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Hotels, malls may not be allowed in SEZs

Last updated on: September 07, 2006 11:22 IST

Proffering an olive branch to detractors of the special economic zone policy, the commerce ministry is piloting a fresh set of guidelines to curb non-essential infrastructure like hotels, apartments, golf courses, and shopping malls in such zones.

The guidelines are proposed to be finalised at the next meeting of the Board of Approval on September 21. This follows criticism of the SEZ policy over the possible misuse of incentives and shift of productive capital to tax havens.

Under the restrictions, rampant resale of apartments will not be permitted within a zone. The curbs will depend in part on the location of a zone.

They may also be linked to the business activity undertaken in it. So, while an infotech zone may not be allowed to have shopping malls, a textile zone will need them to display products to overseas clients.

Though the regulations seem aimed at plugging revenue leakages and misuse of the policy, some of the curbs may come as a damper for sector-specific zones.

For instance, an infotech zone located in the suburbs of a city like Bangalore may not be allowed to set up a hotel. The logic behind the restriction, officials said, was that clients visiting a zone close to a city could use the latter's amenities.

However, hotels are important for infotech companies -- some have facilities on campus for visiting executives, as it saves time and checks costs.

The board will also consider on September 21 a dozen cases of zones that have received approval in principle. The remaining 225 cases will be considered state-wise over four meetings of the board scheduled for October.

Officials said the government was also considering allowing gradual and phased construction of apartments in multi-product zones. The number of flats that a developer will be able to build may be linked to either the built-up area in the processing part of the zone, or the number of people employed.

Under the existing rules, 35 per cent of a multi-product zone has to be earmarked as processing zone. The non-processing area can be increased to 75 per cent in specific cases.

Also, the construction of a school, hospital, or living apartments can get only a one-time duty exemption.

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