India on SEZ HIgh

SEZ : special economic zone

The craze for industrialization has swept India. The central and state governments are all following this trend, throwing caution to air. Prime agricultural lands are being offered for Special Economic Zones (SEZ) leaving the farmers working on these lands with nowhere to go. This SEZing of lands reached its maximum when the West Bengal government allotted fertile agricultural land to Tata Motors for its small car unit to be set up in Singur.

The Union Government’s policy on SEZ came into effect on 1st April 2000. It represents the latest and most planned thinking so far on India’s export policy and may even determine the future of India’s industrial development strategy. SEZs need to be seen in the context of the Indian Government’s attempts to launch second-generation reforms and as a continuation of earlier initiatives to boost exports, namely setting up of export processing zones, export oriented units, software technology parks, export oriented hardware technology parks, export promotion capital goods policy, advance licensing and deemed exports policy and free trade zone policy.

SEZs allow the government to experiment with radical (in the Indian context) economic reform in a sufficiently large geographical area (minimum size 1,000 hectares) but on a localized basis, thus averting the difficulties posed by introducing such reforms at the national level.To instill confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill was prepared after extensive discussions with the stakeholders. The Special Economic Zones Act, 2005, was passed by the Parliament in May 2005, which received Presidential assent on the 23rd of June, 2005. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments.

The main objectives of the SEZ Act are generation of additional of economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities, development of infrastructure facilities. It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities. The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter-ministerial SEZ Board of Approval. The total land requirement for the 341 formal approvals granted till date is approximately 44268 hectares out of which about 87 approvals are for State Industrial Development Corporations/State Government Ventures, which account for over 21169 hectares. In these cases, the land already available with the State Governments or SIDCs or with private companies has been utilized for setting up SEZ. The land for the 130 notified SEZs where operations have since commenced involved is approximately 17663 hectares only. Out of the total land area of 2973190 sq km in India, total agricultural land is of the order of 1620388 sq km (54.5%). It is interesting to note that out of this total land area, the land in possession of the 130 SEZs notified amounts to approximately 117 sq km only. The 341 formal approvals granted also works out to only around 443 sq km. The SEZ policy has met with stiff resistance from the farming community, though it has the broad support of industry. The farmer’s agitation has also resulted in violence and deaths in some parts of the country.

The Parliamentary Standing Committee of Commerce (Murli Manohar Joshi) today called for sweeping changes in the SEZ policy being pursued by the UPA government to make it farmerfriendly. The Committee is also of the view that a level playing field should be provided to the domestic industry. The Committee recommended that the fiscal exemptions, which are unrelated to exports, should not be granted. The provisions regarding direct and indirect taxes in this regard should be corrected and loopholes plugged. Tax benefits should be granted only for export activities and infrastructuredevelopment.It has also recommended that the entire gamut of fiscal incentives given to SEZ Developers and Entrepreneurs need to be reviewed and so revised that the purpose for which these concessions were granted would be fully achieved.

At present, 1087 units are in operation in the SEZs established prior to the Act coming into force, providing direct employment to over 1.85 lakh persons; about 40% of who are women. Private investment by entrepreneurs in these SEZs established prior to the SEZ Act is of the order of over Rs. 5661 crore. The overwhelming response to the SEZ scheme is evident from the flow of investment and creation of additional employment in the country. The SEZ scheme has generated tremendous response amongst the investors, both in India and abroad.