Slowdown creates blank space, 50 IT SEZs to be dropped by year-end
The Financial Express, May 5, 2009, Page 5
Arun S, New Delhi
The slowdown in the information technology (IT) space has started affecting the performance of IT-based Special Economic Zones (SEZ) projects too. According to commerce ministry estimates, at least 50 IT/ITeS SEZs, whose developers have little experience or knowledge of the sector’s dynamics, would drop out by 2009-end.
“You could easily expect as much as 50 of the IT/ITeS SEZs to drop off by 2009-end,” commerce secretary G K Pillai told FE.
Developers without core competence in IT, and especially those belonging to the realty sector, are finding it tough to attract clients to their SEZs. Sources said at least 30-40% of the space meant for supply in sq ft-terms in IT/ITeS SEZs has become “excess capacity” and therefore is lying vacant due to lack of demand from IT/ITeS exporters.
According to consultants, while IT/ITeS SEZ developers without core competence in IT (like the realty players) continued to be in the ‘denial mode’ on the reduction in value of their space, even long after the slowdown in the IT space began, developers with specialisation in IT quickly understood the needs of the IT clients. Typically, even an SEZ developed by IT-specialists like Infosys or Wipro could house other IT/ITeS companies as clients/units.
“Selling IT space is a totally different ball game altogether. It is not like selling other commercial space. Developers with IT experience understand this better than other developers,” said Tapan Sangal, senior manager, PricewaterhouseCoopers.
“They (developers with specialisation in IT) understand that IT clients are more cost-conscious now, especially with the slowdown and dollar appreciation. Besides, IT clients are also more comfortable with a developer who knows their needs and are able to help them in marketing their products. The other developers think developing an SEZ is everything, but that approach does not work anymore,” Sangal said.
This means, pure play IT/ITeS companies who are developing such SEZs will be in a better position to tide over the slowdown without surrendering their SEZs.
But those who will have a relatively tougher time would include several firms, who are otherwise engaged in sectors like realty, infrastructure, logistics, publishing, healthcare, steel, pharmaceuticals, hotels, equipment-making and even stud farms, but have chosen to enter the fray to develop IT/ITeS SEZs. All these players had entered the business of developing SEZs to take advantage of the IT boom in the previous years.
Another reason is that IT/ITeS units housed in the Software Technology Parks and EOUs do not feel the need to shift immediately to SEZs to avail of tax breaks as the EOU and STPI schemes have been extended till March 2010. Besides, the government is also positively inclined to extending these schemes further, sources said.
Already, realty major DLF has decided to return four of their IT SEZs.
Other biggies in the real estate industry owning SEZs are expected to follow suit as some of them have had talks with the government in this regard, sources said.
On its part, the government is considering a proposal to relax the norm for the required built-up area for IT/ITeS SEZs in tier II and tier III cities. The minimum built up area for IT/ITeS SEZs is one million sq ft. There is also a proposal to extend the validity of approvals, thereby giving more time for the developers to complete construction in their SEZs. But obviously only the new government would take these up.
Despite the poor showing by developers without prior experience in the IT/ITeS space, the government will not frame any guidelines stating that in order to develop an IT/ITeS SEZ, the developer should have considerable experience. “It is best left to market forces,” Pillai said.
Consultants working on these projects said several of these developers, hard-pressed for funds, prefer to surrender the SEZ status of these plots, return the tax benefits availed, and then either dispose off the land to pay their debts (in extreme cases, as there are hardly any buyers of land now) or build residential units there for which there is demand.
“While people are re-looking at IT/ITeS SEZ projects, the clear agenda in the short to medium term is to explore whether there is better utilisation of land by changing the project nature to residential, hotels or hospitals. If, however, in the long term, there is still an opportunity for commercial real estate based on geography and location, they may decide to hold the land (earlier meant for IT.ITeS SEZs),” said Ajit Krishnan, partner, Ernst and Young.
“They (developers) want to exit the SEZ space now and keep the land vacant for better purposes. If they keep the land vacant, they can always re-apply for SEZ status as and when the demand for SEZs picks up,” another consultant said.
The slowdown in the IT space is quite evident as according to National Association of Software and Services Companies or Nasscom, the $50 billion software and services export revenue target for the Indian IT sector by 2010 is likely to be delayed by 3-4 quarters.
Commerce ministry, the nodal agency for giving clearance to SEZ projects, did not want to deny anyone the opportunity of taking their share of the IT/ITeS pie. Therefore, any developer meeting the minimum net worth criteria, and with the ability to provide plug and play facilities, round-the-clock air-conditioning and with a built up area of 1 million square feet with a viable project, was given the approval. What went in favour of such SEZs was that they are relatively pollution-free and easier to set up.
As a result, IT/IT-enabled services sectors have bagged the maximum share in the total number of approvals. Of the 552 SEZ projects that have received formal approvals (having procured the stipulated minimum area of land for such projects without any legal hassles), 341 have gone to the IT/ITeS sector. This is 61.77% of the total such approvals. Of the 274 SEZs that have been notified and have begun operations, 181 (or 66%) are from the IT/ITeS. There are also 11 IT/ITeS SEZs with in-principal approval (for a viable project, but without the required land).
The Financial Express, May 5, 2009, Page 5
Arun S, New Delhi
The slowdown in the information technology (IT) space has started affecting the performance of IT-based Special Economic Zones (SEZ) projects too. According to commerce ministry estimates, at least 50 IT/ITeS SEZs, whose developers have little experience or knowledge of the sector’s dynamics, would drop out by 2009-end.
“You could easily expect as much as 50 of the IT/ITeS SEZs to drop off by 2009-end,” commerce secretary G K Pillai told FE.
Developers without core competence in IT, and especially those belonging to the realty sector, are finding it tough to attract clients to their SEZs. Sources said at least 30-40% of the space meant for supply in sq ft-terms in IT/ITeS SEZs has become “excess capacity” and therefore is lying vacant due to lack of demand from IT/ITeS exporters.
According to consultants, while IT/ITeS SEZ developers without core competence in IT (like the realty players) continued to be in the ‘denial mode’ on the reduction in value of their space, even long after the slowdown in the IT space began, developers with specialisation in IT quickly understood the needs of the IT clients. Typically, even an SEZ developed by IT-specialists like Infosys or Wipro could house other IT/ITeS companies as clients/units.
“Selling IT space is a totally different ball game altogether. It is not like selling other commercial space. Developers with IT experience understand this better than other developers,” said Tapan Sangal, senior manager, PricewaterhouseCoopers.
“They (developers with specialisation in IT) understand that IT clients are more cost-conscious now, especially with the slowdown and dollar appreciation. Besides, IT clients are also more comfortable with a developer who knows their needs and are able to help them in marketing their products. The other developers think developing an SEZ is everything, but that approach does not work anymore,” Sangal said.
This means, pure play IT/ITeS companies who are developing such SEZs will be in a better position to tide over the slowdown without surrendering their SEZs.
But those who will have a relatively tougher time would include several firms, who are otherwise engaged in sectors like realty, infrastructure, logistics, publishing, healthcare, steel, pharmaceuticals, hotels, equipment-making and even stud farms, but have chosen to enter the fray to develop IT/ITeS SEZs. All these players had entered the business of developing SEZs to take advantage of the IT boom in the previous years.
Another reason is that IT/ITeS units housed in the Software Technology Parks and EOUs do not feel the need to shift immediately to SEZs to avail of tax breaks as the EOU and STPI schemes have been extended till March 2010. Besides, the government is also positively inclined to extending these schemes further, sources said.
Already, realty major DLF has decided to return four of their IT SEZs.
Other biggies in the real estate industry owning SEZs are expected to follow suit as some of them have had talks with the government in this regard, sources said.
On its part, the government is considering a proposal to relax the norm for the required built-up area for IT/ITeS SEZs in tier II and tier III cities. The minimum built up area for IT/ITeS SEZs is one million sq ft. There is also a proposal to extend the validity of approvals, thereby giving more time for the developers to complete construction in their SEZs. But obviously only the new government would take these up.
Despite the poor showing by developers without prior experience in the IT/ITeS space, the government will not frame any guidelines stating that in order to develop an IT/ITeS SEZ, the developer should have considerable experience. “It is best left to market forces,” Pillai said.
Consultants working on these projects said several of these developers, hard-pressed for funds, prefer to surrender the SEZ status of these plots, return the tax benefits availed, and then either dispose off the land to pay their debts (in extreme cases, as there are hardly any buyers of land now) or build residential units there for which there is demand.
“While people are re-looking at IT/ITeS SEZ projects, the clear agenda in the short to medium term is to explore whether there is better utilisation of land by changing the project nature to residential, hotels or hospitals. If, however, in the long term, there is still an opportunity for commercial real estate based on geography and location, they may decide to hold the land (earlier meant for IT.ITeS SEZs),” said Ajit Krishnan, partner, Ernst and Young.
“They (developers) want to exit the SEZ space now and keep the land vacant for better purposes. If they keep the land vacant, they can always re-apply for SEZ status as and when the demand for SEZs picks up,” another consultant said.
The slowdown in the IT space is quite evident as according to National Association of Software and Services Companies or Nasscom, the $50 billion software and services export revenue target for the Indian IT sector by 2010 is likely to be delayed by 3-4 quarters.
Commerce ministry, the nodal agency for giving clearance to SEZ projects, did not want to deny anyone the opportunity of taking their share of the IT/ITeS pie. Therefore, any developer meeting the minimum net worth criteria, and with the ability to provide plug and play facilities, round-the-clock air-conditioning and with a built up area of 1 million square feet with a viable project, was given the approval. What went in favour of such SEZs was that they are relatively pollution-free and easier to set up.
As a result, IT/IT-enabled services sectors have bagged the maximum share in the total number of approvals. Of the 552 SEZ projects that have received formal approvals (having procured the stipulated minimum area of land for such projects without any legal hassles), 341 have gone to the IT/ITeS sector. This is 61.77% of the total such approvals. Of the 274 SEZs that have been notified and have begun operations, 181 (or 66%) are from the IT/ITeS. There are also 11 IT/ITeS SEZs with in-principal approval (for a viable project, but without the required land).
Posts
No comments:
Post a Comment