Mohamed Hairul Borhan

The Indian government has relaxed the minimum built-up area norms for Special Economic Zones coming up in smaller cities amid concerns over the adverse impact of the Direct Taxes Code on them.

Industry watchers say the move would most likely spur investments in IT/ITES SEZs in Tier 2 and Tier 3 cities. It could also help sectors such as gems and jewellery, non-conventional energy, biotechnology and free trade warehousing, where minimum built up area norms are prescribed.

In a recent notification, the Commerce Ministry has classified all cities into four categories A1 (four metros, Bangalore and Hyderabad); A (cities such as Pune, Ahmedabad, Coimbatore, Vijayawada, Visakhapatnam), B1 (small cities such as Patna and Ludhiana). Locations which fall outside these three categories have been tagged as B2 cities.

For 21 cities which have been categorised as B1 (including Kochi, Agra, Allahabad, Madurai, and Raipur), the Government has pruned minimum built-up area for SEZs to 50 per cent of the current norms. For ‘B2' cities, the minimum built-up area has been lowered to just 25 per cent of the present norms.

The current built up requirements range from a minimum 40,000 square meters for bio-technology SEZs to one lakh square metres in case of IT/ITES SEZs. The built up area norms pertains to the processing area where production takes place; this is at least 50 per cent of the total SEZ area.

As many as 16 cities – mostly large ones – have been classified as A and A1 and the built up area norms for these cities remain unchanged.

“This is an excellent decision. It will encourage entrepreneurs and developers to look at development in semi-urban areas and ensure that world-class infrastructure gets created in remote areas,” said L.B. Singhal, Director-General, Export Promotion Council for EOUs and SEZs.

Stating that many employees in IT and ITeS SEZs come to work from far off locations, he pointed out that Government's latest move will enable people in smaller cities to seek employment at their doorsteps.

Nasscom President Som Mittal, said that the move would spur investments in smaller towns and augur well for local SMEs and entrepreneurs.

“However, since the DTC in its current form proposes to take away income tax incentives for units that come up after the Code becomes operational (from April 2011), such initiatives may not achieve their desired purpose,” Mr Mittal said.

Nasscom had recently submitted its recommendation on DTC to the Government.

“The Government should give a defined time frame, say 2014, for SEZs to become operational and the units (that would come up within such notified parks) should avail the same benefits as were promised in the SEZ Act,” Mr Mittal added.

Courtesy of IBEF