With a change of guard at the Reserve Bank, the commerce ministry will be pushing again for treating bank credit to special economic zones (SEZs) projects on a par with other industrial advances. The RBI had, in September 2006, directed state-owned banks to offer loans to SEZs on the same terms and conditions as offered to real estate projects, which had affected credit flow to what the ministry calls “new engines of growth”.

According to the commerce ministry, one of the major objectives of SEZs is to develop industrial, commercial and social infrastructure, and they can not be treated like commercial real estate projects. Treating SEZs like real estate resulted in higher interest costs since banks have to make extra provisioning and assign higher-risk weightages on such advances.

With only a few months to go for the general elections, the government has once again decided to clear out the air around some of the long-standing issues pertaining to SEZs. The Empowered Group of Ministers (EGoM) on SEZs, chaired by external affairs minister Pranab Mukherjee, is likely to meet later this month, possibly around October 20, to try and sort out certain problems being faced by SEZ developers and units. Some of the major issues yet to be resolved are those of the interpretation of Section 10AA(7) of the Income Tax Act, imposition of a minimum alternate tax (MAT) of 10 per cent on SEZ units, removal of export duty on supply of steel to SEZs, availability of central value-added tax (Cenvat) credit to domestic manufacturers on inputs used in finished goods supplied to SEZ developers and the contention over the RBI’s definition of SEZs as real estate and not infrastructure projects.

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