The article on SEZ bubble by Swaminathan Aiyar in the Sunday Times truly highlights the plight which excessive increase in the number of SEZ's can cause. The mere mention of the size and volume of the moolah involved in this SEZ business can make mind dwindle!!

Lets take the case of RIL (Reliance Industries). RIL is planning a mega city project at Maha Mumbai and Navi Mumbai. For those who don't know, Maha Mumbai spans over 6000 acres and is sandwiched between the districts of Khopat, Raigad and Thane. They plan to develop a city complete with all the amenities one can think of. Schools, Shops, Malls, Banks all within the Zone itself. The makers even boast that, once functional, it will be so self-sufficeint that people won't have the reason to leave the zone for any reason. The total investement in this zone is pegged at around a whooping Rs 7500 Crores! And to say, this is just a tiny slice of the entire SEZ pie. There are whole slew of new SEZ's cropping all over India.

So, You must be thinking that, All this is supposed to be a good news, Where's the problem? To answer that one must first know what SEZ's are?

An SEZ or a Special Economic Zone is a geographical region where the Economic laws are different from the economic laws for the rest of the country. Most of the SEZ's will be converted into small IT parks which is almost certainly viable. But the same cannot be said about the real estate developments. The real estate developers will be more than happy to have laid their hands on such a large chunk of land from the state governments at low prices. When major realtors start flocking these regions, the real estate price is bound to go northwards. This is where the problem kicks in. The primary purpose of relaxing the economic laws in this regions which are otherwise so stringent for the rest of the country is to primarily attract FDI's and promote exports, not just to merely increase the real estate price! SEZ's in India are established to double up as EPZ's or Export Processing Zones. But what is the gaurantee that Export Units will flock to these zones once they are completed. What if they don't? What if the developers fail to attract them? All those huge amount of money spent on developing the infrastructure will go down the drain. THe SEZ bubble will burst and spell nothing but DOOM for small time share holders, bondholders, banks which until now are excited by the real estate prices and are investing heavily in the SEZ companies.

So to cut long story short, One must study carefully before investing. Better be safe than Sorry!!!