A study commissioned by the Department of Commerce to assess the potential costs and benefits of Special Economic Zones has dismissed the entire debate over revenue losses due to the fiscal sops extended to SEZs by the Departments of Revenue and Commerce.

“Many of these tax exemptions are already offered to Export Oriented Units and Software Technology Parks till 2009,” the study notes. In fact, impressed by the transformation in areas where new generation SEZs have been set up such as Bangalore, Hassan and Sriperumbudur, the study’s authors have stressed that these SEZs “have created a tremendous local area impact in terms of direct employment, emergence of new (formal and informal) activities, changes in consumption pattern and social life, human development facilities such as for education and healthcare,” adding that “overall, the expected benefits of SEZs outweigh expected costs.”

Firstly, the study points out that the revenue loss on account of SEZs in 2005-06 was just 2.84 per cent (Rs 1,070 crore) of the revenue lost by the Government on all export promotion schemes and 3.99 per cent (or Rs 2,146 crore) in 2006-07 (see chart). More importantly, on the Department of Revenue’s estimates that SEZs will cause a revenue loss of Rs 175,847 crore between 2005 -10, the study conducted by independent think-tank, Cuts International, notes: “It must be understood that this revenue loss is notional as there would be no revenue if these SEZs are not put in place. The estimation of revenue loss has been made by assuming that the same amount of investment and additional economic activities would have been generated if the units are located outside SEZs and do not avail any benefits from other export promotion schemes - a heroic assumption, indeed!”

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