People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 52

December 24, 2006



Review SEZ Act Forthwith


THROUGH these columns, while thoroughly exposing the malicious propaganda of our detractors concerning the Singur Motor Plant in West Bengal, we had underlined the need for national guidelines on the issue of acquisition of land for industrialisation. The complete package offered by the CPI(M)-led Left Front government in West Bengal is one of the best and, hence, needs to be emulated elsewhere. In this context, the ruthless acquiring of fertile agricultural land for Special Economic Zones (SEZ) needs to be urgently regulated. The CPI(M) had, in the past, argued for thoroughly revamping the Land Acquisition Act currently in force. This is a legislation enacted in British India way back in 1894. A new Act must be brought to replace this one which shall legally ensure that the owners of the acquired land have not only consented but become stakeholders in future projects, and that the compensation covers not only the land owners but all other sections who were dependent on agricultural activity for their livelihood. 


While continuing to press for such a new Act, the Left parties have demanded of the government that the present SEZ Act and Rules will have to be amended on crucial issues such as land acquisition; tax concessions; land use; and implementation of labour laws. 


The government through its Note on the issues raised by Left parties on the Special Economic Zones Act/Rules, has strongly defended the existing SEZ policy vis-à-vis the criticisms and concerns expressed by the Left parties. The response of the government can be summed up in the following sentences contained in the government’s note: “The SEZ Act and Rules have been in force now only for 9-10 months and is at a nascent stage. No abuse of the SEZ Act and Rules has been noticed so far…Any arbitrary change in the SEZ Act and Rules would send a wrong signal to the investors…The Department of Commerce would therefore recommend that no amendments to the SEZ Act be considered for at least 2 years. In so far as amendments to the SEZ Rules are concerned, minor amendments to the Rules would be made from time to time and this would be done in the larger interests of facilitating the Act and Rules.” 


This position of the government is untenable for several reasons. When the SEZ Act was passed in Parliament, the idea was to provide a stable policy framework for creating some Special Economic Zones in different parts of the country, which through the provision of quality infrastructure and some tax incentives would give a boost to industrial growth and exports. China, which is considered to be a success story as far as manufacturing exports are concerned, has only 6 SEZs. An unofficial estimate suggests that there are in total around 2000 SEZs in the entire world. In this context, the fact stated in the government’s note itself that approval for 237 SEZs have already been sanctioned by the Board of Approval along with “in-principle” approval for another 166 SEZs within less than a year of the promulgation of the SEZ rules, has created a situation entirely different from what was envisaged during the passage of the Act. The total land involved in these SEZ amounts to a whopping 1,70,000 hectors or over 3 lakh acres. 


It is the proliferation of SEZ proposals and their en masse approvals granted by the government within a matter of a few months which has, quite naturally, given rise to a big public debate. Several political parties, mass organizations, civil society groups, academics and experts and even sections of the corporate sector are viewing the entire SEZ policy framework with suspicion. It needs to be noted that initially there was a cap of 150 on the total number of SEZs to be permitted, which was subsequently lifted. Requests made by state governments have been cited in the government’s note as the reason for lifting the cap. This logic is specious since the requests were made in a context where en masse approvals had already been granted to set up SEZs in a handful of States, especially Andhra Pradesh, Maharashtra and Karnataka, which had forwarded large numbers of proposals. Several State governments made the request to lift the cap simply because they did not want a situation to arise where the 150 SEZ proposals would be cornered by a few states with the others left out of the race. The Board of Approval should have realised that granting en masse approvals for the setting up of SEZs in a few States would eventually lead to this situation. 


The government’s note, however, has provided a further justification for the lifting of the cap by suggesting that “It is best to leave it to the market forces to operate. Stipulation of any cap of establishment of SEZ would only lead to a sort of License Raj and a premium on transfer of SEZ approvals to other parties. The Department of Commerce is therefore of the view that there should be no cap on the number of SEZs to be established”. This view is deeply problematic because it fails to grasp the grave implications of such a “market forces” determined SEZ model for balanced regional development, which the RBI has noted in its latest Annual Report. Moreover, the “license raj” surely cannot be replaced by a free for all. The RBI for instance has elaborated fit and proper criteria for allowing private entities acquiring shares of a bank beyond a stipulated ceiling. Such fit and proper criteria are stringent, yet transparent, and are meant to ensure that only genuine and competent entities enter into the sensitive banking business. It is highly unfortunate that rather than following such prudent practices, the Board of Approval sanctioned SEZ approvals en masse. This has been the basic flaw in the approach of the government. 


It is the proliferation of SEZ proposals which has already discredited the SEZ policy and given rise to genuine concerns related to large scale acquisition of fertile farmlands, massive displacement, enormous loss of tax revenue and gross misuse for real estate purposes. The government’s note states that out of the 237 formal approvals granted till date, involving 34510 hectares of land, no fresh land acquisition has taken place since land already available with the state governments, SIDCs or private companies has been utilised for the purpose. This clearly shows that most of these projects were about to come up any way and the SEZ Act is being used to avail tax and other incentives which would not have otherwise accrued to these projects. The apprehension of industrial projects in the pipeline being converted into SEZ projects overnight has actually come true. 


The state wise distribution of 237 SEZs clearly points towards the lopsided pattern of development, that the first come first serve approach adopted by the government, would bring about. If this approach is continued further based upon blind faith reposed on the “market forces,” regional imbalances would be greatly aggravated in the country. Moreover, the government would end up pushing the states in an unhealthy competition of attracting more and more SEZ proposals by granting ever greater concessions to private developers. The only beneficiaries of such a race to the bottom would be the private developers.


Moreover, 148 out of the 237 SEZs approved so far are IT SEZs. The disproportionately large number of proposals for IT SEZs clearly shows an attempt by new IT units to avail the benefit of the ten-year tax-break under the SEZ Act which otherwise cannot be availed by the IT companies beyond 2009. In fact demands for further extending the tax holiday for the IT companies for ten more years have already been voiced by a section of the IT industry in order to ensure a level playing field. The Union IT Minister has already endorsed that demand publicly. Thus a situation has been created for the perpetuation of tax breaks for one of the most profitable sectors of the economy. Coming in a context where NCMP mandated welfare schemes are not being introduced citing resource constraints, such perpetuation of tax breaks is not justifiable.


At a meeting with the group of ministers set-up to review the SEZ Act on December 20, 2006, the Left parties strongly reiterated the need for amending the Act/Rules. The government has, on record, accepted to review the SEZ Act/Rules in January 2007.