Turning Crisis to Advantage: The Politics of Denotification

This piece indicates the likely extent of denotification of projects previously approved for SEZs. What happens to the land, and who benefits, is of prime importance in understanding the politics of SEZs over the longer term. Crisis forces SEZ developers to review plans Economic Times-17 Nov 2008

NEW DELHI: India’s SEZ story, which generated protracted controversies last year, seems to have lost its sheen fo r now, thanks to the global economic turmoil. As funds become scarce and demand for IT and industrial space diminishes, developers are looking to roll back their SEZ plans by seeking denotification or buyers for their projects. The country’s largest real estate developer DLF is looking for a buyer for its 10-hectare IT SEZ in Noida. Three more developers are seeking to sell their IT SEZ projects in Noida and Gurgaon. One notified IT SEZ project, looking for a buyer, is located on the Sohna Road in Gurgaon. Brokers have approached potential buyers with proposals, without much success. And that’s not all. Mumbai-based leading apparel exporter Alok Industries has decided not to go ahead with its proposed 80-hectare textile SEZ at Silvassa in the Union Territory of Dadra & Nagar Haveli. The company is understood to have decided not to seek notification for its SEZ, which received formal approval over six months ago. A company executive said Alok Industries did not see any rationale in pursuing the project as it will not give textile exporters duty-drawback benefit, thereby putting a question mark on the viability of the SEZ. One large developer in Kolkata is seeking denotification for its SEZ even as another developer is requesting the government to denotify part of an IT SEZ near Mumbai. Notification puts certain obligations on developers, whereby he is expected to construct a minimum built up space in three years and reserve areas for specific usage. Once denotified, a firm gets the flexibility to develop project at his own pace and without any restriction on usage. Meanwhile, India’s largest private company, Reliance Industries, has reportedly put on hold land acquisition at its proposed multi-product SEZ in Haryana.“Developers are facing severe cash crunch. They have no choice but go slow or exit projects. But who will pick these projects,” says property consultancy firm Cushman & Wakefield director (transaction) Kaustuv Roy. Companies are putting off expansion plans and squeezing their space requirements as slowdown grips the world. “In six months, most markets in India will see supply of IT space far outstrip demand, bringing pressure on most new IT SEZs,” Mr Roy said. A DLF spokesperson denied the company wanted to sell its IT SEZ in Noida. But a person close to the development said the company held negotiations with at least two Noida-based developers, though potential buyers later backed out as economic environment in general worsened, giving rise to fears that it may be unsustainable to have more IT space in a market like Noida, where supply has already edged out demand. In many other projects, including multi-product SEZs, developers have put on hold acquisition of land. “Anyone who hasn’t acquired land so far will definitely not go for acquisition,” property consultancy firm JLLM managing director Anuj Puri said, adding that funds are difficult to raise and there was no urgency to pay farmers a high rate, when rates were likely to fall further.