IT/ITES industry reaps maximum benefits from Special Economic Zones

March 1, 2012: The Special Economic Zones in India, which is set up for promoting various industries, has benefitted the Information Technology and ITES industry the most. Other industries have failed to make the most out of Special Economic Zones.

According to NASSCOM, Noida and Greater Noida holds the fourth position among the Information Technology (IT) and Business Process Outsourcing (BPO) destination in the country.  The SEZ in the area contributes to about 6 per cent of the exports from the outsourcing industry. In the case of contribution by Special Economic Zones among different states, Gujarat leads the pack with a share of 46.5 per cent. The lowest contribution is made by Uttar Pradesh with 3.8 per cent. The special economic zones of various states are dominated by the Information Technology and Business Process Outsourcing companies.

In the case of manufacturing industry and agricultural products, the companies require more than 250 acres of land and in some cases it will extend to 2500 acres. In states such as Uttar Pradesh and Bihar, the ownership of the land is fragmented and acquiring 250 or 2500 acres of land is near to impossible. This is one of the main reasons why such industries are not found in SEZs.

In the case of Information Technology and Business Process Outsourcing companies, the requirement of land will extend up to a maximum of 25 acres in the case of setting up Special Economic Zones. Special Economic Zones are zones set up for export and import business, with tax waivers and incentives. This is one of the major advantages for the IT/ITES industry.

The advantage of IT and BPO companies is that they can be set up any where in no time. But in the case of any other industries such as manufacturing, it is not so.  Such industries require proximity to raw materials and are highly capital intensive. So these industries cannot be located in Special Economic Zones which mostly are not close to such resources.

This makes the Special Economic Zones favorable to few industries and IT/ITES is one among them. It offers them the land they require and also tax breaks which is the main characteristic of Special Economic Zones. The special economic zones which were set up to promote export and import of goods and services, has now become a destination for service organizations and those producing goods find it inadequate to reap economies of scale.

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