Manufacturing zones will be mini cities, not SEZs

In the first major public clarification on the government’s proposed manufacturing policy, Industry secretary R P Singh clarified that the government will not offer any tax incentives to the planned manufacturing zones.

He said the proposed zones will be implemented as whole cities in themselves.

The department of industrial policy and promotion (DIPP), the body in charge of framing industry-related rules, had suggested the setting up of manufacturing zones on the lines of special economic zones (SEZ).

While the SEZ’s were targeted at augmenting exports, the manufacturing zones are aimed at increasing manufacturing activity in the country. Currently, only around 15% of India’s total domestic product is contributed by the manufacturing sector, compared to around 25% globally.

“We are not looking for small area (projects) like in SEZs,” Singh said, interacting with industry representatives at an event organized by the Federation of Indian Chambers of Commerce and Industry. He clarified that the so-called National Manufacturing and Investment Zones, still in the discussion stage, will be more like mini-cities and be oriented primarily towards providing good infrastructure, rather than tax incentives.

“For taxes, we will not discriminate between NMIZ units and those outside the zones,” Singh said.

The zones were mooted in a draft proposal a few days ago and is currently on the commerce and industry ministry’s website.
Singh said, according to government’s projections, around 27 crore extra pairs of hands will join the national workforce over the next 20 years. He said the entire new population may end up in India’s badly congested cities if they don’t find alternatives elsewhere. “India’s cities are overgrown villages.. We did not plan in advance,” he pointed out.

India, he said, has a band-aid approach to development, where infrastructure and facilities like drainage, water supply and roads are put in after a region has been settled by population.

“It costs three times as much to put in the infrastructure afterwards,” he pointed out, “and there are areas in our cities which cannot be improved now matter how much you spend,” he said.

The new Zones, therefore, will be at least 20,000 hecatres in size, unlike the hundreds of hectares covered by SEZs, and will be more like full fledged cities. Each will have 5-10 lakh population each.

“Jamshedpur is a good example.. where you have both residential facilities and industry,” he pointed out.

Analysts have questioned the viability of such projects, partly due to the fact that the entire financing for setting up the city has to come from the state government and a private developer.

Singh said the ministry is yet to work out the best ways to fund it, but it is considering different options such as helping out through tax refunds and bonds for managing the so-called ‘viability gaps’ in such projects.

Singh also said that he expects different state governments to show different levels of receptivity to the idea. State governments play the crucial

role of acquiring thousands of hectares of land under the suggested framework. He said the Gujarat government has already acquired nearly 12,000 hectares for a similar ‘mini city’ project under the Delhi Mumbai Industrial Corridor. “When it is finished, it will be larger than Ahmedabad,” he said.

“If we can manage 7-8 such cities over the next 10 years, it will be an achievement,” he said.