Sunday, April 22, 2007

SEZs for Whom: Facts and Figures

It was in 1965 the first Export Processing Zone (EPZ) was started at Kandla, Gujarat . So far there are only 14 EPZs in India . Very little is heard about their contributions to promoting Indian economy so far, except for the wage slavery for workers there and the riches made by a few out of them. Now with WTO calling for opening up trade in all its forms and extending liberalisation in all fields, its darling in India , commerce minister Kamalnath with blessing of Sonia-Manmohan Singh gang has launched a new fantastic offensive to start almost 650 Special Economic Zones (SEZs) by 2007 end with a target to touch a record 1,000 in few years. A bill for SEZs was moved in Lok Sabha in early 2005. It was passed unanimously in both houses of parliament within two days and got signed by the president in a few days. It is under this SEZ Act, 2005 this whole project is launched.

What is happening under this project is the biggest land grab since 1947. The draconian Land Acquisition Act, 1894 is utilised for this land grab. At present for the already sanctioned SEZs a total of 1.25 lakhs hectares of prime agricultural land are being acquired. The next phase involves almost same area.

In Punjab where almost entire area is irrigated and under double crop or more, even violating the SEZ Act land is acquired. Against this already farmers are agitating in Barnala and Amritsar . In Himachal Pradesh about 35,000 hectares in Kangra Valley is planned for an SEZ. In Jhajjar in Haryana near Delhi , 10,000 hectares of double cropped land, larger than Gurgaon, is taken over for SEZ. In Mangalore, Karnataka, 2200 hectares of double and triple cropped land is being taken over for setting up SEZ. In Orissa at Gopalpur land was originally acquired by state government for a paltry sum and handed over to Tata for a steel plant. But the plant did not come up and farmers wanted the land back. There Tata is building SEZ. 1600 hectares handed over to POSCO to build a steel plant is also converted into SEZ. The pattern of land acquisition for the SEZ boom is almost similar all over the country.

Though Kamalnath repeats about China ’s SEZs, he is resorting to Goebelsian methods. So far in China only six SEZs are set up—Shenzhen, Shantou , Xiamen , Zhuhai, Hainan and Pudong. These are all built in public sector and in waste lands. Still major opposition against the working conditions in these SEZs are reported from China ( All over the world there are only some 400 SEZs so far. Why Congress-led UPA government and all state governments are in such a hurry to build large number of these foreign colonies within the country?

Some Features of SEZs in India

- SEZ for gems & jewellery, IT-ITES-BPOs and bio-technology would require a minimum 10 hectare of built-up area. (Later notifications said that the land-area may be reduced to 40,000 square metre or 4 hectare in special cases). Multi-product SEZs must have an area of 1,000 hectare, while multi-services and sector specific SEZs should have a minimum area of 100 hectare. (1 hectare = 2.5 acres, approximately).

- Only in India , the task of developing SEZs is totally transferred to private hands. In other countries these tasks, in most of the cases, were performed by the government itself.

- The processing area in SEZs would be mere 35%`! In the remaining 65% housing projects, hotels, restaurants, hospitals, amusement centres, multiplexes, malls, playgrounds, golf courses can be built !

- SEZ will be a duty-free enclave and considered foreign territory within the state. If you buy goods from an SEZ, you have to pay import duties. Example: Reliance industries set up a new refinery in Jamnagar (Gujarat) that “could end up ‘exporting’ bulk of its output in India ”. (Business Line, 22.01.2006) !

- Generally, the government will provide land to private companies that develop SEZs. Thus, SEZ developers will have access to precious land at throwaway prices (with the help of government muscle), cleansed of all title and litigation issues.

- There will be no elected local government/civic authorities. A development commissioner will govern it.

- So lucrative are the tax-holidays & other concessions offered in these SEZs that there are strong possibilities of older units to relocate in the SEZs to avail the bonanza. There are 6,500 companies located in 47 Software technology Parks (STPs) all over India enjoying fabulous tax-breaks and are making super-profits from export-earnings. Now Nasscom, the national association of the software companies want SEZ status for these STPs ! The craze may be explained from the following facts: “So much so, that of the 237 proposals given final clearance so far, 148 (i.e., 62%) are for setting up IT SEZs. Further, of the 160-odd proposals given in-principle nod, about half are from this sector.” (

- In these SEZs all the units/enterprises will be declared as ‘public utilities’ where existing labour laws do not act.

SEZs: Sovereign States?

On a number of critical matters (environment, labour and electricity, among others) that are state subjects or fall in the concurrent list of powers shared by the central and state governments, the states give free rein to developers of SEZs. States such as Maharashtra , Andhra Pradesh and Uttar Pradesh have their own SEZ policies and different sets of rules governing their pieces of legislation. Just one example; while the Congress dropped the initial provision for granting flexibility in labour laws and thus bought peace with its Left allies, some of the states went ahead and amended various laws such as the Contract Act, Industrial Dispute Act, etc., since labour is a state subject.

Congress-ruled Maharashtra has been in the vanguard of this ‘revolution’, having tossed a number of unwieldy provisions of some laws out the SEZ ambit. It has exempted these zones from the purview of section 10(2) of the Contract Labour Act, which means temporary workers can be employed as contract labour permanently. It has also declared that all industries and establishments in the SEZs will be deemed public utilities, which means that strikes are outlawed. Even the left-ruled Bengal government declared the IT/ITES/BPO sector as “public utilities” those are still out of SEZs.

There are more dramatic examples of SEZs being granted most favoured nation status. Environmental clearance is one. State governments are promising developers and their clients a quick, trouble-free process by exempting industries from the environmental impact assessment (EIA). This is normally a cumbersome exercise, but essential for understanding how to minimise the adverse impact of development on the environment. Now, some states have decreed that environmental approval will be given by the development commissioner of the SEZs in consultation with an officer of the state pollution control board posted in the zone.

Among other drawbacks, SEZs will not be subject to any town planning or supervision by the municipality, thus negating the 75th Amendment of the Constitution which ensures people’s participation in local government.

What is most worrying in the SEZ Act is Section 49, which empowers the government to exempt any or all SEZs from the operation of any central law through a notification. It puts SEZs, theoretically at least, outside the pale of the Constitution.

After all, the world over, SEZs are set up precisely so that they can avoid the rigidity of domestic law and rely on smoother functioning without bureaucratic hassles. The rub here is that the SEZs are being developed by the private sector. India is, perhaps, the only country to have promoted private SEZs — or at least in such numbers. Fuelling the popular distrust is the speed at which the zones are being approved by the Ministry of Commerce. Around 20-40 on an average are being cleared every other week, bringing the tally so far to 263, plus another 169 that have got in-principle approval.

And, there is also the Godzilla factor — the sheer size of some SEZs. Although these are small by global standards, some have the making of a mega enterprise. Reliance Industries’ twin block in Mumbai is scheduled to cover 14,000 hectares or 140 sq. km. This may be just a third of China ’s Shenzhen economic zone (326 sq. km), but large enough to throw up some discomfitting questions in the Indian context. For reference, Jamshedpur, the steel city run by the Tatas, is just 64 sq. km and Chandigarh’s real estate, including its rural periphery, adds up to just 112 sq. km. More to the point, Reliance expects to house one million residents and play host to two million others who would commute daily to their SEZs.

The question, therefore, is what happens when large SEZs eventually become townships whose population could run into millions. There is, to start with, the constitutional tenability of private monopolies running local government for sizable cluster of the urban population without being elected. Would the SEZs thus, turn into sovereign states accountable to none? Or, would there be some checks and balances?

What the law lays down is an SEZ Development Authority (SDA) headed by the developer’s representative and run by a development commissioner (DC) appointed by the state government — a super bureaucrat vested with enormous powers. Since SEZs are being designated industrial townships by the status, the DC would work independently with no municipality or the third rung of governance to oversee his functioning.

In other words, all functions undertaken by the civic authorities and some of those provided by the state government (water supply, tax collection, law and order) would devolve on the SDA. Several states have laid down detailed norms for the SDA. From providing birth and death certificates, maintaining cremation/burial grounds (all municipal functions listed in 12th Schedule of the Constitution) to laying out public streets, building bridges and culverts, and fighting epidemics, the SDA would be doing it all. No penalties, though, have been spelt out for dereliction of duties.

Also, unlike a municipality, the developer is not obliged to provide services to all citizens. How then would a resident deprived of such services seek to enforce such a right? In fact, there are doubts whether many of the SEZs would indeed be able to provide such services, given the squeeze on their profitability.

There are related issues like law and order and the judicial process. Although the police force will be provided by the state, internal security will be the responsibility of the developer. But legally, this could open up a Pandora’s Box if the jurisdiction of the security force is challenged. Similarly, SEZs are to be provided with a separate fast track judicial system to ensure comfort to foreign investors in SEZs. But this will be a Government of India function whether designated courts operates within or outside the special zones. [Source: by Latha Jinshnu & Feroz Ahmed, Business World website, November 2006]

Subsidies/Incentives Given to SEZ Enterprise

Non-fiscal Incentives/Concessions

- Exemption from industrial licensing for manufacture of items reserved for Small Scale Industries (SSI).

- 100 per cent FDI investment through automatic route to manufacturing SEZ units.

- Facility to realise and repatriate export proceeds within 12 months.

- No cap on foreign investment for SSI reserved items.

- “Write-off” of unrealised export bills upto 5%.

- No License is required for imports, including second hand machineries.

- Profits allowed to be repatriated freely without any dividend balancing requirement.

- Full freedom for subcontracting, including subcontracting abroad.

- The area incorporated in the proposed SEZ is free from environmental restrictions.

- Water, electricity and other services would be provided as required.

- The units would be given full exemption in electricity duty and tax on sale of electricity for self generated and purchased power.

- To allow generation, transmission and distribution of power within the Special Economic Zones.

- Single point clearance system and minimum inspections requirement under State Laws/Rules would be provided.

- For units inside the Zone, the powers under the Industrial Dispute Act and other related labour Acts would be delegated to the Development Commissioner and that the units will be declared as a Public Utility Service under Industrial Dispute Act.

Fiscal Incentives

- 100 per cent income tax exemption for a block of five years, 50 per cent tax exemption for two years and upto 50 per cent of the profits ploughed back for next 3 years.

- Supplies from Domestic Trade Area to SEZ to be treated as export.

- Carrying forward of losses.

- 100 per cent Income-tax exemption for 3 years & 50 per cent for 2 years for off-shore banking units.

- Exemption from Central Excise duty on procurement of capital goods, raw materials, consumable spares, etc., from the domestic market.

- Reimbursement of Central Sales Tax paid on domestic purchases.

- SEZ units may import duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, DG sets, etc. for implementation of their project in the Zone without any license or specific approval.

- Exemption from service Tax to SEZ units.

- Exemption from State sales tax, octroi, mandi tax, turnover tax and any other duty/cess or levies on the supply of goods from Domestic Tariff Area to SEZ units.

- Enhanced limit of Rs. 2.4 crores per annum allowed for managerial remuneration.

Subsidies/Incentives Given to SEZ Developers

- Developer of an SEZ may import or procure goods without payment of duty for development, operation and maintenance of the SEZ.

- Income-tax exemption for a block of 10 years in 15 years at the option of the Developer.

- Exemption from Service Tax.

- Investment made by individuals etc. in SEZ developing companies eligible for exemption under Section 88 of the Income Tax.

- 100% FDI allowed for: (a) townships with residential, educational and recreational facilities on a case to case basis, (b) franchise for basic telephone service in SEZ.

- Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs.

- Developer permitted to transfer infrastructure facilities for operation and maintenance.

- Generation, transmission and distribution of power in SEZs allowed.

- Full freedom in allocation of space and built up area to approved SEZ units on commercial basis.

- Authorised to provide and maintain service like water, electricity, security, restaurants and recreation centres on commercial lines.

- The area incorporated in the proposed SEZ is free from environmental restrictions.

- The water, electricity and other services would be provided as required.

So the message is laud and clear. Mushrooming of SEZs will not deliver the desired goal of “export promotion”. But these ‘anxious’ critiques cannot oppose the very concept of SEZs. After all they are representatives of the big capitalists.

[For preparing facts and figures of SEZs the Update Series 13 contributed . We acknowledge our thanks-RS]

Table 1 : Snapshots on SEZs (State-wise)*

State Formal Area In-principle Area

Approvals (hectare) Approvals (hectare)

Andhra Pradesh 45 9472.80 9 3768.39

Chandigarh 2 87.49 - -

Chhattisgarh - - 2 2029

Delhi 1 6 1 11

Dadra, Nagar - - 1 80

Goa 4 290.98 - -

Gujarat 18 10308.25 12 8193

Haryana 19 818.41 27 43002.48

Himachal Pradesh - - 3 5030

Jharkhand 1 36 - -

Karnataka 29 1672.12 17 4720.97

Kerala 10 569.92 2 414

Madhya Pradesh 4 71.25 6 9309.25

Maharashtra 48 8277.28 27 22378.09

Orissa 5 745.61 7 4060.03

Pondicherry 1 346 - -

Punjab 4 252 7 1571

Rajasthan 3 89.23 8 12251.32+

Tamilnadu 25 1300.57 12 5078.25

Uttranchal 3 468.2 1 14

Uttar Pradesh 8 123.71 10 5954.25

West Bengal 7 170..26 14 1192.14+

Total 237 35106.08 166 13979.94

Total Approvals = Formal + In-principle = 403

Total Area (Hectare) = 1,74898.02+

*October 2006; some of the bigger SEZs still not get any form of approval.

Application pending at the commerce ministry = 247

Table 2: Land to be acquired by the West Bengal Government

Project Place Land

(In acres)

1. Salim (MNC) 59,250 app.

a) Chemical Hub (SEZ) Nandigram ( E. Medinapur ) 10,000

b) SEZ (multi-product) Haldia 12,500

c) Barasat-Raichak Expressway -------- 3,500

d) Knowledge City Rajarhat (N. 24 Pargana) 850

e) Health City Burdwan NA

f) Food Park Sankrail ( Howrah ) 400

g) Motorbike Factory Uluberia ( Howrah ) 2,000

h) Township Kukrahati (S. 24 Pargana) 5,000

i) Fish Farming Project Amta ( Howrah ) 25,000

2. Videocon SEZ N. 24 Pargana 2,700

3. Videocon SEZ (IT) N. 2 Pargana 310

4. Videocon SEZ Siliguri ( Darjeeling ) NA

5. Salarpuria SEZ N. 2 Pargana 520

6. Bengal Srei SEZ Khargpur (W. Medinapur) 500

7. Kulpi Port (SEZ) Kulpi (S. 24 Pargana) 3,002

8. Industrial Development Zone Uluberia ( Howrah ) 2,000

9. S. 24 Pargana District Hqs. Baruipur 3,000

10. Industrial Development Area Kharagpur 1,200

11. Cement Unit Murshidabad 150

12. Several Projects Siliguri ( Darjeeling ) 1,000

13. IT Complex Jagadishpur 330

14. Industrial Projects (Telcom/ Kharagpur ( W. Medinapur ) 9,000

Telecom/Tata, Tata Metaliks, etc.)

15. Jindal Steel Salboni ( W. Medinapur ) 5,500

16. Tata Motors Singur (Hoogly) 997

17. Township Baruipur (S. 24 Pargana) ,750

18. Township Bhangur (S. 24 Pargana) 1,500

19. Township N. 24 Pargana 1,000

20. Commercial Blocks Eastern Link Highway 1,000

21. Industrial Area Adjacent to District Hqs. 1,000

22. Small Industry Development Backward districts 2,032

Industrial Estate

23. Track Terminal + Health City Rajarhat (N. 2 Pargana) 130

+ Sports Complex

24. Nuclear Power Plant Haripur (E. Medinapur) 700

25. Thermal Project Katwa (Bardwan) 1625

26. Reliance Ind. Retail Network 19 Districts 1680

27. Foundry Park Howrah 500

28. Sagardighi Project 150

Total 1,04,826 Acres (Approximately)

[Source: prepared from data collected from newspapers]