People's Democracy

SEZ Rules Violate Constitution

CITU Petitions Committee On Subordinate Legislation

Dipankar Mukherjee, secretary, Centre of India Trade Unions (CITU) and former member of Rajya Sabha has written the following letter to chairperson, Committee on Subordinate Legislation, Rajya Sabha on September 29, 2006 regarding Special Economic Zones (SEZ) Rules, 2006, dated February 02, 2006.

Full text of the letter follows:

WE invite your kind attention to the SEZ Rules framed in exercise of the power conferred by Section 55 of the Special Economic Zone Act, 2005 and seek your immediate intervention in respect of various provisions in the aforesaid rules, which in our opinion are not in accord with the objects of the parent Act and even not in conformity with the Constitutional provisions.

Our Constitution does not permit formation of a State within a State. The aforesaid rules in its present form apparently go towards this direction. The rules permit ownership of land without any ceiling to developers; relax most of the fiscal and executive powers vested in the State; transfer these powers to Development Commissioners appointed by the centre without any defined accountability; and prohibit even access to the area under SEZ. Statement of objects and reasons of the Act stipulates a long-term policy framework to be made with minimum regulatory regime to provide expeditious single window clearance for setting up of units for export of goods and services. But implication of some of the rules go far beyond this concept of a minimum regulated fiscal regime to a “self-contained Privatised Autonomous Entity” independent of the laws of the land. The same is being enumerated below for your kind perusal and examination: 

MINIMUM AREA OF LAND 

Section 3(8) (a) of the Act allows central government to prescribe minimum area of land for a class or classes of Special Economic Zones though it does not prohibit fixation of a maximum limit. The Act does not, however, specify maximum number of SEZs that can be set up in a state.

Rule 5(2) specifies minimum area of land for class or classes of SEZ without specifying any maximum limit. Thus Rule 5(2) read along with Section 3(8) of the Act leads to a hypothetical situation where any part or even whole of the state, barring residential areas, can be identified as SEZs as there is no any ceiling either on the land or on number of SEZs within a state. Rules therefore should specify the upper ceiling on the contiguous area based on type of product / services intended to be produced/carried out.

PROCESSING AND NON-PROCESSING AREAS

Section 6 of the Act allows the central government to demarcate the areas falling within SEZ as processing area for setting up units for activities for manufacturing of goods or rendering services and non-processing area for activities other than the same.

Correspondingly in Rule 5(2)(a) the same has been demarcated with only 25 per cent of area earmarked for development of the processing area. Objectives of keeping 75 per cent as non-processing zone has been elaborated in Rule 11(10) which states, “…The Developer may allot land in the non-processing area for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes; Provided that infrastructure for business or social purposes in the Special Economic Zones, as may be approved by the Board, shall be eligible for exemptions, concessions and drawback…” and also Rule 5(4) which states, “…The Developer or Co-Developer shall have at least twenty six per cent of the equity in the entity proposing to create business, residential or recreational facilities in a Special Economic Zone in case such development is proposed to be carried out through separate entity or a special purpose vehicle being a company formed and registered under the Companies Act, 1956 (1 of 1956).” The rules are not in conformity with the statement of objects and reasons of the Act, which states “…The objectives of Special Economic Zones include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth.”

The activities mentioned in the aforesaid rules, therefore go totally beyond the realm of export production as envisaged in the Act. As such, Rules should be so framed that at least 50 per cent of the land is kept reserved for processing zone and the remaining land to be utilised for infrastructural development specifically related to export production thereby prohibiting the Developers/Co-Developers to go in for real estate business (also for catering to the domestic economy) in the non-processing area.

OWNERSHIP OF LAND

There is no specific mention in the Act about the ownership of the land, taken over by the State for the purpose of setting up of SEZ. As the law of the land does not permit acquisition of land acquired in public interest by the State to be handed over to a private party, it is presumed that the Act had therefore intended acquired land to be given to the Developers on lease hold basis as per the existing norms.

Section 7 of the rule goes out of the way to incorporate a provision giving the Developer a “legal right” over the land. The rule should therefore specify that land given to the Developers will be of lease hold nature only.

REHABILITATION AND COMPENSATION

Section 3 of the Act stipulates identification of the area for setting up SEZs, keeping the issue of modalities for acquisition of land as well as rehabilitation and compensation package for land losers, totally open. Rules are also silent about such a vital social aspect involving thousands of possible land losers as well as agricultural workers.

Section 5(1)(a) of the Act says that notification of any SEZ shall be guided by the generation of additional economic activity and creation of employment oppor-tunities. The same cannot be achieved if there is a serious social unrest, likely to erupt without specific guidelines on land compensation/rehabilitation package. 

Therefore, in order to avoid social unrest, there must be specific provisions in the Rules with regard to:

(a) Modalities of acquisition of land, and

(b) Grant of compensation and rehabilitation package for the land losers and agricultural workers.

DELEGATION OF POWER TO DEVELOPMENT COMMISSIONER ON LABOUR RELATED ISSUES

Function of Development Commissioner has been defined in Section 12 of the Act. The Act does not touch on the labour related issues, which are being governed by existing labour laws of the land under designated agency as per the relevant Act.

However, Rule 5(5)(e), (f) and (g) calls upon the state governments to endeavor to delegate power to Development Commissioner under ID Act, 1947 (No 14 of 1947) in relation to units in SEZ, workmen employed by the Developer and declaration of SEZ as public utility service. This is not at all consistent with the parent Act. 

In this context, it must be taken note of that in the process of deliberation on the Bill in both the Houses, parliament in its wisdom decided to drop the labour related clauses originally proposed in the Bill providing for power to state and central government to exempt the establishments in SEZs from the purview of operation of various labour laws. Aforementioned provisions in the rules tinkering into and/or intruding upon the normal process of labour administration militates against the spirit in which parliament deliberated and decided on the issue. 

Transfer of powers of State Labour Commissioner to Development Commissioner, through such a rule without a legislative backing is totally untenable. It is also in complete violation of concrete recommendations of ILO as have been specified by the Committee of Freedom of Association of ILO and recorded in the Report of 332nd session of the Committee (in response to complaints no 2228 on violation of labour rights in Visakhapatnam Export Processing Zone) and endorsed by the Governing Body of ILO of which Government of India is a member, in its meeting no. GB288/7 during November 2003. The ILO Committee observed: “The Committee recalled that in its previous conclusions, it had noted that there could be incompatibility between the two functions of Deputy Development Commissioner and Grievance Redressal Officer when performed by the same persons and had requested the government to review this situation” (para 748). The Committee further recommended categorically to Government of India “to take all necessary steps so as to ensure that the functions of Grievance Redressal Officer (GRO) are not performed by Deputy Development Commissioner in the EPZ of Visakhapatnam (currently GRO and DDC are the same person) but another independent person or body having the confidence of all parties...” (para 751-d). 

In view of the above, no such back door vesting of powers to Development Commissioner through a rule will be acceptable to the trade union movement of the country. The clauses i.e. 5(e), (f) and (g) under Section 5 should be fully deleted from the rules.

DEVELOPMENT COMMISSIONER

Though the functions of the Development Commissioner have been specified in Section 12 of the Act, the Rules provide enormous power to him disproportionate to functions assigned to him under the Act. He has virtually been given an overall authority of a ‘deemed foreign territory’ in the name of SEZ where even the fundamental right to movement of an Indian citizen has been curbed. The rule should be so framed that his powers are limited to the function for which he is deputed and his accountability should be clearly defined.

We are apprehensive that such unbridled power without accountability would be utilised by the Developers/Management to crush all democratic movements including the right to form association and union and the right to move freely as mandated under Article 19 of the Constitution. 

COST BENEFIT ANALYSIS 

Section 5(1) of the Act stipulates the following guidelines to justify setting up of SEZ:
a) Generation of additional economic activity;

b) Promotion of exports of goods and services;

c) Promotion of investment from domestic and foreign sources;

d) Creation of employment opportunities;

e) Development of infrastructure facilities; 

Keeping in view the above guidelines vis-à-vis the amount of direct and indirect tax exemptions, the cost benefit analysis has to be worked out and a set parameter be fixed based on which performance of each SEZ has to be assessed. Rule 53 however quantifies success of the SEZ based on Net Foreign Exchange Earning only, without any linkage to the above guidelines. The enormous revenue loss of Rs 97,000 crore reportedly estimated by the National Institute of Public Finance and Policy, has to be counter-balanced by earnings for an objective assessment of the “success” of the SEZs as otherwise the common man would have to bear the brunt of additional taxes. Rule 53 should therefore be suitably amended based on cost benefit analysis.

As no parliamentary committee has examined SEZ Act 2005 so far, we seek positive intervention by Committee on Subordinate Legislation under your able guidance so that the rules are examined in totality in the perspective of the objectives of the Act. We also hope that you would give us an opportunity to place our views before the Committee on this very vital issue concerning, generation of additional economic activities and employment. (INN)