Even as the Congress-led UPA government is striving hard to project Special Economic Zone (SEZ) as an instrument to boost country’s rapid industrialisation through exports, the raging controversy over the SEZ related issues refuses to die down.

The controversy over SEZ has acquired a new dimension in the wake of the Congress-ruled state Goa scrapping all 15 SEZ projects in the state in the wake of widespread political protests, including by the ruling Congress party.

Now the Central government has refused point-blank to de-notify SEZs that had already been notified in Goa. This brings into focus the distinct clash of views between the Central government and State Government—that too ruled by the same party, which is in power in the Centre—over issues relating to SEZ. 

From legal point of view the Centre says once a SEZ project is notified it cannot reverse the decision even though the concerned state government seeks for cancellation of the project.

As the Commerce Secretary G K Pillai, who is the Chairman of the Board of Approval—the single window clearing agency for SEZ projects—says, “Cancellation of those proposals, which have received in-principle and formal approval, would not pose any problem. But those notified have become legal entities and cannot be de-notified.”

Loss of face
Why is the country witnessing so much controversy over the SEZ? There is no denying of the fact that if there is any economic policy that has caused an acute political embarrassment and discomfort to the ruling coalition at the Centre, it is the one relating to SEZ.

While on one hand the Government—especially the Commerce Ministry—laboured hard to project SEZ as engine for economic growth, on the other the SEZ concept was being contemptuously looked at by wide range of political spectrum as symbol of exploitation of farming class.

What was quite painful for the Government was that acquisition of land for setting up SEZ was widely viewed as a motivated exercise to benefit real estate developers. The controversy has brought into sharp focus that the government’s claim that the country would immensely benefit from the SEZs is debatable. Not only that the controversy has given rise to the need for making introspection over likely aggregate social and economic costs of pursuing SEZ policy vigorously.

Analysts feel there are three major areas of concern: the fiscal costs, the issue of workers rights and net employment generation and displacement of marginal farmers and workers in the wake of land acquisition for setting up SEZ projects.

In fact combination of these three major areas of concern intensified protests by farmers in various parts of the country against the acquisition of farm land for setting up of SEZ and it reached the zenith with killing of several people in movement against setting up SEZ in Nandigram in West Bengal.

Taking note of the political sensitivity over anger and protest against acquisition of farm land for SEZ, the Empowered Group of Ministers (EGOM) on SEZ had put a hold on taking up any fresh SEZ proposal for approval and decided to go into all contentious issues relating to SEZ.

This move on the part of the Government had virtually put a question mark on the very continuation of SEZ policy causing anxiety and uncertainty over those SEZ proposals, which had already been cleared.

However, the EGOM finally removed the impasse over the SEZ by lifting freeze on approval of SEZ proposals thus giving clear signal that SEZ policy per se will stay.

While doing so the EGOM imposed limits on the size of the SEZs, called for an end to compulsory acquisition of land from farmers by state governments and proposed a new scheme to provide livelihood to one member of each family that loses land for the setting up an industrial or a commercial venture.

Changing rules
The size of the SEZs, or designated areas where commercial activities attract generous tax concessions, now cannot exceed 5,000 hectares. More importantly, the limit on the size of each SEZ would be applicable with retrospective effect on zones that have already been approved for establishment.

Another significant decision of the EGOM was to impose a limit of 50 per cent of the land area of a SEZ that could be could be converted for non-commercial activities. This was in response to criticism that the SEZs would be “misused” for real estate development by companies that set up ventures inside the designated areas.

From hence forward, compulsory acquisition of land for SEZs by the States under the Land Acquisition Act would not be allowed, leaving it to the developers to directly purchase land from farmers. But overwhelmingly it is being felt that though the EGOM has removed uncertainty over the SEZ policy per se, it has created a series of confusion for developers.

The industry and corporate sector are now doubtful about undertaking any SEZ project with Government tightening rules and regulations.

What is putting off developers to take up SEZ projects is Government’s stringent rule on the land acquisition, which has obviously been done to silence ongoing political outcry against use of farm land for setting up SEZ.
While these changes in SEZ policy are posing new problems for developers, many feel the controversy over the setting up of SEZs would not be over quickly.

The big issue now is: A landowning family may be quite willing to sell its land, but what happens to the livelihood of those who are working on the land or so-called share-croppers? The problem of rural unemployment in India is a huge and complex issue that cannot be easily resolved with these changes in SEZ policy.

Interestingly, criticism of government policy on SEZs has cut across ideological lines and divided the government. The Finance Ministry has time and again expressed its apprehensions that there would be substantial loss of revenues on account of the tax concessions granted to corporate entities operating in SEZs. In fact, the Asian Development Bank (ADB) in a report has sharply criticised the Indian Government for offering “unnecessary” tax incentives to developers of SEZs. These incentives could open loopholes for tax evasion and undermine investments in firms located outside the SEZs, the report argued.

Critical factors
On rehabilitation of displaced persons, the ADB report has noted, “Some of the loudest political opposition to SEZ projects comes from the landless, who may not receive compensation for the land conversion and who lack the capital to become self-employed.”

If one asks: Whether this mid-course correction in SEZ policy has made any difference, the answer is yes. At least the Government to some extent curbed the possibility of SEZ degenerating into hunting grounds of real estate developers by further tightening rules and regulations.

Of course, the Government has shown some element of sensitivity by ensuring that no agricultural land is forcibly taken over by displacing large number of people depending on land for their livelihood.

Given the sensitivity of issues relating to SEZs, it will be prudent to give once again a fresh look at the SEZ policy and strike a balance by catering to the legitimate interests of all the stake- holders.