The meeting
Dear Gulia
the issue in Nandigram is not regarding SEZ aquisition
I am putting detailed note on SEZ.
Special Economic Zones
The Special Economic Zones Act was passed by the Parliament in 2005. The intended purpose was to provide a stable policy framework for creating Special Economic Zones, which would serve as engines for industrial growth and exports. However, following the drafting of the SEZ Rules and the commencement of the process of granting approvals for the SEZs, a host of issues have surfaced which necessitates a re-look at the entire SEZ Policy framework. Agricultural land is being acquired for the setting up of SEZs in several cases resulting in displacement of farmers and other sections of people, which have serious implications. Moreover, several provisions made in the SEZ Rules have raised concerns of misuse of the SEZ Act for creating a speculative real estate bubble instead of building industrial infrastructure. The Reserve Bank of India has warned against the possibilities of uneven development between different regions owing to the SEZ Policy. There are also apprehensions regarding substantial revenue losses on account of the tax concessions provided under the SEZ Act. In view of this, a review of the current SEZ Act and Rules is urgently required. The relevant issues along with some suggested corrective steps are elaborated below, which the Government should consider, and can be debated here for additions or modifications
Address the Land Question
A major difference between the Indian SEZ Policy and that of China, which had pioneered the creation of SEZs, is on the question of land. In the Chinese case, the State acquired the land and developed the required infrastructure, where private enterprises were invited to set up units. The land continued to be owned by the State. In the Indian case, private entities are being involved in developing the SEZ infrastructure. Land is being acquired by the State and handed over to private developers. Some of the proposed SEZs involve huge tracts of land, over 10,000 hectares in some cases. If private entities are allowed to own such huge tracts of land, it would amount to the reestablishment of the zamindari system sixty years after independence. This should be totally unacceptable.
Moreover, a thorough cost-benefit analysis of the SEZs, especially the giant-sized ones, from the point of view of rehabilitation and livelihood security of the displaced people, diversion of agricultural land and its implications for food security, the nature of urbanisation, usage of power and water and environmental impact assessment, is necessary before approving these projects. While land is a State subject and the cost-benefit analyses have to be undertaken by the State Governments before approving the SEZ proposals, the Central Government also needs to take a view on the important issues related to land acquisition, ownership and use. The following measures are suggested:
(a) There should be no transfer of land ownership to the private developer. Private developers should only be allowed to take land on lease or build the infrastructure on a BOT basis. Moreover, the Board of Approval for SEZs at the Centre should only consider those proposals, which have been duly approved by the State Governments.
(b) The Central Government should set an appropriate ceiling on the total land area under a SEZ, which can be developed by a private entity. In Section 5(2) of the SEZ Rules only minimum land area requirements for the different classes of SEZs have been mentioned. The maximum land area also needs to be specified here. Private entities should not be allowed possession or control of land beyond the stipulated ceiling.
(c) SEZs whose land area exceeds the specified ceiling should only be developed by the State (Public Enterprises of the Central or State Governments). The State can undertake Joint Ventures in developing such SEZs; but in such cases majority stake should lie with the public sector. Selection of the private developers in the case of Joint Ventures should be made in a transparent manner.
(d) SEZs should be built on non-agricultural land and acquisition of agricultural land for the purpose of SEZs should be discouraged. A provision limiting the acquisition of agricultural land should be built into the SEZ Act itself.
(e) In case of displacement of farmers and other sections of people, it is important to ensure the livelihood security of the displaced families in addition to providing adequate compensation. The role of the Government in land acquisition should be geared towards protecting the interests of the people, especially the displaced families. The Government should frame a National Rehabilitation Policy, preferably through a Central legislation, in order to address the issues concerning rehabilitation of displaced families. Suitable amendments should also be made to the Land Acquisition Act in order to address these issues.
(f) A model compensation and rehabilitation criteria should be framed by the Central Government and included in the SEZ Rules, following consultation with the State Governments. It should be ensured that the current owners of land are awarded compensation in line with market prices taking into account the expectation of future land development. The suggestion that displaced families be given minor equity stakes in the companies floated for the purpose of building SEZs can be considered as an option. A provision must also be made to compensate those with long-term tenancy rights on the acquired land and farm labourers.
(g) The Government should urgently address the issue of unblocking and recycling of land and other assets of closed industrial units under liquidation. Data from the BIFR shows that recommendations for liquidation of 1254 private sector units, 31 Central PSUs and 41 State PSUs have already been sent to the High Courts. A fast track mechanism should be set up, by changing existing statutes if necessary, for unblocking the land of these closed units so that they can be made available for building SEZs or other industries.
Apply Appropriate Cap on Different Classes of SEZs
The initial cap of 150 on the total number of SEZs was later lifted by the Central Government. Since different classes of SEZs have been envisaged in the SEZ Rules, a cap on the total number of SEZs irrespective of its class and size makes little sense. However, if several large SEZs developed by private entities are allowed to come up in a few States, while many States do not receive any proposal from private developers, this will only aggravate regional imbalances. The RBI has also expressed concern on this issue in its latest Annual Report. It needs to be noted that the total number of SEZs in China stands at six only. Moreover, the proliferation of proposals for setting up IT SEZs is clearly an attempt to take advantage of tax breaks. There is an apprehension of existing units shifting over to SEZs, which will result in loss of revenue that presently accrues to the Government.
Therefore, there should be separate caps for the total number of multi-product and sector specific SEZs. This also provides a further case for fixing an appropriate ceiling on the land area of SEZs developed by private entities. The Central Government should consider setting up of SEZs through public investment in those States where private investment is not forthcoming. This is important from the point of view of regional balance. A cap on the number of IT SEZs should also be set keeping in mind the revenue considerations.
Revise the Criteria for Processing/Non-Processing Area
The purpose of setting up SEZs is to promote foreign and domestic investments and exports of goods and services. However, certain provisions in the SEZ Rules prepared by the Ministry of Commerce and Industry have opened up the possibility of misuse of the myriad exemptions provided by the SEZ Act, which could thereby fuel a real estate bubble. According to Section 6 of the SEZ Act: “The areas falling within the Special Economic Zones may be demarcated by the Central Government or any authority specified by it as- (a) the processing area for setting up Units for activities, being the manufacture of goods, or rendering services; or (b) the area exclusively for trading or warehousing purposes; or (c) the non-processing areas for activities other than those specified under clause (a) or clause (b).” The Central Government had therefore reserved the right to determine how much of the land area under a SEZ should be allowed as non-processing area.
According to Section 5(2) of the SEZ Rules, while at least 50% of the land area needs to be earmarked for developing processing area for sector specific SEZs, the minimum processing area requirement for multi-product SEZs is only 25%. It is noteworthy that while the minimum land area requirement for sector specific SEZs is 100 hectares, for multi-product SEZs it is 1000 hectares. Therefore, while a developer of a sector specific SEZ of 1000 hectares is required to develop at least 500 hectares of processing area, the developer of a 1000 hectares multi-product SEZ is required to build only 250 hectares of processing area. This is a clear anomaly.
The processing area of SEZs should not be less than 50%. Further, 25% of the non-processing area should be dedicated for infrastructure development. Building of residential and commercial complexes should be permitted over 25% of the total land area. The SEZ Rules should be suitably amended in this regard.
Continued
R.S.dahiya
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