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Offshore banking in SEZs

BS Economy Bureau

The Exim Policy has promised a slew of benefits for the special economic zones, including setting up offshore banking units offering interest rates lower than their counterparts in the rest of the country, allowing hedging in commodities by units in the zone and simplifying norms for external commercial borrowings.

The minister hopes the momentum generated by the sops given to SEZs will push export growth to a compounded 11.9 per cent in the next five years.

He said the SEZs were the symbol of the country's endeavour to remain internationally competitive. "They are our best dream projects and are based on success everywhere," he added.

The measures announced for SEZs also include concessions on information technology and exemption from the Central Sales Tax Act for supplies from the rest of the country.

Moreover, suppliers to SEZs will also receive benefits of the Drawback and Duty Entitlement Passbook schemes. Maran also wrested a concession from the finance ministry in the form of transactions between SEZs and the domestic tariff area as exports under the Income Tax and Customs Acts.

The promise of overseas banking units draws heavily from the Chinese experience. The policy says "these units will almost be foreign branches of Indian banks, but located in India".

Exempt from almost all Reserve Bank of India restrictions on banks, these units will be free from cash reserve ratio and statutory liquidity ratio norms. They can, therefore, offer cheaper finance. The banking sector is expected to respond enthusiastically to the proposals.

The minister has also announced ECBs of tenure less than three years for SEZs. While the guidelines will be worked out by the RBI, units setting up shop in SEZs can tap the international markets more easily for short-term funds.

Since they will also be entitled to dip into the Export Earners' Foreign Currency Account up to 100 per cent for pre-paying ECB loans, the cumulative benefit will be substantial compared to those in domestic tariff area.

The policy has also allowed benefits to status-holders like direct negotiations bypassing banks, and enhancement of the normal repatriation period of foreign exchange earnings to 360 days, double the present limit.

Justifying his faith in the SEZs, which are not expected to be really operational till 2006, Maran said, "In a world dominated by the World Trade Organisation, India cannot be left behind."

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