PARLIAMENT OF INDIA

RAJYA SABHA

 

 

 

DEPARTMENT RELATED PARLIAMENTARY STANDING

COMMITTEE ON COMMERCE

 

 

EIGHTY THIRD REPORT

 

ON

 
THE FUNCTIONING OF
SPECIAL ECONOMIC ZONES

 

 

(PRESENTED TO HON’BLE CHAIRMAN, RAJYA SABHA ON 20TH JUNE, 2007)

(FORWARDED TO HON’BLE SPEAKER, LOK SABHA ON 20TH JUNE, 2007)

 

 

(PRESENTED TO THE RAJYA SABHA ON THE 20TH AUGUST, 2007)

(LAID ON THE TABLE OF THE LOK SABHA ON THE 20TH AUGUST, 2007)

 

 

 

RAJYA SABHA SECRETARIAT

NEW DELHI

 

AUGUST, 2007/ SRAVANA, 1929 (SAKA)


 

 

 

C O N T E N T S

 

                                                                                                                                                                   Pages

 

 

1.    Composition of the Committee                                                                          

 

        I.     Composition of the Committee on Commerce                                   

       

        II.    Composition of the Sub Committees                                                      

 

2.    PREFACE                                                                                                                          

 

3.    Report                                                                                                                             

       

        Chapter I.      Introduction                                                                              

        Chapter II.    Written and Oral Submissions:

                              Central Ministries/Departments                                             

        Chapter III.   Written and Oral Submissions: State Governments              

Chapter IV.   Written and Oral Submissions: Political Parties and

                     Trade  Unions                                                                       

Chapter V.    Written and Oral Submissions: Developers,

                     Entrepreneurs and NGOs                                                    

Chapter VI.   Observations and Recommendations                               

 

4.    Observations And Recommendations At A Glance                                   

 

5.    APPENDICES                                                                                        

 

(i)                 List of approved SEZs 

(ii)               Checklist on land issues, issued by Ministry of Agriculture

(iii)              Suggestion of the Government of West Bangal for Changes In SEZs

(iv)              Study Note on the visit of the Sub Committee for SEZs to Haryana, Andhra Pradesh, Karnataka, Gujarat and Maharashtra 11th to 16th February, 2007                                                      

                                                                       

                                                                                         

                                                

6.    ANNEXURES                                                                                                                

 

(I)         Note on SEZs by Shri A.B. Bardhan, General Secretary CPI     

(II)         Note on SEZs by Shri Prakash Karat, General Secretary

           CPI (M)                                                                                         

(iii)        Note on SEZs by BJP                                                                 

(iv)        Note on SEZs by All India Kisan Sabha                                     

(v)         Note on SEZs by Centre of India Trade Unions                         

(vi)       Note on SEZs by Dr. Kirit Somaiya, Ex-M.P.

           and Convenor, BJP Investors’ Cell                                                           

(vii)      Note on SEZs by Bhartiya Mazdoor Sangh                                           

(viii)     Note on SEZs by Hind Mazdoor Sabha                                       

(ix)       Note on SEZs by All India Trade Union Congress                             

 

7.    MINUTES                                                                                              

       

        (i)          Minutes of the meetings of the Committee                                

        (ii)         Minutes of the meetings of the Sub Committee on SEZs         

        (iii)        Minutes of the meeting of the Sub Committee to finalize the  draf report    

 

 

 

 

                                                    

I

 

Composition of the Committee

 

As constituted on 5th August, 2005

 

1.         Dr. Murli Manohar Joshi   ¾   Chairman

RAJYA SABHA

2.               Shri Thennala G. Balakrishna Pillai

3.               Shri Abu Asim Azmi

4.               Shri Dinesh Trivedi

5.               Shri Robert Kharshiing

6.               #Shri Rajkumar Dhoot

7.               &&Shri K. Keshava Rao

8.               &Shri Arun Jaitley

9.               @Shri Jai Prakash Aggarwal

10.           Vacant

 

LOK SABHA

 

11.           Shri K. Francis George

12.           Shri D.V. Sadananda Gowda

13.           Shri Anantkumar Hegde

14.           Shri Radhey Shyam Kori

15.           Shri N.N. Krishnadas

16.           Shri Vikrambhai Arjanbhai Madam

17.           Shri Shankhlal Majhi

18.           Shri Ram Chandra Paswan

19.           Shri Virchandra Paswan

20.           Shri Jivabhai A. Patel

21.           Shri Jaysingrao Gaikwad Patil

22.           Shri Shisupal N. Patle

23.           Shri Badiga Ramakrishna

24.           Shri Kashiram Rana

25.           Shri Haribhau Rathod

26.           Shri S.P.Y Reddy

27.           Shri Bharatsinh Madhavsinh Solanki

28.           Shri Sarbananda Sonowal

29.           Kunwar Sarv Raj Singh

30.           Shri C.H. Vijayashankar

31.           $Shri Ashok Kumar Rawat

 

_____________________________________________________________________________

# Nominated w.e.f 4th November, 2005

$ Nominated w.e.f 31st May, 2006

& Nominated w.e.f 5th June, 2006

&& Nominated w.e.f 5th June, 2006

@Nominated w.e.f 11th July, 2006

 


                                                       II

 

                                   As constituted on 5th August, 2006                   

 

1.         Dr. Murli Manohar Joshi   ¾   Chairman

 

RAJYA SABHA

2.                  Shri Thennala G. Balakrishna Pillai

3.                  Shri Jai Parkash Aggarwal

4.                  Shri K. Keshava Rao

5.                  Shri Arun Jaitley

6.                  Shri Banwari Lal Kanchhal

7.                  Shri Moinul Hassan

8.                  Shri Rajkumar Dhoot

9.                  Shri Dinesh Trivedi

10.              Shri Robert Kharshiing

 

LOK SABHA

 

11.              Shri Omar Abdullah

12.              Shri C.K. Chandrappan

13.              Shri D.V. Sadananda Gowda

14.              Shri Radhey Shyam Kori

15.              Shri N.N. Krishnadas

16.              Shri Jivabhai A. Patel

17.              Shri Virchandra Paswan

18.              Shri Shisupal N. Patle

19.              Shri E. Ponnuswamy

20.              Shri Gingee N. Ramachandran

21.              Shri Kashiram Rana

22.              Shri Haribhau Rathod

23.              Shri S.P.Y Reddy

24.              Shri Nikhilananda Sar

25.              Shri Bharatsinh Madhavsinh Solanki

26.              Shri Sarvananda Sonowal

27.              #Shri Manjunath Kunnur

28.              $Shri Amitava Nandy

29.              *Shri Braja Kishore Tripathy

30.              Shri Sippipari Ravichandran

31.              **Shri Balashowry Vallabhaneni

 

SECRETARIAT

 

            Shri Ravi Kant Chopra, JS & FA           

Shri Surinder Kumar Watts, Director     

Shri M.K. Khan, Under Secretary          

Shri D.K.Mishra, Committee Officer      

_____________________________________________________________

# Nominated w.e.f 31st August, 2006

$ Nominated w.e.f 31st August, 2006

* Nominated w.e.f 8th September, 2006

** Nominated w.e.f 11th December, 2006

    

                                                                   I

 

COMPOSITION OF THE SUB-COMMITTEE ON SEZs

 

(As constituted on 12th January, 2007)

 

 1.        Shri Kashiram Rana-Convenor

 2.        Shri Dinesh Trivedi-Co-Convenor

 

MEMBERS

 

Rajya Sabha

3.               Shri K. Keshava Rao

4.               Shri Moinul Hassan

5.               Shri Thennala G. Balakrishna Pillai

 

Lok Sabha

 

6.               Shri Omar Abdullah

7.               Shri C.K.Chandrappan

8.               Shri D.V. Sadananda Gowda

9.               Shri Braja Kishore Tripathy

 

 


                                                               II

 

COMPOSITION OF THE SUB-COMMITTEE ON COMMERCE

 

(As constituted on 30th May, 2007)

 

 

1.         Dr. Murli Manohar Joshi-Chairman

 

MEMBERS

 

Rajya Sabha

 

2.                  Shri K. Keshava Rao

3.                  Shri Banwari Lal Kanchhal

4.                  Shri Moinul Hassan

5.                  Shri Dinesh Trivedi

 

Lok Sabha

 

6.                  Shri C.K. Chandrappan

7.                  Shri Virchandra Paswan

8.                  Shri Kashiram Rana

9.                  Shri Braja Kishore Tripathy

 

 

 

 


preface

 

            I, the Chairman of the Department Related Parliamentary Standing Committee on Commerce, having been authorised by the Committee, present this Eighty-third Report of the Committee on the Functioning of Special Economic Zones (SEZs).

2.         The Department Related Parliamentary Standing Committee on Commerce took up for an indepth study the subject of Functioning of SEZs on 8th December, 2005. The Committee held discussions with the Secretary, Department of Commerce. It also heard the views of the representatives of the various Ministries of the Central Government, State Governments, Political Parties, Trade Unions, Developers/Promoters, entrepreneurs, NGOs etc. It considered the information on the subject supplied by the Department of Commerce, Ministry of Commerce and Industry, besides the other papers/documents received during the course of deliberations on the subject.   The Committee held a total number of eight sittings. The Committee visited Kochi and Mumbai from 27th to 30th January, 2006, Kolkata and Chennai from 8th to 11th July, 2006 and Noida, Ahmedabad, Kandla, Surat, Mumbai and Visakhapatnam from 6th to 13th November, 2006, where it held discussions with the developers/promoters, farmers, besides Officials of the concerned State Governments. The Committee took note of the unrest among farmers on the issue of acquisition of agricultural land and constituted a Sub Committee to interact with the farmers. The Sub Committee visited Haryana, Andhra Pradesh, Karnataka, Gujarat and Maharashtra from 11th to 16th February, 2007, where it held discussions (Appendix IV) with the representatives of the farmers and Officials of State Governments.

3.         The Committee also constituted a Sub Committee to consider and finalise the draft Report on the Functioning of Special Economic Zones. The Sub Committee considered the draft Report in its meeting held on 5th June, 2007.                                                    

4.         The Committee wish to express thanks to all the representatives of various Ministries, State Governments, political parties, trade unions, developers/promoters, entrepreneurs, NGOs etc., for placing before them the material and information, required in connection with examination of the subject

5.         The Committee considered and adopted this report at its sitting held on 8th June, 2007.

 

 

New Delhi;

June 8, 2007                                                                                                      

 

                                                                        DR.MURLI MANOHAR JOSHI,

                                                                             Chairman,

Department Related Parliamentary Standing

Committee on Commerce

 

 

 

                                                                      

                                                                                                   

REPORT


Chapter I

Introduction

           

*A Peep into India’s Trade History

 

1.1    India had commercial relations with the outside world from ancient times.  Several sources point to a thriving system of international trade that linked the ports of Southern India with those of Ancient Rome. The chronicles of the Greek Periplus reveal that Indian exports included a variety of spices, aromatics, quality textiles (muslins and cottons), ivory, high quality iron and gems. India imported from Rome exotic items such as cut-gems, coral, wine, perfumes, papyrus, copper, tin and lead ingots. The balance of trade was considerably in India's favour. The balance of payments had to be met in precious metals, either gold or silver coinage, or other valuables like red coral i.e. the hard currency of the ancient world. India was particularly renowned for its ivory work and its fine muslins. However, these items must have been quite expensive since the Roman writer Pliny (AD 23-79) complained of the cost of these and other luxury commodities that were imported from India. "Not a year passed in which India did not take fifty million sentences away from Rome", wrote Pliny. This trade surplus gave rise to prosperous urban centres that were linked to an extensive network of internal trade. Literary records from that period paint a picture of abundance and splendor. The Silappathikaarum (The Ankle Bracelet), a Tamil romance roughly dated to the late second century AD, provides a glimpse of the maritime wealth of the cosmopolitan cities of South India. Set in the prosperous port city of Puhar (Kaveripattanam), the story refers to ship owners described as having riches 'the envy of foreign kings'. Puhar is portrayed as a city populated by enterpreneurial merchants and traders, where trade was well regulated. The Northern India also had its flourishing urban centres. This can be inferred from descriptions of archaeological sites in ancient Taxila. Patliputra

________________________________________________________________

* Sources of India’s Trade History

1.  History and Culture of Indian People edited by R.C. Majumdar (Bhartiya Vidya Bhawan, Bombay, 1960-66)

2. A social, Cultural & Economic History of India by P.N. Chopra, B.N. Puri and M.N. Das (Machmillan India, 1974)

3.  Economy of India-Wikipedia, the free Encyclopedia (http://en.wikipedia.org/wiki/Economy_of_India)

4.   South Asian Media Net (http://southasianmedia.net)

 

 (now Patna) during the Mauryan period was described by travellers as one of the grandest cities of that period.

1.2    The era of the Kushana and Gupta kings was marked by rapid development in the sphere of foreign trade.  This was facilitated by close contacts maintained first by the Kushana Kings and later the Gupta rulers with foreign lands.  Trade involving sea routes also expanded.  The ancient Indians were skilled navigators and appear to have been able to make use of the monsoons long before the Greek sea-captain Hippalus discovered them  in the middle of the first century A.D.  The Indians traded with Arabia, the Mediterranean countries, and their vessels went as far as Africa. Egyptain traders used to send their ships to India, and Indian merchants, according to the Periplus, took up permanent residence on the island of Dioscorides (Socotra). Many ivory articles dating back to Kushana times have been found in Begram (Afghanistan). A lively trade was also carried on with the countries of South-East Asia and  Ceylon (now Sri Lanka).  Ships were depicted on Satavahana coins, which points to the growing importance of maritime trade. 

1.3    Rome played an important part in the Oriental trade of that period.  The Romans imported many goods from India and at the same time set up their own trading stations in the country.  A particularly famous one was at Arikamedu (near modern Pondicherry), where Roman coins, amphoras and roman glass have been found. Trading in commodities from Southern India was very much to Rome’s advantage, and it is no accident that large quantities of Roman coins have been found in that part of India.  There are records of several embassies India sent to the court of the emperors Augustus and Trajan.  There are also records of the gift sent to Augustus by King Pandian, who would appear to be the ruler of the South Indian Pandya kingdom.  In Pompeii, an ivory statuette of the Indian goddess Lakshmi was found.

1.4    The popularity of Indian spices may be gauged from the fact that when Alaric, the King of Visigoths, laid siege to Rome in 410 AD, he demanded by way of ransom an enormous quantity of pepper, which he was given.

1.5    India used to import various commodities from the West mainly via the port of Barygaza (Bharukachha).   In this particular period, the Great Silk Route linking the Far East with the West and passing through  India, assumed great importance.

1.6    During the medieval period there were mainly two direct sea routes connecting India with the West : the Persian Gulf route and the Red Sea route.  The latter was rather hazardous due to the existence of a number of rocks, violent winds and thick fog. Therefore, sailors and  merchants preferred the Persian Gulf route which ran from  Baghdad in Iraq to Canton in China. With the advent of Islam and  the supremacy of the Arabs on the high seas, these direct contacts  were no doubt affected to some extent but they were by no means cut off. Ibn Batuta, the great Arab traveller (1333-1346),found at Aden a large number of ships belonging to Indian merchants. They had brought merchandise from many Indian ports, such as Cambay, Quilon and Calicut. Indian goods were carried from there to Damascus and Alexandria, the coasts of Africa, and to various countries of Europe. From these ports Indian goods were also shipped to China, Ceylon, Indonesia and  the Indian Archipelago. There were a number of important ports in India which were visited by a large number of merchants from various parts of the world, namely, Lahari Bandar on the western coast, Cambay in Gujarat (till the sixteenth century) and Goa and Cochin further south, Masulipatam, Pulicat and Najarkattan on the eastern coast, and Hugli, Satgaon, Sripura and  Chittagong in Bengal. About Surat, the traveller Manucci (1653-1708) writes: Arabian and Persian vessels which import great quantities of dates, horses, sea-pearls and Jew's stones, in return are loaded with  white and black sugar, butter, olive and cocoa. The traders took Indian wares, particularly textiles, and brought back precious and semi-precious metals which were required for the manufacture  of utensils and a variety of luxury items.

1.7    The main items of Indian export during medieval times were cotton manufactures, food-grains, oil seeds, millets, sugar, rice, indigo, perfumes, aromatic wood and plants, camphor, cloves,  coconuts, skins of various animals, particularly rhinoceros (horn) and leopard, sandalwood, opium, pepper and ginger.

1.8    There was a great demand for Indian cotton cloth abroad, both in the east and the west.  Indian  calicoes were popular in England and replaced the more expensive linens imported from Holland and Germany.  Fine muslin was exported to Persia and Arabia, particularly Egypt.  Varthema, who visited India (1503-1508), mentions that the two ports of Cambay in  Gujarat and Bangala in Bengal, supplied ‘all Persia, Tartrary, Turkey, Syria, Barbary, that is Africa, Arabia, Felix, Ethiopia and many islands of the Indian Ocean with a variety of cotton and  silk goods'.   He refers to about three ships of different countries visiting Cambay each year and estimates that the export of cotton  and silk from Bengal comes to fifty shiploads.  Moreland, author  of From Akbar to Aurangzeb, estimates  that in the seventeenth century the annual export of cotton goods amounted to nearly  8,000 bales of which 4,700 went to European countries.  There were about 150 varieties of cloth  indexed as cotton goods in the records of  English factories.   The silk manufactured at Surat, Banaras, Bengal and Ahmedabad was exported mainly to Europe, Burma and Malaya.  It is also on record that one Shaikh Bhik or Shaikh Beg of Malda sent three ships of Malda cloth to Russia by the Persian Gulf route. Gum lac was manufactured at many places in Bengal, Orissa and at Dhar.  It was exported  in large quantities to Persia by the Dutch.  Opium, which was mostly grown in Bihar and Malwa and internally exported to Rajputana, Berar and Khandesh, was also shipped in considerable quantities to Pegu (Lower Burma), Java, China, Malaya, Arabia and by the overland route to Persia. Rice was exported from Bengal to Batavia. Tobacco, too, figures among exports in 1623.  It was sent to Arakan and  Mocha. Sugar was exported in small quantities to Persia, Kabul and even France. Saltpetre was used in Europe as a raw material for the manufacture of gun-powder and was imported from India.  Among other article of export were iron and steel, asafoetida, lace, myrobalan, drugs, precious stones, alabaster and marble. 

1.9    Precisious metals constituted the main items of import to India.  Although there were no gold or silver mines in India, large quantities of both were imported from  foreign countries and it was forbidden to export them.  A seventeenth  century English traveller’s remarks  that ‘Europe bleedeth to enrich Asia  represented the contemporary Western view.  William Hawkins (1608-13), wrote in the same strain:  ‘India is rich in silver for all nations bring coin and carry away commodities for the same and this coin is buried in India and goeth not out. The import of  bullion to India was estimated to range between £500,000 to £ 600,000. Terry, another traveller (1622), was of the view that an Indian ship returning to India after completing Red  Sea transactions was worth 2 million sterling, mostly in bullion. Quick  silver  was imported  from  Lisbon.  Lead as well as superior woolens, silk, satin and velvet clothes came from Europe.    Chinese porcelain was much in demand and it is on record that Akbar left behind him crockery worth Rs.2,500,000.

1.10  Horses were another important article of import.  The people of Azaq in Turkistan specially bred horses for export to India.  They were sent in droves of 6000 or even more.  The Arab traveller, Ibn Batuta mentions that horses of good breed from Hormuz, Aden, Crimea and Azaq were sent to India.  These animals were tamed both at Sind and Multan.

1.11    Moreland, in his India at the Death of Akbar, calculates Indian shipping to Europe as being 6000 tons (1590-99), to the coast of  Africa as 1000 tons,  to the Red Sea as 10,000 tons, and  to Persia a  little less.  Thus, according to him, the total tonnage of exports to countries in the West comes to between 25,000 and 30,000 tons.   Trade to Pegu  was in the neighbourhood of 5000 tons, to Malacca and  beyond, 17,000 tons, to Java 2000 tons and to the port of Achin, 3000 tons.  Moreland, therefore, estimates  a total of  27,000 tons as being the trade of India with the countries lying to the east.  Thus the total volume of trade to Europe and the East was a little less than 60,000 tons, equivalent to 24,000 to 30,000 tons of today (1920)

1.12  The balance of trade on the whole  continued to be in India’s favour.  Merchants from all countries frequented Indian ports and paid  in gold and silk in exchange for commodities. herbs and gums.  The British East India Company ordered the scrutiny of the list of its exports to reduce the unfavourable balance of trade.  Such was the demand for the muslins and printed and dyed calicoes in England that the British Parliament passed special statutes in 1700 according to which “from and after the 29th of September 1701 all wrought silks, Bengals and stuffs mixed with silk or  herba, of  the manufacture of Persia, China or the East Indies and all calicoes, painted, dyed, printed or stained, these which  are  or  shall be imported into this Kingdom, shall not be worn or otherwise used in Great Britain, all goods imported after that day shall be warehoused and exported again”.

1.13  Prior to the arrival of the Portuguese in the Indian Ocean in 1498, no single power had attempted to monopolize the sea lanes that connected the ports of the Indian sub-continent with the Middle East and East Africa on the West, and the ports of South East Asia and China to the East. Unlike in the Mediterranean where during Roman times, rival powers attempted to control the oceanic trade through military means, peaceful trade had remained the norm in the Indian Ocean. Although there were periods when rulers of the Malabar coast and Southern India were powerful enough to demand toll taxes from passing ships, and Arab rulers had attempted to control the shipping lanes through the Red Sea, there had not been any systematic attempt by any single political power to eliminate all others from the oceanic trade that touched the Indian subcontinent.

1.14  But once the Portuguese had discovered their new route to India, they displayed considerable zeal in seizing the most profitable ports of East Africa, the Persian Gulf, and the Saurashtran, Konkan and Malabar regions of India. A chain of fortified coastal settlements, backed by regular naval patrols, allowed the Portuguese to gradually eliminate many rivals, and enforce a semi-monopoly in the spice trade by the middle of the 16th century. Local traders were coerced into buying safe passes and paying customs duties to the Portuguese. However, this attempt at a monopoly was challenged by other maritime powers.

1.15  First the Dutch and then the English attempted to replace the monopoly of the Portuguese with a monopoly of their own. This led each of them to form their own fortified settlements along the chief trading routes as alternatives to the former Portuguese trading bastions. Initially the Dutch appeared to be more successful than their British and French rivals, and succeeded in establishing their pre-eminence in Indonesia, and once they had outmanoeuvered the Portuguese, they  also came to dominate the shipping out of Gujarat and Sind. It was now the Dutch who imposed their will on most Indian shippers, exacting the taxes that were earlier levied by the Portuguese. At the same time, each of Portugal's European rivals began setting up local factories and trade outlets that matched or exceeded Goa(which was under the Portuguese occupation since 1510).  Surat (1612), Madras (1639), Bombay (1668), Pondicherry (1674) and Calcutta (1698) thus gradually overshadowed Goa, and took over as the main centers of Indo-European trade.

1.16  All this while, India continued to maintain a positive trade balance with respect to its European trade, and European traders were compelled to cover this trade deficit with a steady supply of precious metals. As long as the European traders furnished the Indian subcontinent with gold and silver, Indian monarchs had some incentive to tolerate the European traders even as they continued to expand their presence, and artfully resisted political control over their Indian activities.

1.17  But once the Mughal empire began to disintegrate, it was only a matter of time before one or the other of the European powers that dominated the Indian Ocean trade would find a way to extend its domination on the Indian heartland as well. In the end, it was the British who won the battle to rule over India, edging out their European rivals who found other territories to colonize in Asia and Africa.

1.18  The colonization of India was followed by the colonization of Burma, Indo-China, the Middle East and virtually all of Africa. China's coastal areas also came under European domination. By the dawn of the 20th century, the US had also emerged as a colonial power, as it took over Spanish colonies in the Caribbean and in the Philippines. The almost complete subjugation of much of the planet by the Western European and American powers led to an enormous and unprecedented flow of wealth from the colonies to Europe and North America.

1.19  The Journal of European Economic History records that India’s share of world manufacturing output was 24.5% in 1750, and that during the British rule, it fell to 19.7% in 1800, 8.6% in 1860, 1.7% in 1900, and stagnated at that level till the time of Independence.  India’s share of world exports was around 2.5% in 1947, which fell to 0.4% in the early eighties.  Even after the substantial growth in the nineties and thereafter, India’s exports constitute today only around 0.9% of the world trade.

Challenges of the 21st Century

1.20  Macro economic policies have significant impact on the economic development of a country. The ever-increasing global competition requires the Government to adopt contemporary trade strategies, to push up exports, with a view to pace up the overall growth rate of the economy. For almost five decades after Independence, India remained a restrictive trade regime in the world, and followed the import-substitution strategy, which didn’t give the much needed advantage in terms of export performance. The country remained committed to achieving self-sufficiency, rather than export growth, resulting in reduction of its share in the world exports to less than one percent. The country, over the past decade, has progressively opened up its economy, to effectively face the challenges and opportunities of the 21st century. To compete in the global market, the Government has liberalized export policies and licensing of technology, and implemented tax reforms, providing various incentives.

1.21  The Indian exports have been growing consistently, by over 20 per cent in dollar terms, during the four years period from 2002-03 to 2005-06. The growth rate was 20.3 per cent in 2002-03; 21.1 per cent in 2003-04; 30.8 per cent in 2004-05; and 23.4 per cent in 2005-06. With this growth rate, India’s share in world exports increased from 0.66 per cent in 2000, to 0.9 per cent in 2005.

1.22  The Government announced its Foreign Trade Policy (2004-09) in August, 2004.  While announcing this Policy, the Government had stated that trade was not an end in itself, but a means to economic growth and national development. The primary purpose was not to merely earn foreign exchange, but to stimulate greater economic activity. The Foreign Trade Policy was rooted in this belief and was built around the following two major objectives:

(i)                To double India’s percentage share of global merchandise trade within the next five years; and

(ii)              To act as an effective instrument of economic growth, by giving a thrust to employment generation.

 

1.23  These objectives were proposed to be achieved by adopting, among others, the following strategies:

(i)                Unshackling of controls and creating an atmosphere of trust and transparency, to unleash the innate entrepreneurship of our businessmen, industrialists and traders.

(ii)              Simplifying the procedures and bringing down transaction costs.

(iii)            Neutralizing the incidence of all levies and duties on inputs used in export products, based on the fundamental principle that duties and levies should not be exported.

(iv)           Facilitating development of India as a global hub for manufacturing, trading and services.

(v)             Identifying and nurturing special focus areas, which would generate additional employment opportunities, particularly in semi-urban and rural areas, and developing a series of initiatives for each of these.

(vi)            Facilitating technological and infrastructural upgradation of all the sectors of the Indian economy especially through import of capital goods and equipment, thereby increasing the value-addition and productivity, while attaining internationally accepted standards of quality.

(vii)         Avoiding inverted duty structures and ensuring that our domestic sectors are not disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential Trade Agreements that we enter into, in order to enhance our exports.

(viii)       Upgrading our infrastructural network, both physical and virtual, related to the entire foreign trade chain, to international standards.

(ix)           Revitalising the Board of Trade by redefining its role, giving it due recognition and inducting experts on Trade Policy.

(x)             Activating our Embassies as key players in our export strategy and linking our Commercial Wings abroad through an electronic platform, for real time trade intelligence and enquiry dissemination.

(xi)           Establishment of an effective Grievance Redressal Mechanism to obviate/reduce litigation with the business and industry, in general and the exporter community in particular, so that all become partners in the achievement of goals and objectives stated in the Foreign Trade Policy.  

1.24  The export performance of around US $ 75 billion during 2004-05 was sought to be doubled to US $ 150 billion by the final year of the present Foreign Trade Policy, i.e. 2008-09. For the first time in the history of planning, doubling of exports in five years is being seen as an achievable target. Exports crossed the landmark figure of US $ 100 billion, to reach US $ 103 billion during 2005-06.

SPECIAL ECONOMIC ZONES

1.25  The Special Economic Zones (SEZ) model, as a successor of Export Processing Zone (EPZ) model, has been identified as one of the policy instruments under the Foreign Trade Policy (2004-09), for the revival of manufacturing industry in the country, and to attain the objectives of Foreign Trade Policy, that is, to double India’s percentage share of global merchandise trade by 2009 as well as to act as an instrument of economic growth, by giving necessary thrust to employment generation.

1.26  It may be recalled that India was one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model, in promoting exports.  The first EPZ in India was set up in Kandla, Gujarat in 1965, as a Free Trade Zone. The Santacruz EPZ in Mumbai came into operation in 1973. However, the EPZ policy was deficient on account of several factors, like limited power of Zonal authorities, absence of single window facility within a Zone, rigid Customs procedures for bonding and bank guarantees, restrictive FDI policy, procedural constraints and severe infrastructural deficiencies. The EPZs were not able to emerge as effective instruments for export promotion also on account of multiplicity of controls and clearances, absence of world-class infrastructure, and an unstable fiscal regime. 

1.27  With a view to overcome these shortcomings and attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April, 2000. This policy was intended to make SEZs an engine for economic growth, supported by quality infrastructure, and complemented by an attractive fiscal package, both at the Centre and the State levels, with minimum possible regulation. SEZs functioned from 1st November, 2000 to 9th February, 2006, under the provisions of the Foreign Trade Policy. The fiscal incentives were made effective through the provisions of relevant statutes. To instill confidence among the investors and signal the Government’s commitment to a stable SEZ policy regime, thereby generating greater economic activity and employment, ihe Special Economic Zones Act, 2005 was passed by Parliament in May, 2005, which received Presidential assent on the 23rd of June, 2005. The SEZ Act, 2005, supported by SEZ Rules, 2006, came into effect on 10th February, 2006.  

1.28  The main objectives of the SEZ Act are:-

  Generation of additional economic activity;

  Promotion of exports of goods and services;

  Promotion of investment from domestic and foreign sources;

  Creation of employment opportunities; and

  Development of infrastructure facilities.

1.29  Conceptually, Special Economic Zones (SEZs) are geographical regions that have economic laws, different from the  typical economic laws of the country. SEZs are believed to create a conducive environment to promote investment and exports. Hence, many developing countries are developing the SEZs, with the expectation that they would provide impetus to their economies to achieve industrialization.

1.30  The whole idea behind the SEZ policy is to impart competitiveness to Indian exports, for achieving export-led growth in manufacturing. The pathetic downfall of manufacturing sector since 1991 has taken a real toll on the competitiveness of the Indian industry, with the irony that the country has one of the largest and brightest technical manpower in this world. SEZ, as a competitive tool, attempts to bring hope to revive our slackening manufacturing industry, to put India in a robust situation of pursuing exports-led growth.

1.31  The SEZ Act envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window approval mechanism has been provided through a 19 member inter-ministerial Board of Approval (BoA). The applications, duly recommended by the respective State Governments/UT Administrations, are considered by this BoA, periodically.  All the decisions of this Board are arrived at  with consensus. 

1.32  The developer submits the proposal for establishment of an SEZ to the concerned State Government.  The State Government has to forward that proposal, with its recommendation, within 45 days from the date of receipt thereof, to the Board of Approval.  The applicant also has the option to submit the proposal direct to the Board of Approval.  The Board of Approval has 19 Members, with the following composition:

(1)

Secretary, Department of Commerce

Chairman

(2)

Member, CBEC

Member

(3)

Member, IT, CBDT

Member

(4)

Joint Secretary (Banking Division), Department of Economic Affairs, Ministry of Finance

 

(5)

Joint Secretary (SEZ), Department of Commerce

Member

(6)

Joint Secretary, DIPP

Member

(7)

Joint Secretary, Ministry of Science and Technology

Member

(8)

Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries

Member

(9)

Joint Secretary, Ministry of Home Affairs

Member

(10)

Joint Secretary, Ministry of Defence

Member

(11)

Joint Secretary, Ministry of Environment and Forests

Member

(12)

Joint Secretary, Ministry of Law and Justice

Member

(13)

Joint Secretary, Ministry of Overseas Indian Affairs

Member

(14)

Joint Secretary, Ministry of Urban Development

Member

(15)

A nominee of the State Government concerned

Member

(16)

Director General of Foreign Trade or his nominee

Member

(17)

Development Commissioner concerned

Member

(18)

A professor in the Indian Institute of Management  or the Indian Institute of Foreign Trade

Member

(19)

Director or Deputy Sectary, Ministry of Commerce and Industry, Department of Commerce

Member Secretary

 

1.33  The functioning of the SEZs is governed by a three- tier administrative set up.  The Board of Approval is the apex body, headed by the Secretary, Department of Commerce.  The Approval Committee at the Zone level deals with approval of units in the SEZs, and other related issues.  Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of the Approval Committee.

1.34  Once an SEZ has been approved by the Board of Approval, and the Central Government has notified the area of that SEZ, units are allowed to be set up  therein.   All the proposals for setting up of units are approved at the Zone level by the Approval Committee, consisting of Development Commissioner, Customs Authorities and the representatives of the concerned State Government.  All the post-approval clearances, including grant of importer-exporter code number, change in the name of the company or implementing agency, broad-banding diversification, etc. are given at the Zone level, by the Development Commissioner.  The performance of the SEZ units is periodically monitored by the Approval Committee, and the units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of  conditions of the approval.

1.35  The SEZ Rules also provide for simplified procedures (single window clearance) for development, operation and maintenance of the Special Economic Zones; for setting up of units and for conducting business in the SEZs; for matters relating to Central as well as State Government approvals; simplified compliance procedures and documentation, with an emphasis on self certification.  

1.36  The incentives and facilities offered to the Units in SEZs for attracting investments, including foreign investment, are duty-free import/domestic procurement of goods for development, operation and maintenance of  units; 100% Income Tax exemption on export income under Section 10AA of the Income Tax Act for the first five years, 50% for the next five years thereafter, and 50% of the ploughed back export profit for next five years; exemption from minimum alternate tax under section 115JB of the Income Tax Act; external commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction, through recognized banking channels; exemption from Central Sales Tax; exemption from Service Tax; single window clearance for Central and State level approvals; exemption from State sales tax and other levies, as extended by the respective State Governments.  

1.37  The major incentives and facilities available to SEZ Developers are exemption from customs/excise duties for development of SEZs for authorized operations, approved by the BOA; income Tax exemption under Section 80-IAB of the Income Tax Act; on export income for a block of ten years in 15 years exemption from minimum alternate tax under Section 115 JB of the Income Tax Act; exemption from dividend distribution tax under Section 115 0 of the Income Tax Act;  exemption from Central Sales Tax (CST); exemption from Service Tax (Sections 7, 26 and Second Schedule of the SEZ Act).

1.38  The area requirements stipulated for various categories of SEZs are:-

Type

Minimum Area

Minimum Area For *Special States/UTs

Multi-product

1000 hectares

200 hectares

Multi-Services

100 hectares

100 hectares

Sector specific

100 hectares

50 hectares

IT

10 hectares & min. built up

 area of 1 lakh sq. mtrs.

10 hectares & min. built up area of 1 lakh sq. mtrs.

Gems and Jewellery

10 hectares & min. built up area of 50 thousand sq. mtrs

 10 hectares & min. built up area of 50 thousand sq. mtrs.

Bio-tech and Non-conventional energy (including solar energy equipments/cell but excluding SEZs for non-conventional energy production and manufacturing)

10 hectares & min. built up area of 40 thousand sq. mtrs.

10 hectares & min. built up area of 40 thousand sq. mtrs

FTWZ

40 hectares & min. built up area of 1 lakh sq. mtrs.

40 hectares & min. built up area of 1 lakh sq. mtrs.

 

*The Special States are Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu & Kashmir and Goa.

 

1.39  The area of the Special Economic Zones (SEZs) is segregated into two parts viz. “Processing” and “Non-Processing”.  The Processing area is that area where units can be located for manufacture of goods or rendering of services, as well as  area meant for trading and warehousing purposes. The non-Processing area is intended to provide support facilities to the SEZ processing area activities, and may include commercial and social infrastructure. 

1.40  In the opinion of the Department of Commerce, the experience with the Industrial areas and Industrial clusters has been that large slums come up in the neighbourhood of these areas. Besides, the additional population creates pressure on the Municipal System. The SEZ concept recognizes the issues related to economic development and provides for developing self-sustaining Industrial Townships, so that the increased economic activity does not create pressure on the existing infrastructure. The concept of non-processing area is for creation of support infrastructure. The SEZ Developer would be responsible for all the civic amenities and infrastructure, including roads, sewerage systems, open spaces, green spaces, education facilities, power, water supply,  housing, etc.

1.41  The Urban Development Plan Formulation & Implementation (UDPFI) guidelines issued by the Ministry of Urban Development, Government of India, prescribe model area utilization for large scale projects. The present guidelines and the actual proposed usage as per actual Master Plan of a Multi-product SEZ are as under:

 

Land Use

% area allocation as per guidelines of Ministry of Urban Development

Actual proposed in Multi Product SEZ

Residential

35-40%

27%

Commercial

4-5%

2.8%

Industrial

10-12%

35%

(Processing Area)

Recreational

18-20%

8.4%

Public & semi-public

12-14%

6.6%

Transportation

12-14%

7.2%

Others

Balance

13.2%

Total

100%

100%

 

1.42  In the case of multi-product SEZs, the minimum processing area requirement is prescribed as 35%, with a provision of relaxation up to 25% by the Board of Approval.  Since the smaller 100 hectares sector-specific SEZs would be comparatively closer to urban centers, and the developer may not have to provide the entire civic and social infrastructure, the minimum processing area has been kept at 50%. In the case of IT/ITES, there is provision for minimum built up processing area of one lakh square meters. Similarly, in case of Gems and Jewellery SEZs, minimum built-up area shall be 50,000 square meters and for Bio-tech SEZs, minimum built-up area shall be 40,000 square meters. Any further deviation in the non-processing area would lead to the Government having to provide for the civic and social infrastructure at their cost.

1.43  To regulate the usage of SEZ area by the developers, the Central Government has notified the list of operations which can be authorized by the SEZ Board of Approval.  Moreover, the  Board will assess the size requirement of infrastructural facilities like housing, commercial space, recreational amenities, etc., based on the employment generation potential of the SEZ, and allow development in a phased manner, depending upon the progress in allotment/occupancy of units in the processing area.  In the first phase, it is proposed to allow only a maximum of 25% of the approved housing, while the other approved infrastructure will be allowed to be created as per the developer’s plans, and as approved in the Master Plan. The balance housing shall be allowed to be established by the Approval Committee in three phases, depending upon the progress in allotment/occupancy of units in the processing area.

1.44  Since the SEZ Act 2005 and the SEZ Rules 2006 came into effect on 10th February, 2006, 237 formal approvals have been given of which 3 proposals have been withdrawn/cancelled. Thus the total number of valid formal approvals as on date is 234 spread over 17 States and 2 UTs. Besides, 162 in principle approvals spread over 17 States and 1 UT have been granted for setting up SEZs. Out of 234 formal approvals, notifications have been issued so far in respect of 101 SEZs (as on 9th May, 2007).  The details in this regards is as follows:

S.No.

Name of the State/UT

Formal approvals granted

SEZs notified under the SEZ Act, 2005

1

Andhra Pradesh

44

26

2

Chandigarh

  2

  1

3

Delhi

  1

-

4

Goa

  4

  1

5

Gujarat

19

  7

6

Haryana

19

  7

7

Jharkhand

  1

  1

8

Karnataka

27

14

9

Kerala

10

   6

10

Madhya Pradesh

  4

   2

11

Maharashtra

47

13

12

Orissa

  5

-

13

Puducherry

  1

-

14

Punjab

  4

  2

15

Rajasthan

  3

  1

16

Tamil Nadu

25

16

17

Uttaranchal

  3

-

18

Uttar Pradesh

  8

   3

19

West Bengal

  7

   1

 

Total

                234

101

 

1.45  Sector wise distribution of formal approvals given for 237 SEZs is as below:

Agro

1

Auto

3

Bio-tech

9

Ceramics and glass

1

Chemicals

1

Engineering/Auto engg./Stainless steel/high-tech engineering

7

Food Processing

2

FTWZ (Free Trade and Warehousing Zone)

2

G&J

3

IT/ITES/EH (Information Technology /Information Technology Enabled Services/Electronic Hardware)

148

EHTP (Electronic Hardware Technology Park)

1

Electronic Products/industry

2

Leather/Footwear

4

Metallurgical

1

Multi Services/services

6

Multi Product

9

Non Con. Energy

1

Petro

1

Pharma

13

Port-based multi product

4

Power

3

Sugarcane processing

1

Textiles/apparel

13

Writing and Printing

1

 
CHAPTER II
Written and Oral Submissions: Central Ministries/Departments

 

2.1    The Committee considered the background note on the functioning of SEZs, received from the Department of Commerce.  Besides inviting written submissions on the subject, the Committee heard the views of representatives of various Central Ministries/Departments, which are summarized below:

Department of Commerce

2.2    The Department of Commerce informed that the concept of Export Processing Zones had developed in Ireland in 1958 around Shannon Airport. Special Economic Zones have been established in a number of countries in the world including China, India, USA, Indonesia, Philippines, Thailand, Sri Lanka, Pakistan, Bangladesh, South Korea, etc.  However, India was the first country in the Asia Pacific region to set up a Free Trade Zone in Kandla in 1965. Subsequently, seven more Zones were set up in the country, but it did not prove to very effective model, due to multiplicity of controls and unstable fiscal regime. Various models were studied while formulating the policy for SEZs in India.  The policy was finally evolved, with a view to suit the specific requirements and conditions in India.

2.3    The Commerce Secretary deposed before the Committee and submitted that the main objectives of the SEZs have been achieved. There are four primary objectives for which the Special Economic Zones have been/are being set up.  The main objectives of the Special Economic Zones, especially after enactment of the Act were (i) creation of additional economic activities, (ii) promotion of exports, (iii) creation of additional infrastructure, and (iv) creation of employment. 

2.4    With regard to the number of SEZs functioning in China and differences in respect of Indian and Chinese SEZs in respect of their geographic locations, size, etc, China adopted regulations for the pilot establishment of SEZs in certain regions such as Shenzhen, Zhuhai, Shantou and Xiamen in August, 1980.  The SEZ Regulations adopted granted foreign investors the right to establish joint ventures with Chinese enterprises and provided preferential tax treatment and other incentives. These Regulations empowered the local governments to work independently, without interference of the Central People’s Government, in developing policies and the laws, to encourage economic development and job creation. The other SEZs functioning in China are in Hainan province (whole province) and Shanghai’s Pudong district.          The SEZs in China are very large.  The conditions in India are not comparable with that in China, where the entire land is owned by the Government.   All the SEZs there are in the Coastal regions.

2.5    After coming into effect of the SEZ Act, 2005 and the SEZ Rules, 2006 w.e.f. 10 February, 2006, 237 formal approvals and 164 in-principle approvals for setting up of  SEZs have been granted so far.  These are spread over 19 States and three Union Territories.  These approvals cover large parts of the country.  Further, approvals also cover both small SEZs for IT/ITES and large Multi Product SEZs, taking into account the federal nature of the Indian polity, and the size of different States/UTs and Special Category States.

2.6    Forty-five Special Economic Zones had been notified. While some of them had become operational, the remaining were yet to become operational.  An investment of Rs. 10,000 crore had been made and 40,000 additional jobs for employment had been created.  The employment generated in the SEZs, converted from Export Processing Zones, had  only been 1,40,000,.  Bulk of employment was in the manufacturing sector.  So far, no trading units had been sanctioned.  However, all the labour laws were applicable in the SEZs.  Even when the Parliament passed the Act, it had said that the Central Government could make no changes, so far as labour laws were concerned.

2.7    Study on the functioning, levels of performance, achievements and shortcomings of SEZs, had been made privately. According to that study, there were a lot of procedural impediments in the SEZs. Some shortcomings had also come out in the study report.  However, the Government had not done a formal study.  Some of the State Governments had passed their own SEZ Acts.  They had provided some relaxation in terms of public utility.  Zone itself is a public utility service.  They had delegated powers to the Development Commissioners. In some cases they had brought out the possibility of the contract labour.  It was admitted that contract labour  is over and above the  hire and fire policy. 

2.8    Earlier, the Act did not provide any income-tax concessions to the developers.  It provided this concession only for the units.  Now, it provides the same for the developers also.  However, whatever they sell in the domestic area, the income-tax liability is there.  The Development Commissioner keeps a track of foreign investment coming in the country.  The Department does not monitor the quantum of FDI, directly.

2.9    On the issue of land, the Department submitted that the developer can acquire  land by direct purchase for establishing a SEZ.  In cases where State Government acquires  land or the land is in the ownership and possession of the State Government, or a State Government Undertaking, the State Government may either transfer on ownership basis or on lease basis to the developer, depending upon the terms and conditions under which the land is acquired, and on the policies and procedures adopted in the particular State. However, as per the SEZ Rules 2006, the developer cannot sell the land in a SEZ, and the land in the processing and non-processing area can be allotted only on lease basis. 

2.10  With regard to a mechanism to send somebody or some agency, to go and report back to the Department about observance of the guidelines on land acquisition and purchase, the Secretary accepted the suggestion to ask the Development Commissioners to independently verify in each of the cases whether the guidelines in this regard are being followed or not. If the party does not do any developmental work, there is a provision in the Act itself for taking over the land by the Central Government.  Also, if the developer either defaults or becomes bankrupt, the Central Government can take it over. 

2.11  To decide the percentage of land for residential purposes, the Department of Commerce had put a condition for multi-product Special Economic Zones that 35 per cent should be the minimum processing area.  The remaining 65 per cent non-processing area would include the housing colony, shopping complex, schools, medical facilities, water supply, power plant, sewerage, roads and all other facilities.  A multi-product Special Economic Zone can have between 40,000 and 80,000 people working therein, however, the developer has to first develop the Zone.

2.12  With regard to development of infrastructure around the SEZs and monitoring thereof, the developer is not responsible for creation of infrastructure outside the SEZ. However, the Department provides support for creation of external infrastructure under the ASIDE (Assistance to States for Development of Infrastructure for Exports) Scheme. The proposals in this regard are received from the Development Commissioners and/or State Governments.  As regards creation of infrastructure within the SEZ, as per the SEZ Rules 2006, a developer is required to take effective steps to implement the approved proposal within a period of three years from the issue of the letter of approval. The Board of approval, if satisfied, can extend the validity period for a further period, not exceeding two years, upon a request made in writing. Of the proposed investment of over Rs. 60,000 crore in the new SEZs, notified after  implementation of the SEZ Act w.e.f. 10th February, 2006, investments of the order of about   Rs. 11,713 crore had been made, majority of which were on creation of internal infrastructure.  

2.13  About the functioning SEZs, which had not come up to the standards set in the objectives for functioning, it was primarily because the infrastructure development did not take place fully, due to lack of funds.  In most of the Government SEZs, the land allotment was made to the industrial units at low rate, even though the Government subsequently raised the rate slightly.  However, the rates were still much below the prevailing market rates.  Whereas, in the SEZs like Moradabad, Indore, though the Uttar Pradesh Government or the Industrial Development Corporation in Madhya Pradesh were supposed to build infrastructure, they had not done so.  Therefore, the number of units that came up in such SEZs was very small, and even they had faced difficulties because of lack of power or water.

2.14  Regarding the measures, if any, taken by Government to enable the lower income groups and the less developed areas, contiguous to SEZs, to benefit from the SEZ activities, and provision of social responsibility clause for the units set up in the SEZs, though the developer is not responsible for development of the area outside the SEZs, yet, it is a fact that gains of economic development go to the nearby areas also, as the ancillary industries develop in the neighborhood of main industrial areas and the workforce from the neighbouring places gets job opportunities. Some of the SEZ developers have started training programs in such areas, to ensure availability of trained manpower. The displaced persons and the unemployed persons in such areas are going to be major beneficiaries in such cases.

2.15  With regard to the impact of SEZs on the national/indigenous industries, located outside the Special Economic Zones, the Department was of the view that since the SEZ units are permitted to source their requirement of raw materials and services from the Domestic Tariff Area (DTA) under the SEZ Rules, 2006, subject to the conditions prescribed therein, there is a good scope for development of strong backward linkages with the DTA.  Supply of raw materials and services from the DTA to the SEZ are treated as exports, and the enhanced economic activity in the SEZs will result in increased demand of goods from DTA. All the sales to the Domestic Tariff Area (DTA) are on payment of applicable Duty, as if the goods are being imported, and as such, the DTA sales from SEZ are not likely to affect the DTA industries, and a level playing field for other industries in DTA is ensured. Further, the SEZ Act, 2005, read with the SEZ Rules, 2006, does not allow for conversion of existing units to SEZs.  The SEZ Rules, 2006 have been amended, prohibiting usage of the domestically used Capital Goods by the SEZ Units, and as such, any relocation of DTA units into SEZs has been blocked, so that the existing DTA business activities are not affected. As only around 20 of the new SEZs notified had become operational, it was not possible to indicate adverse impact, if any, on DTA units.

2.16  To ensure that private parties do not misuse the facilities in the name of establishing SEZs, and acquire property at concessional rates, without fulfilling the obligations connected therewith, the SEZ Act, 2005 and the SEZ Rules, 2006 came into force only from 10th February, 2006, and are at a nascent stage.  As per the SEZ Rules 2006, a developer is required to take effective steps to implement the approved proposal within a period of three years, from the issue of the letter of approval, and the incentives and facilities offered under the SEZ Act, 2005 and the SEZ Rules, 2006 are available to the developer and the units, only after the particular area is notified as SEZ.  Further, as per Section 10 of the SEZ Act, 2005, under certain conditions, the Board of Approval may, on application or with the consent of the developer or otherwise, suspend the letter of approval and appoint an Administrator, to discharge the functions of the developer. As per Section 16 of the SEZ Act, 2005, the Approval Committee, headed by the Development Commissioner of the respective Zone, may, at any time, if it has any reason or cause to believe that the entrepreneur has persistently contravened any of the terms and conditions or its obligations, subject to which the letter of approval was granted, may cancel the letter of approval. From the date of such cancellation, the unit shall no longer be entitled to any exemption, concession, benefit or deduction available to it, being a Unit, under the SEZ Act.  Same is the position for evicting the defaulting entrepreneurs and right of private developers to evict defaulting entrepreneurs from the SEZs.  Apart from this, the units are liable for penal action under the provision of the Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of approval. While granting approval for establishment of a SEZ, the State Governments also impose certain conditions. In case of acquisition of property by private parties in the name of establishing SEZs, and non-fulfillment of the obligations, it is for the concerned State Governments to take appropriate action under their respective policies and procedures since land is a State subject.

2.17  In the case of SEZs set up by the Government, the Development Commissioners have been declared as Estate Officer under the Public Premises (Eviction of Unauthorized Occupants) Act, 1971, and have been conferred the powers for eviction.

2.18  To see that the investors are not front men for any dirty money, both in the case of developers, as well as the units, the representatives of the Home Ministry, Defence Ministry are there in the Board of Approval.  Before the approval is given, the background of promoters is sent to the Ministry of Home Affairs.  Where there is any objection from the Home Ministry, the approval is not given. Regarding the Zones situated on the seashores, where smuggling could take place easily in the opposite direction, rather in the direction of the SEZs, each Special Economic Zone had a boundary wall. The processing area is Customs bonded.  There is a track of every goods coming in or going out. The Department had entered into an arrangement with the INFOSYS to work out a software, to keep track of the goods coming in and going out.  This software was expected to be ready within 3-6 months.

2.19  On the need to give full support in terms of staff and monitoring mechanism to handle the problems of coming in and going out of the undesirable goods like AK-47, RDX and Uranium, and to be very careful about it, the Secretary admitted that there is a shortage of staff. Though the Commerce Ministry has been sending proposals for creation of posts to the Ministry of Finance, the latter have not yet sanctioned them, and the same is still pending with them. There is a shortage of staff in various departments, including the Development Commissionerate. The Ministry shall try to push the proposal again. Even during the time of the previous Government, the Department had got Cabinet approval for staffing pattern for a multi-product SEZ, with 23 numbers of staff, including the Development Commissioner, Joint Development Commissioners, Customs officials, etc. But unfortunately, the system is that every time the Ministry wish to create a post, it has to approach the Finance Ministry, even though there is Cabinet approval. The Commerce Ministry is struggling to get the sanction approved and has written to the Secretary, Expenditure.

2.20  All the SEZs don't have any direct access to any port or airport. Every cargo enters either through the regular JNPT Mumbai or Chennai port, which are having security arrangements.  In Mumbai, an X-ray examination of all the container cargo is done, before it comes into the SEZ. When it comes into the SEZ, every single cargo, even if self-certification is accepted, goes into the Zone, with the knowledge of customs officials. The Customs have their own regulations. They have the right to open a certain percentage of cargo, and they do it. However, they don't open it at the gate. An official goes to the unit, opens the sealed container, as it had come, and verifies the cargo, and releases it.  Upon being asked as to whether there were any points where pilferage could take place and things could be changed or exchanged, the witness replied that every container goes through the Customs. On the issue of the pitfalls like removal or replacement of seals, he was of the view that in the case of SEZs, it is far more secure than the domestic area, because an SEZ is a Customs-bonded area. However, there is always scope for improvement. 

2.21  Regarding co-ordination between the Development Commissioner, SEZ, and the Customs people, and the administrative lacunae or shortcomings, he responded that there is always a provision for the Department of Revenue Intelligence to get intelligence from the Special Economic Zone. This is not prohibited even under the Special Economic Zones Act.  Self-certification only means that in bulk of the cases and as part of the risk management, the Customs are checking two per cent of the coming cargo containers.  It is random selection on the computer.  They just take two containers for checking.  It is part of trade facilitation.  Hundred per cent checking of all the containers cannot be done.  The Government also have a separate DRI intelligence wing.  The Customs officials also see the remittances from banks.  An exporter gets benefit only after he gets bank realisation certificate.  It is not that somebody says that he has exported something and he gets benefits of income tax.  It has to come through the bank.  They check what has gone out.  The Development Commissioner and Customs people monitor all these things. 

2.22  With regard to providing facilities for screening goods in the containers at ports, the Department of Commerce has placed order for the purchase of screeners which can scan the containers in the ports.  A screener is already there in JNPT.  The airports also will acquire them, so that they can screen the containers.

2.23  As per the SEZ Rules, 2006, the land can be allotted to the private developers for setting up units only on lease basis, and the lease period shall be co-terminus with the validity of the Letter of Approval.  In these cases, the eviction of defaulting entrepreneurs will be guided by the conditions stipulated in the lease deed.

2.24  In respect of exemptions and incentives, the developers and entrepreneurs do not get the same facilities. For developers, it is a one-time measure. The developer gets benefit only for constructing the buildings, and the maintenance thereof is not covered. Whereas, the entrepreneur in the unit gets the concessions from day one, till he manufactures. The investment is also much more for a developer.  The recovery is over a ten-years’ period, in a gap of 15 years.  However, if a developer builds a captive power plant, getting incentives first as a builder, and then as a supplier, and if he has surplus electricity, he would sell it outside SEZ, at cheaper rates, so long as he supplies electricity to the units in the SEZ, he will get concessions; however, the manner and the rate at which he would sell electricity in the domestic market, was yet to be worked out. It would be finalised in two to three months.

2.25  On the issue of setting up of SEZs in predominantly agricultural States like Punjab, Haryana and other States, which do not have any mono crop or fallow land, each State has its own Industrial Policy in place and acquisition of land by the State Governments for various purposes is governed by their respective policies and procedures. The Board of Approval considers only those proposals, which have been duly approved by a State Government. However, the State Governments have been advised that in case of land acquisition for SEZs, first priority should be for acquisition of waste and barren land and if necessary, single crop land could be acquired for the SEZs.  If a portion of double cropped agricultural land has to be acquired, the same should not exceed 10% of the total land required for the SEZ. 

2.26  Regarding representation to the Ministry of Agriculture in the Board of Approvals, the witness stated that they can call a representative of the Ministry of Agriculture as special invitee. The views of everybody are taken seriously and in the Board of Approval, every decision is taken by consensus.  Even if one Member raises an objection, it is sent to the empowered Group of Ministers for direction. However, the composition of the Board of Approval has been provided in the Act itself. The Department will have no problem to invite a representative of the Ministry of Agriculture, till the Act in this regard is amended.

2.27  Regarding the different procedures for acquisition of land and compensation thereof prevalent  in different States, being simple in some States and cumbersome in others, and regarding the  feasibility of having some model procedure for the sake of uniformity, the Department stated that while there is a Central Land Acquisition Act of 1894, extensively amended in 1971, the States have made modifications to the same and have their own compensation and Relief & Rehabilitation measures, depending upon a State’s requirements and necessities. It would not be possible for the Department of Commerce to issue any model procedure. On the issue of fixing of an upper limit on acquisition of land for the SEZs, there is no proposal at present with the Department  to fix any maximum land area for establishment of SEZs.

2.28  Regarding the extent of acquisition of land for setting up of SEZs and the type thereof, no fresh acquisition had been done in respect of 237 formally approved SEZs.  The land was already with the State Industrial Corporations, or with the private companies.  The fresh acquisition was taking place in respect of in-principle approved SEZs.  In some places, acquisition had not started, and in some places, it was going on.  However, the information was available with the State Governments, because the Department does not have the area-wise information of the agricultural land in respect of the in-principle approvals.

2.29  Basically, the State Governments do the acquisition, if required.  So far as the Central Government was concerned, a broad framework for the SEZs had been laid.  If the parties have land in possession, they come and make application with the State Governments, and upon the recommendation of the State Government, it comes to the Board of Approvals for approval.  Where the party does not have the land, but has the intention to set up an SEZ, it comes and takes in-principle approval.  It is also recommended by the State Government. Otherwise, the Department does not give approval.  After that, it is upto the party, either to go and purchase the land directly, or request the State Government for acquisition.  Sometimes, after acquiring the area, the party intimates the State Government of its willingness to set up an SEZ in that area.  Because of the Zoning regulations in every State, sometimes the State Governments say that this area has been earmarked as residential area and, therefore, commercial activity cannot be allowed.  In that event, the party has to drop the proposal.  A proposal for SEZ had to be dropped due to the environmental restrictions in Aravali area.  The developer, who is SPV of Kakinada Multi-product SEZ, had purchased land directly from the farmers, but had not been able to get contiguous area. It is in bits and pieces. Even though the Department has given the in-principle approval, it has not come back for the formal approval.  After acquisition of 800 acres of land by the State Government, it will be able to get a contiguous area of 6,000 acre.  It is an individual case between the State and the party.  In some cases, the Industrial Development Corporations have already got the land.

2.30  The guidelines for acquisition of land for SEZs have been given wide publicity. The Department had received representations from farmers' associations, MLAs, etc., and in such cases, it had called for a report from the State Governments. The State Government of Tamil Nadu had to remove the double-cropped land from acquisition, and go for some other land in some of the cases. However, in all other cases, because the land is a State subject, the Department is depending upon the State Governments.

2.31  With regard to the mechanism for redressal of grievances, against the shortcomings in implementation of the SEZ Act, all the representations received in the Department are promptly attended to with a view to address the grievances.  The  Department has also started a Bulletin Board service and on-line chat service, for attending to the queries and grievances through the Department’s website. As per information available, the two companies had surrendered their Letter of Approval granted to them:-

(i)                           M/s.Hewlett Packard for establishment of SEZ in IT sector at Bangalore, Karnataka.

(ii)                         M/s. C.A. Computer Associates India Pvt. Ltd. for establishment of SEZ in IT/ITES sector at Nanakramguda Village, Ranga Reddy District, Andhra Pradesh.

2.32  Regarding any mechanism to see that the land being acquired was non-agricultural, one-crop or multi-crop agricultural land, reports from the State Governments were being obtained in terms of this requirement of the Board of Approvals. It is also ensured that Development Commissioners give separate reports on the status of the lands in respect of SEZs, which come up for approval before the Board of Approvals.

2.33  In respect of the apprehensions that while the records in possession of the farmers show the land as agricultural and cultivated land, there could be manipulation in the current records, showing the land as non-agricultural land, fallow land, a land without any crop or only a single-crop land, the Secretary submitted that the Department of Commerce will take a number of steps.  Some arrangement can be made to see that these documents are made available to the local Gram Panchayats to have a look at it by them.   The Development Commissioners may be asked to give a report, after physical inspection of the land, and when the Development Commissioners go to the site and do the physical inspection, they can also convene a meeting of the farmers' representatives or the farmers there.

2.34  Responding to a suggestion regarding setting up of certain SEZs on pilot scheme basis, and expanding them after evaluating their performance and the results, instead of expanding them all of a sudden and without having a proper assessment of their impact, the Secretary stated that this is the time when people want to come to India, and this is an area where we have given kick-start. The total area in both the formally approved and the proposed in-principle approvals, if all the in-principle approvals are given and acquisitions are done, it just comes to 350 sq. kms. for formal approvals and 1400 sq. kms. for in-principle approvals.  So, 1700 sq. kms. area in the country of this size is not much.  In China, it is about 34,000 sq.kms.

2.35  With regard to the number of employment generated in SEZs and applicability of the labour laws therein, it was informed that 1016 units were in operation in the SEZs (in 7 Government SEZs and 12 private SEZs notified prior to the SEZ Act) providing direct employment to over 1.79 lakh persons (about 40% of whom were women). After the SEZ Act and the SEZ Rules came into effect, 51 SEZs had been notified.   The current direct employment in the notified SEZs  was of the order of 12,386.   5,00,000 direct jobs were expected to be created by December, 2007.  As per experience, indirect employment is 2-3 times the direct employment.  The Labour laws are applicable to SEZs.

2.36  The Ministry of Finance had estimated a loss of taxes to the tune of Rs. 90,000 crore.   Considering the average tax rate to be about 30 per cent means that there is an income of Rs.3,00,000 crore.  Since the Ministry of Finance takes 20 per cent as export profit, this income means an export turnover of Rs.15 lakh crore.  Forty per cent of the turnover is normally paid by way of wages and salaries. As per rough estimates, about 25-30 per cent of the amount paid as wages and salaries comes to Government in terms of indirect taxes, by way of consumption.  This means there will be an indirect tax revenue generation of about Rs.1, 50,000 crore, while the losses are being projected as Rs.90,000 crore.  So, in the opinion of the Ministry of Commerce, if the economic activity takes place as planned, there would not be a loss but actually there would be a gain.

Department of Industrial Policy and Promotion

 

2.37  The Department of Industrial Policy and Promotion had not conducted any study on the subject so far, because the SEZ policy in the form of an Act, had come into existence only recently.   As a result, it might not be a subject ready for evaluation, particularly because the number of SEZs, where action had begun or activities had begun, was rather limited. The domestic industry had not been adversely affected in the process, and there had been increased investment in the industry, because of incentives for purposes of exports. Industries had got an additional market, that earlier might have been domestic only and  as a result, the economic activity, industrialisation, employment, etc. would tend to increase.  If no duty were to be paid for sales in the domestic area, the adverse effect on the local industry would have been there.  In addition, units in SEZs also pay export tax.  By way of this arrangement, the industry is getting better infrastructure and quicker clearances.   Single-window clearance has become effective.  The Industry is looking for better infrastructure to grow and it has been able to get somewhat better infrastructure. If anyone in SEZs is providing better facilities, there is a temptation.  The requirement for being in an SEZ is one dollar more exports than imports over a five-years’ time period.  So, even for making domestic area sales, industry would find it favourable to go and locate in an SEZ, if it can get faster clearances, and better infrastructure. 

2.38  In a situation when one industry can go to the SEZ and use all the benefits, and by exporting a small amount, could export the rest to the domestic area, by paying the fee and duties.  But, they might become competitive because they get all the facilities, better amenities and quicker permissions and quicker clearances. In these circumstances, a situation could arise where similar industries outside the SEZs would be at a loss, or without much competitiveness.  The witness clarified that it is theoretically possible.  But an existing industry has an advantage of lower capital cost.  After ten years, the difference will always remain there.  The companies will always be the same.

2.39  To a query as to what  development will be done by the developer, as the markets in the country had already reached saturation, and   what would be the situation in case the country does not get any more developers, the witness stated that as per the  estimates of the Government, about 350 billion dollars are required for  infrastructure, and the Government cannot do on its own.  The focus of the Government would be to concentrate on a few SEZs.  Therefore, the mode of the infrastructure development is envisaged to be based on the Government's money, plus private developer's money.  The private developer in any business would come only if there are profits.  Further, in single-product SEZs, the companies themselves will set up the units.  However, in multi-product SEZs, developer will be somebody else and the units will be set up by somebody else.  Within a time-limit after getting the approval, the developer has to complete the development process.  He has to be in a position to ensure that industries start coming.  The developer will do this because he has paid for it.  It is in his own interest that he develops the infrastructure quickly, so that the units can come up and start manufacturing. There will be very few people who would want to stay on and wait for appreciation of the value of land.  The status of development of SEZ  is monitered by the Board of Approvals, which constantly reviews it.  It can revoke it if he is not taking action as per the rules. He is required to submit quarterly, half-yearly or annual reports to the Board of Approvals, listing out the effective steps.  There is no penalty clause.  But the status can be reviewed.

2.40  The Department had not studied the result of investment in a particular State, because earlier SEZs were very small.  If the number of SEZS is going to be as large as is being projected, the impact on outside industries has to be studied. 

2.41  Regarding the shift in paradigm from the industrial growth model to export growth one and its desirability as well as effect on the industrial growth outside the SEZs, the witness submitted that had the SEZs had no element of domestic territory sales, it could have been said that Government was seeking a model of growth which was exported.  The fact is that any amount of sales in domestic territory is allowed, and only over the last five years the Government was seeking one dollar more export than in the past.  This is not exactly an export growth model.

2.42  Responding to a query as to whether the Department of Industrial Policy and Promotion gives inputs, based on the benefits that the Department individually observes or on the totality of the benefits that the country as a whole would get, the witness stated that the Department had predominantly an industry promotion role, but it has to adopt an integrated view, to fix into the overall policy of the Government.  No Department can function in isolation and only look at its own narrow objectives. This Department is represented on the Board of Approvals.  The unresolved issues go to the Union Cabinet, and then to the Group of Ministers.  The fact is that one has to trade off against a possible revenue loss, with possible increased economic activity.  If it is in favour of increased economic activity, one has to live with a little bit of revenue loss. 

2.43  With regard to necessity of having large number of SEZs, some giant sized and some small sized, not only in coastal areas but all over the country, the witness stated that Government drew inspiration from China.  Chinese SEZ is more like an investment region, which runs into several hundred square kilometres, so that both the external, as well as the internal infrastructure of that place remains viable.

2.44  Commenting on the issue of having very small areas in SEZs for manufacturing and the rest for accommodation, malls, hospitals, etc., the witness stated that outside industrial estates or industrial parks, slums were coming up, because people did not have housing and social amenities like schools, etc.  In the SEZs, the idea is to develop these two sets of development.  The Government want to have 50 per cent area for development of industries and 50 per cent for development of infrastructure.  In fact, in the multi-product area, 35 per cent is for manufacturing and 65 per cent for infrastructure, which would include power, water, effluent treatment plant, etc.  All these have become a part of the industrial infrastructure. This brings about a better integrated urban planning approach. 

 

Ministry of Agriculture

 

2.45  The Ministry of Agriculture, vide its written note, submitted that “the National Agricultural Policy of 2000 categorically states that the National Land Use Policy will seek to promote “technically sound, economically viable, environmentally non-degrading and socially acceptable use of country’s national resources-land, water and genetic endowment, to promote sustainable development of agriculture.  Measures will be taken to contain biotic pressure on land, and to control indiscriminate diversion of agricultural lands for non-agricultural purposes”.

2.46  The Regional Plan, 2021 for the National Capital Region emphasizes that good agricultural land in the region should be protected and conserved.  Master/Development Plans for  towns in the Region should incorporate land suitability analysis for the land use allocations, which would identify areas, intrinsically suitable for settlement, agriculture, forestry, industry and recreational uses.  It has been recommended that while preparing Master/Development Plans for the towns, it is to be ensured that the proposed development should not be permitted in the natural conservation zones, planned green areas, agriculture areas, ground water recharging areas and water bodies.  The regional Plan, as a policy, has suggested that existing cultivated land be conserved for agriculture use, as far as possible.

2.47  The Ministry, quoting extracts from the final report of National Commission on Farmers, under the Chairmanship of Dr. M. S. Swaminathan, observed that the prime farmland must be conserved for agriculture and should not be diverted for non-agricultural purposes, and for programmes like the Special Economic Zone.  Such special programmes should be assigned on wastelands and/or land affected by salinity and other abiotic stresses that reduce the biological potential of land for the purpose of farming. Every State should constitute a Land Zonation Team consisting of soil scientists, agronomists and remote sensing specialists to earmark soils, with a low biological potential for farming, such as wastelands, lands affected by salinity, acidity, etc., for industrial activities and construction. It is in our national interest that agriculture and industry both prosper in a mutally reinforcing manner.

2.48  The total cultivable land decreased from 185 million hectare in 1980, to 183 million hectare in 2003.  In the same period, the per capita availability of cultivable land declined from 0.27 to 0.18 hectare.  During the same period, non-agricultural use of land increased from 19.66 million hectares to 24.48 million hectares.  This decrease is mainly due to diversion of agricultural land for non-agricultural purposes, such as urbanisation, roads, industries, etc.  Therefore, there is a concern for maintaining sustainable agricultural production, to meet the requirement of increasing population in the country.  During the period between 1980-81 and 1990-91, the annual average increase in non-agricultural use of land was 1.68 lakh hectares, whereas during the five years from 1999-2000 to 2003-04, the annual average increase in non-agricultural use became 2.25 lakh hectares.  Moreover, land has been used for non-agricultural purpose, which is a very disconcerting picture.  The satellite imageries and space research analysis have found that there is a drastic reduction in agriculture land.

2.49  The net-sown area in the country is about 141 million hectare, consisting of 55 million hectare irrigated and 86 million hectare unirrigated. In spite of several efforts, the overall productivity of agricultural crop is stagnant, especially for cereals, coarse grains, pulses, etc. and, therefore, diversion of agriculture land to non-agricultural purposes is very detrimental to the food security of the country.  About 127 million cultivators and 107 million agricultural labourers depend on on-farm income.  The diversion of 1000 hectare of cultivated land to non-agricultural uses will deprive about 900 cultivators and about 760 agricultural labourers of their livelihoods. The number will be higher in terms of the population adversely affected.

2.50  The issue of food security should be addressed with a broader perspective. There is a need for land for common purposes also, especially grazing of cattle. Land which is not owned by farmers,  but is used for grazing, can have adverse implications, if it is diverted for other use, including industrial and urban use.  This aspect is as important as the change of use from agricultural land.

2.51  Regarding diversifying the labour force in Agriculture to some other industry, the witness submitted that there can be two approaches.  One is to develop the rural non-farming sector, the non-agricultural sector, within the rural areas or in the surrounding areas. In many countries like Thailand, it has happened.  The other approach is to diversify agriculture into horticulture or marketing, etc. providing more stability to their income.  The third thing could be to encourage agro-processing, so that there is value-addition.  The Agriculture Ministry has started a new scheme as part of the National Horticulture Mission, called Terminal Markets, which will be near the consumer centers, but the collection centres will be in the rural areas, where some amount of grading, processing, etc., can take place, providing employment opportunities to the farmers and also for marketing.         The fact that land is not only an economic asset, but  has enormous social, cultural, psychological and emotional implications also for those deprived of the asset.  Rights and access to land are fundamental to help empower the poor, specially at the present stage of our economic development.  This is more so, because in spite of higher rates of growth of GDP in recent times, there does not seem to have been corresponding increase in employment opportunities for the rural poor.

2.52  Diverting land from agriculture does not merely mean reduction in production or income to farmers.  The farmer is deprived of potentials and benefits, simply because the rate of compensation, and even the valuation process, do not capture the future potentials, inherent in the intrinsic value of land. Regarding land acquisition, there are old laws and practices. The sales statistics for the last five years or ten years do not represent the actual value. However, if the industry negotiates directly with the farmers, they can get higher price. After the development takes place, the land value can increase within two years. That benefit is not going to the farmers who originally owned the land. Apart of that, some share of the Industry can be given to the farmers. If the company does well, he should also get a part of the profit and the land should be taken as the capital investment by the farmer.  In many of the joint ventures, the Government land is given as a part of investment. Similarly, farmers' land should also be given in this way.

2.53  The Ministry of Agriculture has taken some steps in this matter. The Union Minister of Agriculture wrote a D.O. letter in October, 2006 to Union Minister of Commerce, expressing concern regarding transfer of agricultural land for SEZs. The latter was also provided with a check-list is (at Appendix II) to facilitate the Board of Approval, while taking a decision on the issue of diversion of agricultural land.  The checklist was also circulated to all the State Governments on 3rd November, 2006 by the Ministry of Commerce, to be considered while proposing a SEZ plan. Besides,   all the States were advised to take the following steps:-

a)      Land Use Boards at the State Level should be revitalized.  Whenever they do not exist, they must be created.

b)      Land Use Policy must be evolved by all users of land within Government jointly and must be enforced on the basis of both legislation for enforcing land use as well as their promotional and preserving methods.

c)      Urban Policy must be restructured so as to ensure that highly productive land is not taken away. Town planning should also provide for green belts.

d)          Heavy penalties should be imposed against those who interfere with land resources and its productivity.  It must be recognized that environmental protection cannot succeed unless this is done. 

e)           Rights of tribals and poorer sections on common land should be          protected through legal and administrative structures.

2.54  The entrepreneurs prefer areas which are well developed, with good infrastructure. Such areas usually include cultivated and productive agriculture land.  Therefore, if similar infrastructure is developed in the wastelands/barren lands, perhaps entrepreneurs would not have hesitation to go to those areas.

2.55  The working Group of sub-committee of the National Development Council on Agriculture and Related Issues on Dry land/Rainfed farming system and Watershed Development has recommended that efforts may be made not to allow diversion of productive agricultural land for industrialization or urbanization.

2.56  The Ministry felt that the following aspects should be looked into while making acquisition of land:-

i)                   India has about 18% of world’s population and 15% of livestock to be supported only from 2% of the world’s geographical area.

ii)                 Per capita availability of cultivable land declined from 0.27 hectare in 1980 to 0.18 hectare in 2003.

iii)               About 60 per cent of the country’s population depend on agriculture for their livelihood, even though the share of agriculture in the GDP has sharply declined.

iv)              Diversion of agricultural land to non-agricultural activities can adversely affect food security, livelihood and general well being of those dependent on agriculture not only farmers but also agricultural labourers, many of whom are poor.

v)                The value of land to a farmer has both tangible and intangible aspects.  Even liberal amount of compensation does not capture the intangible aspects and also future value and potential.  Consequently, there is a deprivation of those deprived of their land assets.

vi)              Land which is uncultivable may be utilized for industrial and non-agricultural purposes.

2.57  Regarding acquisition of land, the Ministry of Agriculture entirely agree that industrialisation is necessary.  We need industries for creation of jobs.  Agriculture should develop and industry should also develop.  However, when development takes place, the share of agriculture declines.  In the developed countries, the number of people depending on industrial and service sectors increases, and the number of people depending on agriculture declines.  However, in our country, sixty per cent of the people still depend on agriculture.  The creation of new jobs in industrial and service sectors is not corresponding to the increase in the production or contribution to the GDP. With regard to availability of uncultivable land, as per land use classification of the country, barren and uncultivable land available is to the extent of 18 million hectares.  In many of the coastal States, land near the coast is saline, which is not good for cultivation.  This is the area where SEZs or any other industrial enterprises can be set up.  That will not affect our food security.    China has developed SEZs in the coastal areas.  The whole concept of SEZ has come from China.  We can develop a few large SEZs in the coastal areas.  The contradictions between industry and SEZs and agriculture will be less, if we use the coastal areas, the uncultivable areas and barren areas, which are available, where all the infrastructure can be provided.

2.58  The Ministry does not have the details of the land that has been allotted to the approved SEZs, and the Ministry is not represented on the Board of Approvals. The Board of Approvals approves the proposal, without getting any clearance from the Ministry of Agriculture.  The Ministry should be represented at the BOA. The land is an important natural resource and it does not pertain to Agriculture Ministry alone, it concerns all the Ministries.  On the issue of making land a part of the Concurrent lists, the witness submitted that they have not given a thought to it so far.

 

Ministry of Rural Development

 

2.59  Ministry of Rural Development made submissions on the subject, particularly with reference to vital issues viz. (a) the maximum area of land that should be acquired for SEZ; and (b) if agricultural land is acquired, whether it should be mono-crop or multi-crop land. The Ministry stated that:-

(1)             SEZs should be established preferably on wastelands. Degraded forestlands could also be considered,  but with higher than the usual norms for compensatory afforestation or reforestation.

(2)             Where use of agricultural lands for SEZs cannot be avoided, single croplands in rainfed areas may be considered. Multi-crop lands should be avoided to the maximum extent possible; even incompletely unavoidable circumstances, multi-crop lands may be used only for strategic requirements.

(3)             To the extent agricultural land is used for SEZs, there should be compensatory development of wastelands for the sake of food security of the country.

(4)             Although it may not be possible to define quantifiable parameters for the size of the land to be acquired for a particular SEZ, since the area of land required varies from SEZ to SEZ, depending upon their purpose, it may be pointed out that only the minimum area of land necessary for the core functions, and a small proportion of that for allied functions, may be acquired. There should be a symbiotic relationship between the core functions and allied functions. Amongst the latter, there should be a list of activities that may not be allowed on SEZs, e.g., setting up of golf courses or other such recreational facilities with large land requirements.

(5)             The total area of land that could be allowed to a SEZ should be based purely on technical requirements, and this determination should be done by independent assessors, through a transparent mechanism, applying stringent criteria.

(6)             SEZs should be applied as instruments of distributive growth, so that the development of wastelands and backward areas could also be triggered by the roads, communication networks and other infrastructure to be set up for the SEZ sites.

(7)             Balanced regional development of the country could also be promoted by maintaining a State-wise balance, while allowing setting up of SEZs.

2.60  Regarding the land use in the SEZs, Ministry’s interaction with the Department of Commerce and the type of land which can be used for an SEZ and its location, the witness replied that to the best of his knowledge, no formal consultation had taken place between the two Ministries.  Further, as far as possible, the practice of setting up SEZs on agricultural land should be dissuaded.  The Ministry’s views are limited to particularly those places where there is displacement of people and acquisition of land. Every alternative should be explored prior to displacement, and all the alternatives should be explored, prior to taking any agricultural land for SEZ purposes.  When all the other alternatives have been explored the acquisition of agricultural land should be considered.

2.61  Regarding the  size of the land which should be given in case agricultural land is acquired, he stated that so far the Ministry  has  not taken a view on the size of acquisition, but it  should be limited to the   least possible, as  any acquisition of agricultural land has strong ramifications on agricultural productivity.  With regard to the issue of maximum limit on agricultural land, and whether it should be one-crop land or multi-crop land, it depends on case-to-case basis, depending upon the size of the SEZ, and if there is a minimum benchmark, the Ministry would be able to give its views.  Regarding the fairness of compensation, the amount of compensation should be fair and must be paid in time.  There are cases where amount has not been paid for a long time.  According to him, a new policy was on the anvil and the issue would be taken into consideration. 

2.62  Certain queries viz. how will the land use be reconciled, considering that the Land Acquisition Act was a Central Act, and the land was a State subject, whether the Ministry would be in a position to provide any special package to farmers, and how these SEZs would help the rural development, the witness replied that the Ministry was working on two parameters. First, it was not in favour of SEZs and second, land is a State subject.  The Ministry had a Rehabilitation and Resettlement Policy since 2003, but the policy did not have any teeth, nor it was properly implemented.  In fact, it fell far short of expectations, because it never got converted into a statute.    In the new enlarged revised policy, called the National Rehabilitation Policy, 2007, the Ministry is planning to convert this policy into an Act.  That would foreclose some of the issues.  The consequential changes in the Land Acquisition Act of 1894 will also be taken into account. 

2.63  Further, the Government give cash compensation, as has been the past practice. It does not ensure any long-term increase or betterment in the quality of life of the person who has been displaced.  The Ministry would like to look at the compensation as a package, rather than as a lumpsum award.  The Ministry would like the displaced persons or members of their family to be made employable in the SEZ area itself by the industries, by ensuring a mechanism of training and skill development in the policy.  Besides, they should also be given first preference in employment in that area.  It should be ensured that there is some living accommodation, a rural housing facility to members of a displaced family.  In cases of large displacement, it would be incumbent on the requiring body to set up a displacement colony, where the basic infrastructure of health, housing and education must be provided. 

2.64  The responsibility of the acquiring body is not limited only to the zone in which they operate.  Even the periphery around which they operate and the areas on which they will have an impact, those are as should also come under the development responsibility of the acquiring body.  Further, in an area in the radius of about 20 kilometres outside the Zone, the acquiring body must partner the State Government in development of infrastructural facilities in that area.

2.65  As to whether there should be some punitive clauses, the witness stated that there will be punitive clauses.  In fact, quite a large part of the compensation will have to be given prior to the displacement itself.  The State Governments will need to put in place mechanism, as per the Act, which will oversee the implementation. There will be an oversight mechanism and implementation process in place.

2.66  The Ministry was mooting 'land for land' policy, where land could be provided as possible substitute for the land.  But, if such compensatory land is just not available, cash compensation will be provided, alongwith other earlier narrated considerations.

2.67  Generally there was no consultation between Ministry of Rural Development and Ministry of Commerce & Industry. The broad view was that the Ministry was opposed to the acquisition of prime agricultural land, for setting up of SEZs and as far as possible, it should be avoided.  Commenting on the quality of the land for acquisition and compensation aspect connected therewith, he stated that much of the land records are very old-dated, and they do not reflect the ground situation. Therefore, wherever acquisition is to take place, it must be provided by a complete survey, indicating the correct kisam  of the land. Otherwise, market value is diminished, if the kisam of the land is wrongly recorded.

2.68  The Ministry is trying to put into the Act, a State-level monitoring Committee, where the alternatives being explored by the district administration, are brought before the Committee. The Committee will have not only State-level representatives, but also representatives, who are specialists in this area, like NGOs, academics, etc.

2.69  With respect to the recommendation of the Swaminathan Committee to make land a Concurrent subject, the Ministry has not taken up this matter, nor it has any view on this subject, so far. Further the Ministry was looking at the possibility of seeing that the affected or displaced persons have the option of preferential shares, so that if there is an economic boom in that area, they should have a stake in the prosperity.  With regard to the land use policy, the Ministry would like to be a part of it, even through the subject belongs to the Agriculture Ministry.

Ministry of Home Affairs

 

2.70  Ministry of Home Affairs, vide their written note, submitted that while supporting to enact a Central Act for Special Economic Zones (SEZs), the Ministry informed the Department of Commerce in general terms that before creation of a new Special Economic Zone, the Ministry of Home Affairs was needed to be consulted, to ensure that the creation of SEZ does not belong to a sensitive industry/sector and does not fall in a sensitive area, where presence and easy access of foreigners may have adverse implications from the national security point of view. The Department of Commerce has included the representative of the Ministry of Home Affairs as well Ministry of Defence in the Board of Approvals, to address concerns from the security angle, while approving establishment of SEZs.

2.71  The Department of Commerce started seeking security clearance in each and every case, from the Ministry of Home Affairs, and this Ministry started receiving a large number of proposals for setting up of SEZs.  The Department of Commerce was then asked to confine security vetting to only those proposals either in sensitive sectors or sensitive areas, and was informed on 10th February, 2006 that security clearance needed to be obtained from the Ministry of Home Affairs, only for the proposals in respect of sensitive industries/sectors as well as for sensitive areas.

2.72  With regard to query pertaining to private ports, the Secretary, Department of Home Affairs replied that ports are not sanctioned by the Home Ministry.  If a particular SEZ wants to have port facility, the Ministry of Shipping will examine the whole thing.  It will take comments of the Ministry of Home Affairs as to whether such a facility is desirable or possible, and what can be done in this regard.  In addition to the policing of waters of both the national and the international borders by the Navy and the Coast Guards, the Government of India has very recently announced a scheme.  This scheme is under implementation in all the coastal States.  So, in coastal policing, Home Ministry has expert security service, under which over hundred kilometres, a police station has been earmarked.  Seventy-three such police stations have been created in the country on the total coastal line. The country’s most vulnerable coastal waters are Gujarat and Maharashtra.  The Konkan belt and the rest of that is also a matter of concern.   The total scheme which is on Maharashtra-Gujarat border, is a Rs. 900 crore scheme.  It is being regularly monitored to see that these police stations come into operation with full equipment, full training and water equipments like boats, crafts and other things. 

2.73  To present the country as a soft nation, the Home Secretary clarified that there is no suggestion to that effect in his presentation.  But at the same time, it should not be such that it poses itself as if nothing is soft out here.  Ninety-nine percent of our population is peace loving.  They want to live together and want that development must take place. 

2.74  The Department of Commerce continued to send every proposal for security clearance.  The Home Secretary, therefore, took a meeting on 5th January, 2007, to make the procedure for grant of security clearance expeditious and streamlined,  in respect of proposals to set up SEZs.  The Commerce Secretary and Director, IB were also present in this meeting.  At this meeting, it was, inter-alia, decided as under: -

(i)                The Department of Commerce will refer only such proposals to this Ministry for which the security clearance is required, as per the guidelines conveyed in the Ministry’s O.M. dated 10th February, 2007.

(ii)              A realistic-time frame for expeditious grant of security clearance in respect of cases referred to by the Department of Commerce to this Ministry will be decided and conveyed to the Department of Commerce.

(iii)            While granting permission to set up SEZs, the Department of Commerce would include a security clause that the developers would provide inbuilt security provisions ab-initio.

2.75  An Empowered Group of Ministers has been constituted to consider issues relating to SEZs.

Ministry of Urban Development

2.76  The Secretary, Ministry of Urban Development informed that with regard to role of the Ministry of Urban Development in the establishment of SEZs, particularly when they are established in highly developed places like Mumbai and Kolkata, or any other town which is fully developed, the witness replied that urban development and municipality are State subjects.  The 74th Constitution Amendment stipulates that there will be Nagar Panchayats at the lowest level, Municipal Councils and  Municipal Corporations, and wherever there are industrial townships, State Government, as may deem proper, can declare such places as industrial townships. However, there are certain criteria which the area needs to fulfill.  Once they fulfill them, and it is to the subjective satisfaction of the State Government, they recommend it to the Governor of the State to declare that area as Nagar Panchayat or a Municipality, or a Municipal Corporation, as the case may be.  There has to be an elected body for giving assistance to the municipalities under the Jawaharlal Nehru Renewal Mission. 

2.77  There are two roles of the Ministry.  One is as a Member of the Board of Approval, which is certainly different from the Ministry's standpoint towards an SEZ, because when an SEZ comes up within the purview of a municipality, the Ministry comes into picture.  The responsibility starts first with the municipal body itself; then the State Government plays its role, and the Centre's advocacy role of granting assistance comes into play.  There is a direct involvement of the Ministry to ensure that all the amenities within an SEZ area, coming up in a municipality, are provided. 

2.78  With regard to providing some mechanism to see that poor workers are provided with, at least, basic amenities, they have a mechanism to oversee it.  On the issue of effect of pressure on amenities on SEZs set up near Urban areas, he replied that they have launched the largest urban initiative in the country, particularly keeping in view the appalling standards of urban infrastructure in cities like Mumbai and Bangalore.  There is a higher amount of help coming from the Centre, to take care of infrastructure in these cities. As to the management of areas having more than one rural body, one part of an area falling under one village and the other part in another village, he replied that  Village Panchayats would manage it.

2.79  With regard to participation of workers, there is already a development authority model which is available and it can be applicable to the SEZs also. Whether the Ministry would provide a model Act for management of the civic amenities, he replied that there is a master plan approach paper and Development Authorities Act. SEZs should also have a master plan on what should be the residential space, what should be the road percentage, what should be the commercial area, the green area, etc.

2.80  Whether the remaining 70% can be used for the real estate purpose in the SEZs, he replied that it can be in a proportion, in a manner where environmental concerns also are taken into account, and guidelines would be issued shortly.

2.81  Whether the Ministry of Urban Development had pointed out some specific inputs at the beginning to be considered in the planning of SEZs,  provision of civic amenities and facilities, and nature of administration therein, the witness stated that the Ministry was consulted when the legislation was being considered, and it had provided its inputs at that stage. Its specific inputs to the Ministry of Commerce at that stage related to provision of various amenities in the areas where SEZs would come up. The guidelines should include all building structures and services to be provided in the SEZ. It should conform to the planning and other requirements, as prescribed in the National Building Code, to justify an integrated development of an SEZ.  A provision for construction of houses for the skilled and semi-skilled workers should be made within the SEZ area, so that haphazard and unorganized development, including development of slums, is prevented. The Ministry had also advised that lands, which are not suitable for agriculture, may be acquired for SEZ purposes.

2.82  With regard to administration of civic amenities in the SEZs, entrusting the responsibility of administration of these amenities to the Central Government/State Governments/administration of SEZ/ builder or promoter of the SEZ, and whether it would vary from SEZ to SEZ or be uniform throughout the country, the witness stated that they had already started working on formulating guidelines for the SEZ areas. There is already a provision for infrastructure in the Act. But the governance structure as such and what form it should take, in the light of the provisions, needs to be addressed clearly. The Ministry of Urban Development had started drawing up these guidelines.  The Ministry will have a dialogue, in consultation with the Commerce Ministry. These guidelines will be circulated to the States and discussed with the States' representatives in the month of May.

2.83  Regarding proximity of SEZs to the mega towns and their effect on the development of these mega towns, their relationship with the administrative structure of the mega town, the witness stated that if an SEZ is located within a municipal limit, they are governed by the municipal regulations and requirements. If it is just located outside, or quite close to the municipal or the city corporation limits, this is a new kind of township, which is coming up, and it gives an entirely new dimension.  The Ministry of Urban Development was of the view that when a township comes into existence, the related facilities should also be there. The guidelines, which the Ministry is going to formulate, should address all these issue, such as structure for governance, impact of upcoming SEZs on the existing city or town, civic amenities, etc. 

2.84  To the query that in case an SEZ is developed within the municipal limits or municipal corporation limits or mega town limits, whether those laws will be applicable, mutatis mutandis, to the SEZs, or there will be change because there is a new administrative structure, the witness stated that the municipal regulations would definitely apply to that area as well. 

2.85  Regarding protecting the interests of the common people or the employees residing therein, in the event of some clash of interests between the existing municipal corporations or municipalities and administration in the SEZ area, they are drawing up guidelines to address these issue.

2.86  With regard to absence of uniformity in governing arrangements for the SEZs, the State legislations have provided for a certain scheme of things and the Central legislation on SEZs has provided for a new or a different scheme of things. So, there are two regimes in existence.  As far as the State legislation is concerned, whenever the legislation turns up for consideration, normally this type of overlapping would be addressed.  The Ministry of Urban Development would emphasise on the urban governance arrangement, as envisaged in the Constitution or in the legislative scheme of things, even if there are other authorities, created through State legislations. 

2.87  Regarding town planning in the SEZs, mechanism to ensure actual implementation of the provisions of the Act by the developers or the promoters, and linkage between the State and Central Government,  he stated that currently  a State Government basically approves the proposal and sends  it to the Ministry of Commerce for clearance.  When the State Government approves a proposal, they seek clearance from all the agencies of the State Government.   However, as of now, there is no linkage between State and Central Governments, because in most of the States, they have their own town-planning departments.  But, over a period of time, the Ministry of Urban Development will evolve a mechanism to ensure that guidelines in the Act are actually followed.  Further, there would be a Master Plan for the entire area, and any scheme within the Master Plan would be subservient to that Master Plan. If any approval has to be given, that will have to be in line with the Master Plan.

2.88  On the issue of the size of the SEZs and the total land required for a SEZ, the Ministry has not laid down any such norms.  It has not looked into specifically as to what the size for each type of unit should be, as it varies from unit to unit.

2.89  Responding to a suggestion that before an SEZ development plan is sent to Government, either the State Government or the Central Government forward the same for critical examination by the Ministry, the Ministry of Urban Development agreed to the suggestion and was of the view that it could have various implications if the SEZ is in a mega city or close to a mega city.  Various aspects such as its implications, town-planning requirements, etc. need to be addressed. 

2.90  Drawing a parallel to the incidents wherein a portion of land marked for residential purposes, being used for commercial purposes, in a situation wherein a particular area to be used as processing area is used as non-processing area, or an entertainment area, the witness stated that if the SEZ is within a Master Plan area, as most of the area would have a Master Plan, the authority itself will have to make a beginning by bringing about the change in land use. If the SEZ area is shown as agricultural also, the first step for that authority would be to bring about that change, so that it can be utilised for other purposes.

2.91  If the basic planning of SEZ is changed after five years, who will permit that change and on what conditions, and if it is violative of the Master Plan, what would the penalties, if it is done without permission, such special area should have a sub-Master Plan, and if the same has not been provided in the Act, rules should have a provision for that. The approving authority should specifically lay down that such type of requirement has to be met.

2.92  With regard to Ministry of Urban Development getting help of the industries of the SEZs in development of its surrounding areas, if it is an urban area, the Ministry of Urban Development comes in and if it is in rural area, the Panchayati Raj or the Ministry of Rural Development comes in. When an area is getting urbanised, there is a provision in the municipal legislation to declare it as a local body. If it is a village area, there is a provision to declare it as a local body. So, it is for the State Governments to take steps in this regard.  A good number of States have declared an area as a development area or a special economic area, deriving powers from the legislations. The Central legislation on SEZ is one of its kind. But, prior to this, they were doing it under the State legislations. If the State Government, on one hand, provides for such new areas to be set up, on the other hand it should also provide such areas to be upgraded, to have an urban local body. But in some States, such areas continue for quite sometime, without an urban local body coming into existence.  The Jawaharlal Nehru Mission has started taking note of these concerns.

 

Ministry of Labour and Employment

 

2.93  The Secretary, Ministry of Labour and Employment informed that the SEZ Act actually does not preclude the applicability of all the labour laws, which are applicable in the domestic tariff area.  In fact, Section 49 of the Act specifically says that such modifications, as may be allowed in other areas, shall not apply to matters relating to trade unions, industrial and labour disputes, welfare of labour, including conditions of work, provident fund, employees liability, workmen's compensation, old age pension and the maternity benefits, which are applicable to workers in the domestic area.

2.94  Further, the State Governments have to pass their own laws and rules that will apply in the SEZs under the State Government.  There are 43 Central laws which are exclusively applied by the Central Government.  Some laws actually fall within the purview of both the State and the Central Government.  And there are certain laws which actually have to be implemented by the State Governments, although they are passed by the Central Government. 

2.95  So far as the applicability of laws to be exclusively administered and monitored by the Government of India is concerned, this work is done by the organisation of the Central Ministry.  But in terms of the laws which are concurrent, these are being done by both the Governments.  In terms of the State Governments, they are actually vested with the responsibility.  However, the Labour Ministry interacts with the State Governments, and reviews from time to time.  Violations, if any, are brought to the notice for correction.            

2.96  To the queries whether the Central Government, through some organisation or agency, cares to know the condition of labourers in the Special Economic Zones, the witness replied that the Labour Ministry cannot do 100 per cent checking.  But it would definitely keep an eye on implementation of the Labour Laws.  Further, in terms of the SEZ Act itself, there is no relaxation from the labour laws of the Central Government, as also the State Governments.  If Section 49(1) of the SEZ Act is strictly enforced, there is no question of perception translating into reality.  It is the duty of the Ministry to see that these provisions are enforced.  The Ministry has the direct responsibility in respect of the Employees State Insurance and the Employees Provident Fund.  With regard to laws which are to be implemented by both the Central and the State Governments, the Ministry has a larger responsibility, as these laws are very sensitive and important.  The Ministry has direct responsibility in so far as the laws passed by the Central Government are concerned.  The State Government is declared to be appropriate Government under these laws.  This is to ensure that they do not shrug off their responsibility and say that they were not supervised.  This is the intention why certain laws are to be directly implemented by the State Governments. 

2.97  However, the Labour Conciliation Machinery should be separate.  The role of the Development Commissioner should not be dual.  He should be a Development Commissioner, and he should not take on the role of Labour Commissioner; the position can be reconciled by ensuring that the Development Commissioner is assisted by an officer of the Labour Department of the State Government, who has technical expertise and the experience in dealing with the labour issues and who, in fact, should exercise the powers of Labour Commissioner in the SEZ.

2.98  With regard to the need for deputing many officers of the Labour Department of the States for managing the Labour issue, he was of the view that there was no need for one officer in every SEZ.  Requirement will depend upon the size of an SEZ.

2.99  As to whether the Ministry would like to be a member of Board of Approval, the Labour Secretary replied that it wants to be very careful about this and does not want to do anything that may compromise the Ministry’s  charter, which is to ensure that the labour laws are complied with.  He sought indulgence of the Committee in the issues on which the Labour Ministry needs to work more with the Commerce Ministry.

2.100         The Labour Ministry would put in place an Ombudsman, if some kind of a mechanism at the field level, for ensuring close interaction with the State Industrial Departments and State Labour Departments.  So far as the question of violation of labour laws in the SEZs was concerned, it will be of a slightly higher level monitoring for the Labour Ministry.

2.101         In pursuance to the direction of the Committee the Ministry of Labour and employment took up the matter of applicability of labour laws in SEZs in various States.  The Ministry submitted the status of labour laws applicable in SEZs in the following States: -

 

Gujarat:

 

2.102         All labour laws were applicable to all the Special Economic Zones functioning in the State. However, the powers of State Labour Commissioner had been delegated to the Development Commissioner u/s 17(1) of the Gujarat Special Economic Zones Act, 2004. The Officers of the Commissioner of Labour had been authorized by the Development. Commissioner of respective Special Economic Zones to supervise the implementation of labour laws and they were also working as Inspectors. So far 45 Inspections were carried out during 2006 in two Special Economic Zones functioning at Kandla and Surat. Out of 19101 workers, 3213 were permanent, 11143 were temporary and 4745 were contractual. The Employment Register was being maintained by the respective SEZ. There was statutory compliance of provisions related to women workers under different labour laws, the facility of to and fro transportation was provided to women workers. Three trade Unions were functioning in the SEZs.

Rajasthan:

 

2.103         There are two Special Economic Zones functioning at Jaipur and Jodhpur. The powers had been delegated to Joint Labour Commissioner of the State under various labour laws as per the provisions. 50 Workers were engaged on casual basis in Jodhpur Special Economic Zone and in Jaipur about 23 units mainly in Gem & Jewellery were operational and 1150 workers were engaged. No trade union is registered in the units operational in the Special Economic Zones in Rajasthan.

Kerala:

 

2.104         Kerala has one operational Special Economic Zone viz Cochin Special Economic Zone (CSEZ). The Development Commessioner, CSEZ also looks after five other notified Special Economic Zones. All the labour laws were applicable in the SEZs. The powers of the Conciliation Officer have been delegated to the Development Commissioner under the Industrial Disputes Act. However, the units furnish the prescribed returns and reports to the Labour Commissioner. In the event of any complaint being received about violation of labour laws by management of any unit, the Development Commissioner conducts appropriate inquiries before taking further action. The Inspections were carried out by the Labour Department of Kerala periodically. The following facilities were provided to women employees:

(a)     Women's Committee has been constituted in all the units to look into sexual harassment complaints,

(b)     Child care facilities,

(c)     ESI dispensary,

(d)     Conveyance being provided to women engaged for labour during night hours, and

(e)     24 hours security to prevent any untoward incidents inside the Zone.

 

2.105         Of the total workers engaged, 5445 were permanent, 1552 were temporary and 825 were casual. The Units were maintaining Registers, where it was mandatory. Five Trade Unions were functioning in the Special Economic Zones.

 

 

Madhya Pradesh.

 

2.106         The Powers under various Acts have been delegated by the State Government to the Development Commissioner. A team of officers was constituted to ensure the implementation of labour laws in the Indore Special Economic Zone. Out of five functional units, only one unit has deployed 27 female workers. Separate rest room, cafeteria, creche, etc. were maintained in the unit. Out of 1817 workers, 998 were Permanent 562 were temporary and 257 were on Contract basis. The Units are maintaining the Muster Roll registers, but no trade union was functioning.

 

Tamil Nadu

 

2.107         Effective implementation of labour laws was being ensured by way of regular inspections as well as special inspections, whenever complaints were received from workers/ Trade Unions in the 4 functional Special Economic Zones, namely, Madras SEZ, Chennai; Nokia SEZ Sriperumbudur­; Flexitronics SEZ, Sriperumbudur; and Mahindra Industrial City -SEZ, Kancheepuram. There were 64 units in these Special Economic Zones, where there were 12906 permanent employees, 3650 Temporary (of which 3500 are on training) and 3389 contract employees. Registers were maintained in respect of Adult Workers, young persons workers, Muster Roll and service card under the provisions of the Factories Act. The Department of the Inspectorate for the Factories was monitoring the maintenance of these registers. The Inspections for the factories located in SEZs were conducted once in every six months. The facilities such as creche, conveyance, drinking water, locker, separate epclosers in canteens, rest rooms and washing facilities with soap were provided to women workers. Five Trade Unions were registered in these SEZs.

 

Ministry of Finance (Department of Revenue)

2.108         The Secretary, Department of Revenue, Ministry of Finance and Representatives of RBI informed that  regarding the view point of the Department of Revenue on accrual from SEZs, whether there will be greater loss of revenue due to various exemptions/incentives to SEZs; whether the Department had calculated the estimated loss of revenue on the basis of formally approved SEZs,  the witness replied that the extent of loss that might take place due to any exemption activity, particularly, Special Economic Zones, would depend on a variety of factors.  It would depend on the number of Special Economic Zones sanctioned, the size of the Economic Zones, the area used for processing and non-processing activities, the number of production units, the extent of infrastructure development, the total production and the total exports.  It could vary from SEZ to SEZ, depending upon the scale of operations.  It could vary from area to area.  The precise estimation, therefore, is not possible. 

2.109         The Department has not made any recent estimation of loss of revenue.  On the direct tax side, the Department has calculated loss of revenue on the basis of growth of exports during the last three years, which was roughly around 19 per cent.  A portion of the incremental exports would increasingly shift to the SEZ areas over the next three to four years, and the profits on exports would be around 20 per cent.  This is the assumption on the basis of which the estimate has been made.  The estimated revenue loss of Rs. 54,000 crore, over the period from 2006-07 and 2009-10, is in relation to direct taxes.  It does not include profit made by the developers.  In the first Board of Approvals, the total projected investment was about Rs.1,75,000 crore.  Now this is extrapolated forward, assuming that the demand for SEZ will come down over the next four years.  Over the next four years, the total investment will be around Rs.3,60,000 crore.  On indirect taxes, it was clarified that the Department has not calculated any revenue loss arising out of the activities of the units, because the units are given rebates.  Whatever indirect taxes are paid on exports, that will be rebated.  The Parliamentary Standing Committee on Finance made a recommendation that the Department of Revenue should work out the cost-benefit ratio of all exemptions.  Services of external agencies, to look into this aspect, have been engaged.  The Indian Council for Research in Economic Relations has been entrusted to do a study, not only on this exemption, but also general exemptions. The NIPFP is also doing certain study.  As soon as their report comes, they will have a clearer idea. 

2.110         On whether an interest component on the loss has been taken into account, the witness replied that the interest component has not been taken into account.  The developer's profit will also be there. This has also not been taken into account.

2.111         During the formulation of the Act, there was consultation with the Department of Revenue. The Department of Revenue had expressed its view at that point of time. Finally, a decision was taken.  It was not clear at the time of the formulation of the Act as to how many SEZs would come up.  Last year, the Department of Revenue placed before the Parliament, for the first time, an estimate of the total revenue loss on account of the revenue foregone, which it will be repeating this year also. The concept of exemptions as such is under constant review, and even recently there was a statement by Hon’ble Prime Minister on the same issue.

2.112         The issue of the exemption from taxes was placed before the Parliamentary Consultative Committee on Commerce and there was a feeling that the Department of Revenue need to look at the exemptions, because though it collects revenue, it is the Parliament which would allocate it.

2.113         On whether the issue of revenue loss has been discussed with the Planning Commission, and whether the Planning Commission has given some guidelines, the witness replied that the Department of Revenue has not received any guidelines, except on the Eleventh Five Year Plan's Approach Paper, however, it does indicate Planning Commission’s reservations on these things. The Department of Commerce would have certainly discussed these issues with the Planning Commission.

2.114         On whether the Department of Revenue had ensured that no hawala or dirty money is invested in these SEZs, and its mechanism to deal with such investments, the witness replied that there is shortage of Customs Staff in the SEZs.  As far as FDI is concerned, there is no mechanism of checking it.  There is no checking of antecedents, except when it pertains to financial sector.  Therefore, it is felt that this is a lacunae and this may need to be addressed.  However, according to the representative of Central Board of Excise and Customs, there are two safeguards.  One is a condition that when the investment is accepted, it is seen that for what purpose it is coming in. There is a threshold limit for each category of SEZ, and the balance-sheets are forwarded to the Ministry of Commerce.  The balance-sheets of developers or applicants are checked by the Ministry of Commerce, and proposals are also placed before the BOA.  Another safeguard is that if there is any suspicion in major transactions of money, such transactions are covered by the Prevention of Money Laundering Act, and all such transactions will definitely go through a scanner.             

2.115         Regarding shortage of Customs staff in the SEZs, the Committee, during its visit, had found that the customs-bonding was very poorly attended; some of the SEZs were employing security guards as agencies of customs.  The staff is very nominal and the area is very big.  Commenting on these issues, the witness stated that the issue of shortage of staff is very important.  So far as administration staff is concerned, there is considerable requirement of expansion of capacity for each SEZ.   At least 17 more people on an average are needed. Besides, things like camera, CCTV, containers, etc are also required.   There is also a need to build an information system, so that the Department can get information. Further, an information system has to be linked between the port and the SEZ, to prevent manipulations.  With regard to pilferage, it had been brought to the notice of the Empowered Group and it will be taken up to the Cabinet also.  

2.116         Regarding RBI policy on loans to SEZs, the RBI instructions to the banks are that the development and acquisition of units in SEZ should be treated as commercial real estate exporters.  To that extent, it is not different from any other policy, because when SEZ is developed or a unit is acquired, it involves real estate.  This real estate is much more risky than the commercial real estate outside, and because of the free transfer of real estate, the banks will be put to severe difficulties.  Therefore, for the time being, the RBI has put them apart.  The representative of RBI stated that RBI does not have any experience or database in terms of default rate and other things.  However, RBI will take necessary steps in this regard. Regarding any suggestion of the Department of Commerce on financing of SEZs, the representative of RBI informed that the suggestions from the Ministry of Commerce about raising the risk factor to 150 per cent are also received.

 

MINISTRY OF Defence

2.117         The Director General (ACQ), Ministry of Defence submitted that the Ministry of Defence is fully aware of the importance of the SEZs in the economic growth of the country. These SEZs are vital, not only for our economic growth, but also for the security of the country, because they give strength to build up our forces, and also the requisite resources, by which we can modernise ourselves effectively. According to him, setting up of SEZs involves two stages. The first stage is the location of the proposed SEZ, in relation to our existing or certain defence installations, which may be planned in future. The second stage is about the source and quantum of FDI.

2.118         On the query as to whether analysis of the existing SEZs has been carried out and any of them need to be modified, changed or shifted, the witness replied that applications for SEZs, being referred to them, are consulted with all the three Services, and considering all the aspects and our security, the Ministry gives its recommendations.  The Ministry has given recommendations on applications totalling about 150.  The Ministry will make certain recommendations for the existing SEZs. 

2.119         There is a representative from the Ministry of Defence on the Board of Approvals and the concerns of the Ministry are passed on to the Ministry of Commerce, which are taken into account, as it is a collegiate decision.  It will be useful if the Defence Ministry’s views are taken into account seriously. However, the Ministry of Defence does not have any veto power. 

2.120         With regard to the concerns of the local population along the border areas, he stated that the Ministry is of the view that about ten kilometres belt on the border areas should remain SEZ free.

2.121         There are two stages for SEZs approval i.e. (i) approval to developers for infrastructure creation; and (ii) approval to specific companies to operate from SEZs.

2.122         Security concerns at state I are physical location of proposed SEZs in relation to existing/planned defence installations/requirements, and critical Vital Areas/Vital Points (VAS/VPs) of national infrastructure.  The antecedents of the developers and sensitivity of the region from internal security angle.

2.123         Security concerns at stage II are source and quantum of FDI, if any,  countries of concern and unfriendly entities to be screened out, using appropriate screening by the Foreign Investment Promotion Board (FIPB) and the nationality of the persons working in the SEZs, and criticality of the sector from national security angle to be factored in while clearing FDI.

2.124         There is a need for an effective monitoring and legal framework, National Security Exception Clause to regulate FDI with focus on national security and an institutionalized mechanism for defining and devising policies, alongwith implementation of appropriate feedback/control mechanism. 

2.125         The following are the suggested guidelines from Armed Forces perspective on the security concerns at stage-I and stage-II:

 

Stage-I

 

10 km belt along the land border on both Eastern & Western fronts be excluded from SEZs to provide required area for military operations;

SEZ proposals within 10 to 50 km belt be cleared on case by case basis through MoD considering depth area requirement for Military operations;

As coastal areas are the source of livelihood and economic support to the majority population, SEZs may be planned after suitable coordination with short and long term plans of MoD;

Sensitive installations like airfields and their infrastructure, radar, communication nodes, ammunition dumps, base repair and equipment depots, critical VAs/VPs of national infrastructure would need 10-20 km separation from the SEZs;

Air fields may need extra separation to address flight safety concerns from likely bird menace from proposed industry and height of structures in the landing/take off funnel (min 20 km);

The ITES sector companies need to be spaced farther to avoid interference with ground to air communication and radar pick up;

Less sensitive installations like training institutions, repair depots, workshops, cantonments, military stations, etc. would need 1-5 km separation from the SEZs; and

The security officers of the SEZs and sensitive installations should coordinate and share information to curb any inimical activities.

Stage-II

 

Foreign participation in sensitive sectors and from countries and entities of concern should be subject to appropriate screening whether foreign investment is through automatic route or FIPB;

A periodic review of list of sensitive sectors locations and countries/entities should be carried out;

For security screening, threshold criteria should be followed in different critical sectors in respect of FDI;

Security screening in case of merger and acquisition may also be enforced;

Existing companies should also be asked to seek approval for new activity and investment in sensitive sectors and locations; and

There should be an appropriate legal framework including legislation, on National Security Exception Clause implying that any company can be asked to suspend operation, or be taken over, or close in the interest of national security.

2.126         There should be an institutionalized framework, with representative from MoD for devising policies and overseeing the implementation as well as feedback and control mechanism regarding security concerns.


CHAPTER III

Written and Oral Submissions: State Governments

3.1    The Committee considered written submissions as well as oral evidence of the following State Governments, which are summarized as below:

 

Gujarat

 

3.2    The Commissioner, Industries, informed that so far 33 SEZs have been given formal or in-principle approval by the Government in Gujarat.  Out of these 33 SEZs, two formerly Free Trade Zones at Surat and Kandla, which were converted into SEZs, are functional.  No unit is functional in the other 31 Special Economic Zones, as they are being set up and are at different stages of being set up.    The functional SEZs generated export of Rs. 3500 crore for the year ending March, 2006, with employment of 17,900 people.  The remaining 31 SEZs, as per the projections made by developers, would generate employment for about 6.5 lakh people, when they are fully functional. 

3.3    Gujarat has not faced any opposition to the land acquisition, because Government has adopted a practice not to acquire land of good agricultural quality for the SEZs.  The State Government had acquired fallow land for two SEZs in Hazira and in Jamnagar twelve years ago, as the developers were putting up very large refinery and Steel plant at Jamnagar and Hazira, respectively.

3.4    The land use pattern of the total geographic area of1,96,11 ,700 hectares in Gujarat was as below:

1

Forest Land Govt.

9.5%

2

Under Agriculture

57.1 %

3

Waste Land

9.2 %

4

Uncultivable Govt. Waste Land

7.3%

5

Other Land

16.9 %           

 

Total Geographic Area

100.00 %

 

3.5    33 SEZs had been given approval by the Central Government in the State. These are categorized as follows:

 

 

1

Earlier FTZs now converted into SEZs

2

2

New SEZs set up: -

 

 

Notified

7

 

Formal Approval given

12

 

In-principle Approval given

12

 

 

33

 

3.6    In addition, 11 proposals were pending before the Board of Approval for decision.

3.7    Out of the 33 SEZs which had received in-principle or formal approval, nine were multi product and 24 were sector-specific. The sector-wise break up of the sector specific SEZs is as below:

Apparel

2

Textiles & Garments

1

Gems & Jewellery

1

Electronics

1

Pharmaceuticals

5

Petroleum & Petrochemicals

1

Chemicals

2

Engineering

5

Ceramic & Glass

1

IT/TES

3

Power

2

Total

24

 

3.8    The break up of the 11 SEZs pending before the BOA for Approval, was as below:-

Multi-product

1

Textiles

1

Gems & Jewellery

1

IT/ITES

5

Biotechnology

1

Alternative Energy & Energy Ancillaries

1

Handicrafts & Artisans

1

Total

11

 

         

3.9    The State Government has adopted a pragmatic approach for acquisition of land for  Special Economic Zones.  The general practice was that either the SEZs should be set up on Government wastelands, which the State Government would allot to the Developers after due scrutiny, or the Developers should purchase the land directly from the landowners (farmers), willing to sell their land. The State Government had resorted to the Land Acquisition Act, 1894 for the purpose of acquiring land for setting up SEZs only in two instances,. In both these cases, the Developers themselves were putting up large industrial projects inside the SEZ, which would utilize a very substantial portion of the SEZ.

3.10  The quality of land, one crop, two crops, three crops, is decided by the patwari. He makes entries in khasra or khatoni that this land is one crop two crops, etc. Responding to the apprehension of the Committee that these records are not maintained properly, and a certificate to this effect is issued on extra meritorious considerations and not on merits, the Commissioner clarified that the  people are well aware of the exact nature and potential of the land, and the matter is not hidden from the Government also.  Everyone knows in Kutch what kind of land is there, whatever the patwari may write in the records. Everyone knows that the land in Jambusar Taluk of Bharuch district, where a company has asked for a multi-product SEZ, is of very poor quality.  Regarding possibility that there may be places where land is of good quality and it can be so manipulated that good quality land is first converted into poor quality land, before it is converted into the land for non-agricultural use, the Commissioner stated that nothing of this sort has happened in Gujarat, because all the SEZs that are coming up, are in those districts where no agricultural activity is done.  Setting up of an SEZ on fertile land, irrespective of what the patwari writes in the records, is not encouraged.  It would be for the Government to see and take care, when the Collector gives permission for non-agricultural use. The State Government will also ensure that when the District Panchayat or the District Collector, as the case may be, gives permission for non-agricultural use, no misuse takes place.

3.11  The mode of obtaining land by the Developers of SEZs, in respect of the SEZs under various stages of approvals, is as below:

Notified

4953 hectares

Government land allotted

2486 hectares*

Land of Gujarat Industrial Development Corporation Ltd (GIDC)

1812 hectares

Land privately owned by Developers

440 hectares

Land purchased by Developers from farmers

48 hectares

Land acquired under Land Acquisition Act

167 hectares $

 

____________

4953 hectares

*:        The allocation of Government land will increase to 3383 hectares after completion of the setting up of the SEZs.

$:       Land acquired under Land Acquisition Act will increase to 3324 hectares, after the SEZs that are notified, complete the process of setting up the entire SEZs.

(ii)

Formal Approval-12

 

3390 hectares

 

Government land allotted

-

1105 hectares

 

Land of Gujarat Industrial Dev.

 

 

 

Corporation Ltd (GI DC)

-

404 hectares

 

Land privately owned by Developers -

1125 hectares

 

Land purchased by Developers from

 

 

 

farmers

-

718 hectares

 

Land purchased in Court auction

-

 

 

 

 

3390 hectares

(iii)

In-principle Approval - 12

 

6444 hectares

 

Government land to be allotted

-

2723 hectares

 

Land of Gujarat Industrial Dev.

 

 

 

Corporation Ltd (GIDC)

-

     336 hectares

 

Land privately owned by Developers -

     640 hectares

 

Land purchased to be purchased

 

 

 

by Developers from farmers

-

2745 hectares

 

 

 

6444 hectares

(iv)

Proposals pending before BOA - 11

1766 hectares

 

Government land to be allotted

-

      35 hectares

 

Land of Gujarat Industrial Dev.

 

 

 

Corporation Ltd (GIDC)

-

       147 hectares

 

Land purchased to be purchased

 

 

 

by Developers from farmers

-

1584 hectares

 

 

 

1766 hectares

3.12  A very small portion of the total land for SEZs had been acquired by the State Government under the Land Acquisition Act, and that too where the Developers themselves were setting up large industrial projects in a substantial part of the SEZ. When land was to be acquired by the State Government, the Developer Company had to apply for corporate acquisition to the State Government. The Revenue Department, if satisfied about the acquisition, would initiate the process for it under the Land Acquisition Act. The Acquiring Body was the corporate developer, who was shown as such in the notifications issued under the Land Acquisition Act.  The total land acquired for SEZs was 167 hectares. This would increase to 3324 hectares after the on-going land acquisition for SEZs that had already been notified.

3.13  On the issue of using agents for land acquisition, and   use of force to acquire land, thus giving a raw deal, it was informed that whenever State Government receives a single complaint, either through press or through the farmers directly, it immediately enquires into it and takes immediate action.  All the SEZs in Gujarat are coming up on a very poor quality of land.  If land is bought voluntarily through the process of sale in Gujarat, the State Government cannot stop.  However, when it is decided to convert agricultural land for non-agricultural purposes, the State Government comes into picture.  Sale of agricultural land for non-agricultural purposes requires permission from the State Government.  However, if a developer is acquiring huge land for non-agricultural purpose, he has to take prior permission from the State Government.  The land purchased by the developers directly from the farmers is 718 hectares for 12 formally approved SEZs.  200 hectares  has been purchased by the Cadilla, a drug manufacturing company, from big landowners.  In case of Anjar in the area of Kutch, 284 hectares of land of very poor quality was purchased directly from the landowners.  It is not difficult to get 200-300 hectares of land directly from the owner, if they are paid good price.  For IT SEZ, 54 hectare has been directly purchased near Ahmedabad.  For IT SEZ near Gandhi Nagar, 15 hectares of land has been purchased.

3.14  Regarding Rehabilitation Policy of the State Government in respect of landowners whose land had been or was being or would be acquired for setting up SEZs, the policy of the State Government was to ensure that the land-losers get a fair market price for their land, in accordance with the law. The Government also tried to ensure that the land-losers get employment, direct or indirect, in the project that comes up on the land.

3.15  The State Government has ensured that people are trained in newer occupations through industrial training institutes.  Government had asked the company to open the institute to train village people, so that after the plant is set up, they find profitable employment both direct and indirect as a result of the industrial activity.

3.16  Regarding providing other infrastructural facilities like schools or hospitals, to improve quality of life of villagers, the Commissioner submitted that experiences are that when large companies put up large projects, they invest a substantial amount in the development of the village community, by way of schools, roads and other socio-economic infrastructure in the villages, in order to keep good relations with the village people.  The State Government has  not received any complaint that the villagers are being neglected by these companies.  However, the State Government would insist that the company, to the extent possible, should invest more in social infrastructure, be it education, health, etc.

 

3.17  There should be a uniform policy for the entire country in respect of rehabilitation. The Government of Gujarat would welcome any initiative by the Government of India in this respect, and would support any policy for rehabilitation of the people, who had to surrender their land for industrial, infrastructure or other projects.

3.18  The propriety of the acquisition, and whether a larger public purpose exists and warrants such acquisition, is examined carefully, before the acquisition process in initiated.

3.19  The Committee drew attention of the Commissioner to a complaint received when the Sub-committee visited Kandla. Some fishermen complained that they have been evicted and they have not been given any shelter from the Government or the entrepreneur.  Agarias also complained that their land was acquired forcibly. The Commissioner submitted that in the case of agarias, the Government gave land on lease for 10-years and 20-years for salt making.  Any agaria has not been divested of his lease.  As far as the State Government is concerned, there is no such issue.  The problem may be in one SEZ, set up by the Kandla Port Trust. They have a lot of land of their own.  They have not yet approached the State Government for approval of their SEZ.  They have got approval from the Central Government directly.  The State Government has not received any application.  There is no other case where the State Government de-leased salt land from the farmers, and used it for SEZ purpose.  This practice is not followed at all in Gujarat. 

3.20  On the issue of employment generation, except  the two functional SEZs, none of the other notified SEZs had become functional. Therefore, no direct employment had been generated in the SEZs. Direct and indirect employment was being generated by the developers while setting up the SEZs, and while building the infrastructure within the SEZs. It was too early to comment on the extent of employment that would be generated in the SEZs  in the next five years.

3.21  On the issue of implementation of Labour Law in SEZs of Gujarat, it was informed that as per the figures of the Government of India, Gujarat today accounts for 16 per cent of the country's total industrial investment, and it has only five per cent of the country's population.  The total man days loss due to labour strikes in Gujarat is 0.52 per cent. Gujarat has traditionally been a very peaceful State, and as far as labour problems are concerned, Gujarat is a very pragmatic State  to ensure that nothing, which would affect the interests of workers, is done by the entrepreneurs.  As far as two functional SEZs are concerned, they have not reported any single labour strike so far.   The labour laws of the land apply to SEZs also.  However, as an exception, flexible labour laws as there in the SEZs. 

Andhra Pradesh

3.22  In Andhra Pradesh 54 SEZs had been approved by Board of Approvals (Formal - 45, In-Principle - 9). Out of 54 SEZs, five were Multi-product  and 49 were Sector-specific (Single-product)

3.23  There are three kinds of settlements in the revenue records.  There is State Abolition Act, Inaam Abolition Act and the Ryatwari Settlement Act.  In these three settlements, there are some lands which go to the pattedars.  There are some land where nobody has been provided with titles, and this type of land has been considered as Government land.   The land acquisition in Andhra Pradesh is being done under the Land Acquisition Act, by the Andhra Pradesh Industrial Infrastructure Corporation, which is the nodal agency for land acquisition. The District Collectors are acquiring land under the Land Acquisition Act of 1894. 

3.24  From 1st April 2000, conversion of agricultural land to industrial land was made automatic, and no permission was required for this purpose. But now, the Government has enacted an Act, under which this conversion will require permission of the Collector.  This Act came into force three-four months back.  It is in operation.  The rules are being framed and the industrial development has been regulated by the Revenue Department.          The Andhra Pradesh Government has acquired 6000 acre of private land for SEZs through APIIC, and out of that, 35 acre is wetland, where theoretically two crops are cultivable.  The Government has directed the APIIC to follow the rehabilitation and resettlement package, which has been enacted for irrigation, which will ipso facto be of all projects where there is displacement of dwellers. 

 

3.25  Out of the total extent area of 10,954 acres pertaining to SEZs, assisted / developed by State Government / Government Agencies, an area of 6000 acres of private land was acquired for the purpose which was 54.77 % of the total area.

3.26  The details of the 6000 acre area was as below percentage are:-

Total acquired land                                                                   6000 acres

Wet agriculture land (Irrigated)                                         35acres(0.58%)

Dry agriculture land (only rain fed)                                  5965 acres (99.42 %)

 

3.27  The rehabilitation of land losers was taken up as per the guidelines and the following facilities were being provided to the land losers:-

 

(i)                   Grant for House Construction;

(ii)                 Grant for Cattle Shed to each project affected family who owned a cattle shed;

(iii)               Grant of Transportation of Material;

(iv)              625 days of minimum agriculture wages at Rs.80/- per day to the agriculture and non - agriculture labours;

(v)                Subsistence allowances to displaced families equivalent to 240 days of minimum agriculture wages at Rs.80/- per day; and

(vi)              Development of layout with infrastructure facilities.

         

3.28  The private developers were encouraged to purchase land from the land owners at mutually agreed rates and Revenue Authorities were facilitating and monitoring the process, so as to ensure fair deal to the farmers.

3.29  The estimated generation of direct /indirect employment for the Government SEZs in Andhra Pradesh was 6,28,500 and 9,73,500, respectively. The following SEZs had already provided employment as per the details given below:-

1. Foot wear SEZ (Apache Holding Pvt. Ltd)                             -  1000,

2. Gems & Jewelry SEZ (Hyderabad Gems and Jewelry SEZ) -  1126

    Total                                                                               2126

 

3.30  With regard to the approach and vision of the State Government on SEZs, the witness submitted that the State had not been able to garner very heavy investment in the last five to six years. Its total investment in five years was only Rs. 5000 crore. So, a system was sought to be created by the State Government, wherein the SEZs were engaged with the raw material linkage coming into the State. Getting investment may be easier for more forthcoming States, which had more liberal policies.  Since the opportunity was given and a window was opened by the Central Government, the States wanted them in places where they could get investment. The Andhra Pradesh Government is following this mode under the SEZ. Without compromising labour or agricultural or agrarian interests to the extent possible, getting quality investment, associated employment, etc. were the broad objectives of the State Government.  As per estimates given by the APIIC and the Government, about six lakh numbers of direct employment and around 10 lakh numbers of indirect employment are likely to be generated.

3.31  On the quantum of FDI out of the total investment of Rs. 5000 crore, he informed that the Andhra Pradesh got some FDI. Of the investment of Rs. 5000 crore, foreign investment is to the tune of only Rs. 130 crore. The State did not get the kind of investment that Gujarat had got.

Haryana

3.32  The Government of Haryana received a total of 72 proposals for setting up Special Economic Zones in the State.  However, 49 had received in-principle or formal approval.  Out of these 49 in-principle or formal approved proposals, 12 were multi-products and 37 were single-product SEZs.  Haryana Government had not acquired land for private developers of Special Economic Zones in the State so far, except in one of the SEZs. HSIDC had agreed to transfer 1501 acre of land for setting of an SEZ by an SPV, formed a joint venture between HSIIDC and RVL.  HSIIDC had entered into an Agreement on 19th June, 2006 with Reliance Ventures Limited (a 100% owned subsidiary of Reliance Industries Limited), for setting up of SEZ in the Gurgaon and Jhajjar District in the State.  Earlier HSIIDC was granted in-principle approval to set up a multi-product SEZ in Gurgaon District, over an area of 3000 acres. The land measuring 1715 acres was notified under section 6 of Land Acquisition Act.  During this time, Reliance Industries Limited approached the State Government for setting up an SEZ, matching the best in the world, and as per international standards, jointly with HSIIDC.  A location Selection Study team from Reliance and HSIIDC conducted detailed surveys, and selected a site, contiguous to the existing 1715-acres land notified by the Government for the SEZ.

3.33  The Director, Industries, Government of Haryana informed that approvals for two Special Economic Zones had been notified.  One is the DLF, which is in the urban area; the second one is in an area adjoining Mewat.  It has very poor quality of land.  This is also entirely privately acquired land.  There had been a persistent demand from the Mewat area to put up industrial activities there.  People are making representations to the State Government in this regard.  But in this area, scarcity of water exists.  The State Government has made an assessment of all the SEZs, which will come up in the State.  The State Government believes that not only the SEZs, but the entire industrial development potential would require an area of less than two per cent of our total area, because the State has shortage of water. 

3.34  In terms of NCR, the State Government has taken a decision not to increase the number from six SEZs, because it cannot guarantee infrastructural support. In view of availability of scarcity  of water, the first priority is for drinking water.  For industrial purposes, the water which is going to be utilised in the Special Economic Zones, the Government is asking them to go in for 100 per cent recycled water, so that water requirement for industrial purposes is minimum. On a rough basis, diversion of more than two per cent of total area shall not be sustainable. It is based on this calculation for water usage.

With regard to the size of processing and non-procesing areas in SEZs, the Director drew attention towards the industrial area in the entire Gurgaon-Manesar belt, the most developed industrial belt in North India, which comes to about six thousand acres.  Residential and other areas, which are supporting this area are about ten times bigger.  That was the natural way in which habitation was going to take place.  The State Government is extremely concerned about adequate housing for workers.  Otherwise, it will put more strain on the urban infrastructure.  The State Government can go in for much stricter laws for smaller SEZs. But for large SEZs, where huge production facilities are going to come up, it has to keep the norms at not more than 35 per cent. 

3.35  State Government had formulated the Policy regarding acquisition of land for private development and in public-private partnership, for setting up of Special Economic Zones, Technology cities, industrial parks and Industrial Model Townships.  A provision for assistance to the private sector by the State Government also existed in section 7 (1) of the Haryana Special Economic Zones Act, 2005. Outside the NCR region, the State Government may assist the private sector in acquisition of land even, in respect of single-product SEZ, where the minimum area requirement was 250 acres only.  Under this policy, it had been laid down that the private developer must purchase 75% of the land required directly from the farmers in the NCR and Panchkula, whereas outside the NCR and Panchkula, State Government can acquire maximum of 50% of their land requirement.  The developers were obliged to provide employment, training, social infrastructure, to rehabilitate the displaced persons, as per the Policy of the  State Government.

3.36  The State Government has provided that the developer shall be bound to provide all the rehabilitation of population, by providing built-up houses or residential plots, alongwith cost of construction, in case relocation of village abadi is necessitated.  Secondly, the developer shall undertake to provide essential services like roads, street-light, drainage and sewerage, water supply, arrangements of schooling, alongwith community centre in all such villages, where the village abadi has to be relocated.  Where relocation is not necessary, but more than 25 per cent of the land of the village gets acquired, similar social infrastructure shall be provided in the existing abadi.  The developer shall also undertake to set up industrial training institutes, vocational training institutes, etc., and such institutes shall be fully developed and run by the developer. 

3.37  Another condition that the State Government has laid is that the developer shall undertake to give employment, at least to one member of the family, whose land is acquired for setting up the project.  The nature of employment shall be to the satisfaction of the State Government.   The developer shall also undertake to give at least 25 per cent employment, of the total employment provided by him, to domiciles of Haryana.  While the State Government has provided for acquisition as a comfort, by and large it has encouraged all the SEZs to come and buy land directly from the farmers. Regarding rehabilitation, the State Government would  try to make sure that similar kind of rehabilitation work is done, even where land is not acquired by the Government. Legally, the State Government may not be able to do, but it will definitely try and convince them that it is in the interest of the State and the population, that they should adopt similar measures.   However, Special Economic Zones Act does not have such a provision in this regard for the promoters and developers, who are purchasing land privately.

3.38  Regarding direct acquisition of land by the promoters, the Developer may acquire land independently from private parties by purchase, lease or otherwise under  clause (2) of Section-7 of Chapter III of Haryana SEZ Act, 2005.  All the land pertaining to SEZ was registerable by Tehsildar (Revenue). The State Government, thus, had control over promoters/developers purchasing the land directly from the land owners by mutual consent, to ensure good price of their land and the people are not forced to relinquish their land under compulsion.  Regarding employment  generation, no Special Economic Zone had become operational in Haryana, hence employment had not been generated so far.  However, SEZ developer have proposed potential of about 34 lakh of employment to be generated in the next five years, after setting up of 72 number of SEZs.

3.39  On the issue of implementation of labour laws in the State, he stated that the labour laws will be exactly the same, which are operated in the domestic tariff area.  The State Government is not going to change the labour laws for the Special Economic Zones. There would be the freedom to form a labour union and nobody can prevent from doing so.  It has been provided that a Labour Officer shall be posted within the Special Economic Zone, to make sure that the labour laws are followed therein.

3.40  On the issues of separate SEZ Act in the State, the process of land acquisition and the quantum of compensation to the farmers affected by acquisition of the land by the State, the State Government had notified Haryana Special Economic Zone Act, 2005 w. e. f 1st February, 2006.

3.41     Under clause (1) of Section-7 of Chapter-III, there was a provision that the Government may transfer the land owned, acquired or controlled by it to the developer, as per the provisions of the land Acquisition Act, 1894, and the rules made thereunder, and as per State Government Policy.  The State Government had divided the State in three regions for the purpose of compensation to the farmers affected by acquisition of land.  Minimum floor rates had been fixed for these regions as per details give below: -

 

The urbansiable area as shown in

the Gurgaon Development Plan

 

:

Rs. 15.00 lakh per acre.

Rest of the NCR Sub-Region of

Haryana including Panchkula

and periphery of Chandigarh forming

Part of Haryana State.

 

:

Rs. 12.50 lakh per acre

Rest of the State outside Haryana

Sub Region of NCR.

:

Rs. 5. 00 lakh per acre.

 

3.42  The above rates did not include solatium and interest as per Land acquisition Act.  The Committee, headed by the Divisional Commissioner, was the Competent Authority for calculating the market price of the land under acquisition. 

Maharashtra

3.43  The following number of SEZs had been approved in Maharashtra:-        

 

No.

Land in (H)

Inv. crores

Employment Nos.

Before Act

Multi product

 

 

02

13782.01

22000.00

275000

Formal approval

Multi product

Single product

47

02

45

 

9911.57

30735.16

803400

In principle

Multi product

Single product

 

23

10

13

18901.80

20546.21

769100

 

 

 

Recommended to BOA

Multi product

Single product

 

29

08

21

6907.65

19442.34

1044500

Existing SEZ

 

 

 

 

SEEPZ, Mumbai

01

42.49

538.69

84,600

 

3.44  Seven SEZs, out of the 47 formally approved SEZs, had been notified. The details thereof are as below:-

Notified SEZs 

1.    MIDC (Additional Latur)

2.    MIDC (Khushnur, nanded)

3.    MIDC (Shendre, Aurangabad)

4.    Serum Institute pune

5.    Eon Khardi Pune

6.    Royal Palm Mumbai

7.    Wipro Pune

Date

15/01/07

11/01/07

21/12/06

 

19/07/06

28/09/06

11/01/07

28/12/06

         

3.45  The State Government acquired land under Maharashtra Land Acquisition Act. Out of these 72 SEZs, State Government was acquiring 8257 hectares land under the said Act only for one SEZ i.e. Maha Mumbai SEZ. However, State Government agency i.e. Maharashtra Industrial Development Corporation, was acquiring 14538.62 hectare land for six SEZs, out of which five were being developed by MIDC, under Joint Venture with privet developers, on land measuring 12109 hectares.

3.46  The Developers were required to take prior permission for bona-fide industrial use under Bombay Tenancy Agriculture Land Act, for purchasing agriculture land.  Developers were purchasing the land by negotiations with landowners, on market-determined prices, on voluntary basis.  Most of the land purchased by the Developers was barren or single-crop.  Maharashtra Industrial Development Corporation had approved land-affected persons rehabilitation policy on 11th August, 2005. According to this policy, an affected person will get 15% of his acquisitioned land for his industrial venture, or 5% of his acquisitioned land for his commercial venture purpose, at 50% of prevailing premium rate.

3.47  Rehabilitation Committee in Maharashtra had already been constituted.  The Minister was the Chairman of the Committee, and Minister (Revenue), Minister (Irrigation), Minister (State Excise % Labour) were  members of the Committee.  The Secretary (Industries) was the Convener of the Committee.

3.48  Enactment of the State SEZ Act was pending for concurrence of the Government of India.  Objections/suggestions received from the Government of India were under scrutiny by the State Government.  No special provision had been made in the proposed State SEZ Act, for special process of land acquisition and quantum of compensation. However, Empowered Committee may facilitate infrastructure support, including acquisition of land, if necessary, from the State Government.    

3.49  At present, one Special Economic Zone (SEEPZ) was functioning in the State.  It had created 84,600 work force opportunities.  Development work was in planning and construction stage in respect of other five notified SEZs, and nearly 28,92,000 persons were likely to get employment opportunities in these SEZs in the next five years.

Tamil Nadu

3.50  The Special Secretary, Industries Department, Government of Tamil Nadu, informed that the main focus of the SEZ Policy, as far as Tamil Nadu was concerned, was to create more jobs and to capture a large share of FDI.  One of the key factors which had driven Tamil Nadu to look at the SEZ quite seriously is moving up in value and technology in general terms of manufacturing.  Tamil Nadu has a very strong manufacturing base.  However, it is not at the cutting edge, compared to many other countries.  The State looks at the SEZs as an opportunity to bring high technologies in manufacturing activities, which will be the future of the world, as well as a method to spread the benefits of investment, as many parts of the State are under-developed.  According to him, manufacturers are willing to set up industries in backward areas because of the SEZs, which offer them investment opportunities.  The State Government takes it as an opportunity to develop skills in various high technology competencies. 

3.51  Tamil Nadu had been one of the few States that had made early initiatives in this regard. Mahindra World City and Nanguneri SEZs were the earliest SEZs, to be promoted well before the Central Government’s SEZ Act. Tamil Nadu had four operational SEZs. Mahindra World City SEZ, Nokia SEZ, Flextronics SEZ and ETL IT SEZ were the four operational SEZs in the State.

3.52  The Tamil Nadu has got an SEZ Policy and an Act, which was enacted in 2005.  Basically, certain provisions of the Act are a reflection of the Central SEZ Act.  In Tamil Nadu, 44 SEZs have been approved.  Out of them, 30 SEZs are near Chennai, six are in Comibatore, three in Hosur, one in Perumbadur, one in Erode, one in Kanyakumari, one in Tirunalveli, and one in Thiruvannamalai.      Out of the 44 SEZs, 19 have in-principle approval and 25 have formal approval.  Nine  SEZs have been notified.  19 are IT/ITES SEZs, 19 are product-specific, and six are multi-product.  High-tech manufacturing companies like Nokia, Flextronics, DELL, Samsung, etc., have chosen Tamil Nadu, but for the SEZ policy.  These manufacturers give our employees hi-tech skills, which our SMEs or the Indian industry would never be able to impart, and the wage rates have also gone up.  Regarding lands for nine notified SEZs, some of them are in Government industrial estates, where land has been given on a 99-year lease.  Since the ownership still rests with the Government, the land can be reclaimed if there are violations or non-utilisation of the said land.  The rest of them have come up on private lands, which have been acquired by them directly.  The notified SEZs are:  Nokia at SriPerumbadur, TCS at Chennai, ETL Infrastructure Services Limited at Chennai, Hexaware Technologies at Chennai, Syntel International Limited at Chennai, Flextronics at Sriperumbudur, DLF at Chennai, Hi-Tech at Coimbatore and Shriram at Chennai.

3.53  Government of Tamil Nadu was attracting large number of foreign and domestic investments in general. The State had emerged as a preferred investment destination for electronics hardware industry, primarily because of the SEZ Policy. Mahindra World City SEZ has three Zones for IT/ITES, auto components, fashion products & apparel, providing employment for over 3000 persons. Large and prestigious companies like Nokia, Motorola, Foxconn and Flextronics were setting up facilities in Tamil Nadu. Nokia SEZ had already commenced operations, with an employment of 3700 persons. The Nokia SEZ was manufacturing 2.5 million handsets per month. It had plans to employ 7000 persons directly, and about 20,000 through its vendors, by the end of 2007. Flextronics had just commenced commercial productions, with about 1300 employees. Each of these anchor companies had attracted substantial investments from their vendors and component suppliers. For example, seven of Nokia’s vendors had started work on their projects within Nokia SEZ.

3.54  There was a notable multiplier effect arising from investments by major companies in SEZs. With companies like Nokia, largely employing local people, there was substantial employment generation. All these MNCs had brought in state-of-the-art and high technology in manufacturing, which was likely to attract further investments and lead to export competitiveness. The SEZ Policy, coupled with the proactive policy of the State Government, had led to creation of an electronic hardware manufacturing eco-systems, that may lead to further upstream in semiconductor fabs and downstream investments, such as infotronics.

3.55  Another key SEZ was the SIPCOT Hi-Tech SEZ at Sriperumbudur (notified and in the process of coming into operation), which had attracted investments from Foxconn, Motorola, Tessolve, DELL and Samsung. A major international company, such as Feng Tay of Taiwan, was also setting up a Footwear SEZ, with a proposed employment of 15,000 in five years in Tamil Nadu mainly becaue of the attractive SEZ Policy. Many other FDI investors, with SEZ projects involving substantial employment opportunities, were in the pipeline. As of today, 44 Special Economic Zones had been accorded either final or in-principle approval in the State by the Government of India, which are distributed in ten districts of the State.

3.56  The SEZs in the State would not be set up on cultivable land, and the guidelines prescribed by the Government of India for setting up of SEZs were being scrupulously followed by the State Government. The State Government was not acquiring any land for any privately promoted SEZs. Land acquisition was being considered  only for the SEZs which were promoted by State Government agencies like SIPCOT and TIDCO. Even in these cases, purchase through direct negotiation was resorted to, and acquisition was only a matter of last resort.

3.57  While acquiring lands, SIPCOT pays the compensation as fixed by the Land Acquisition Officer at the first instance and any enhanced compensation as awarded by the Civil Courts is paid as the final settlement.  A comprehensive Rehabilitation Policy is under preparation by the State Government.

 

West Bengal

3.58  The Resident Commissioner, representing the State Government of West Bengal, informed that before this Act came into being, three SEZs were already operational.  Presently, seven SEZs have been given formal approval.  These seven SEZs involve around 2,000 hectares of land.  Another 14 SEZs have been given in-principle approval, because they don't have land.  The total land, which would go into SEZs, will be around 15,000 hectares.  No land has yet been acquired by the State Government for SEZs.  As of now, the Government does not have any plans to do that.   It will be decided on a case-to-case basis.  Regarding SEZ in Nandigram, he submitted that it is in-principle approved SEZ, and the State Government is still in contact with the developer, because the State Government has joint venture with the latter.  It has not yet gone into any acquisition of the land area.   The State Government does not have any wasteland.   68 per cent of the land is agricultural; 20 per cent is where no agricultural activity has taken place, and 13 per cent is forested.  If one goes by that yardstick, the State won't be having any industry at all.

3.59  On the issue of setting up SEZs on a large number of unoperational or closed down industrial estates, he submitted that SEZs cannot come up on those lands.  According to him,  SEZ window has been opened by the Government of India and West Bengal would not like to miss that opportunity, and the State is taking best possible efforts in this regard.  The State has its own sets of problems, and it has also its own sets of solutions.  The State is devising rehabilitation policy, as well as the manner to acquire land in a peaceful manner.  According to him, Nandigram episode gave bad publicity and it has nothing to do with the field position.  The field situation is altogether different.  So far, the State Government has been acquiring land under the Land Acquisition Act.  It is trying in its own way to sweeten the rehabilitation package. 

3.60  The State Government has submitted a proposal to the Ministry of Commerce that instead of 1,000 acres, the minimum area for an SEZ should be 400 acres in case of West Bengal, because of acute shortage of land.   The State Government has suggested that 75 per cent should be the processing area and only 25 per cent should be available for commercial and residential activities.  The State does not have its own SEZ Act.

3.61  The West Bengal Government  did not furnish any general information on the functioning of SEZs in the State.  However, it made suggestions for changes in SEZ Rules  which are appended (at Appendix III).

 

Orissa

 

3.62  No SEZ has yet been set up in Orissa.  However, there is a proposal for setting up 13 SEZs, out of which 11 SEZs are sector-specific and 2 are multi-product.  Orissa Industrial Infrastructure Development Corporation (OIIDC/IDCO) has been declared as nodal agency for acquisition of land for establishment of SEZs in the State No land has specifically been acquired for establishment of SEZs.  However, a portion of the land acquired for establishment industries, has subsequently been proposed for the SEZs.  No Agricultural land has been acquired so far for establishment of SEZs in the State.  Rehabilitation and Re-settlement Policy of Government of Orissa, 2006 is being scrupulously followed in respect of land acquisition for SEZs. 

3.63  As per the R&R Policy of the State Government, the project proponent may opt for direct purchase of land on the basis of negotiated price, after issue of notification requiring acquisition of land under relevant Act(s).  If acquisition of land through direct purchase fails, other provisions of the relevant Act may be invoked.  However, R&R Policy of Government of Orissa is comprehensive enough to cater to the needs of the landowners, whose lands would be acquired. Moreover, Rules and Regulations of the Government of India are also being followed while acquiring land for SEZs.  Government keeps close watch not to acquire double-crop agricultural land for the purpose.

3.64  No separate SEZ Act or Rules have been formulated by the State  Government. However, SEZ Policy of Government of Orissa is at draft stage, awaiting Cabinet approval.

3.65  Consequent upon establishment of 13 SEZs, there is a possibility of generation of about 2,23,500 employment potential in the State. No litigation has been filed in the court of law for setting up of SEZs so far in the State.

CHAPTER IV

Written and Oral Submissions: Political Parties and Trade Unions

4.1    The Committee considered written submissions (Annexures I to IX) as well as oral evidence of the following political parties and trade unions, which are summarized below:

Shri A.B. Bardhan, General Secretary, CPI

4.2    There should be no transfer of land ownership to the private developer. Private developers should only be allowed to take land on lease or build the infrastructure on a BOT basis. The Board of Approval for SEZs at the Centre should only consider those proposals, which have been duly approved by the State Government.

4.3    The Central Government should set an appropriate ceiling on the total land area under a SEZ, which can be developed by a private entity. In Section 5(2) of the SEZ Rules only minimum land area requirements for different classes of SEZs have been mentioned. The maximum land area also needs to be specified. Private entities should not be allowed possession or control of land beyond the stipulated ceiling.

4.4    SEZs, whose land area exceeds the specified ceiling, should only be developed by the States (Public Enterprises of the Central or State Governments). The States can undertake Joint Ventures in developing such SEZs; but in such cases majority stake should lie with the public sector.

4.5    SEZs should be built on non-agricultural land and acquisition of agricultural land for the purpose of SEZs should be discouraged. A provision limiting the acquisition of agricultural land should be built into the SEZ Act itself.

4.6    It is important to ensure the livelihood security of the displaced families, in addition to providing adequate compensation. The Government should frame a National Rehabilitation Policy, preferably through a Central legislation, in order to address the issues concerning rehabilitation of displaced families. Suitable amendments should also be made to the Land Acquisition Act in order to address these issues.

4.7    A model compensation and rehabilitation criteria should be framed by the Central Government and included in the SEZ Rules, following consultation with the State Governments. The owners of land be awarded compensation, in line with market prices, taking into account the expectation of future land development. Displaced families be given minor equity stakes in the companies floated for the purpose of building SEZs,  compensate those with long-term tenancy rights on the acquired land and farm labourers.

4.8    The Government should urgently address the issue of unblocking and recycling of land and other assets of closed industrial units under liquidation. A fast track mechanism should be set up, for unblocking the land of these closed units, so that they can be made available for building SEZs or other industries.

4.9    A cap on the total number of SEZs, irrespective of their class and size, should be there. If several large SEZs, developed by private entities, are allowed to come up in a few States, while many States do not receive any proposal from private developers, this would only aggravate regional imbalances. There was an apprehension of existing units shifting over to SEZs, which would result in loss of revenue that presently accrues to the Government. There should also be separate caps for the total number of multi-product and sector specific SEZs. The Central Government should consider setting up of SEZs through public investment in those States, where private investment is not forthcoming. A cap on the number of IT SEZs should also be set, keeping in mind the revenue considerations.

4.10  The processing area of SEZs should not be less than 50%. Further, 25% of the non-processing area should be dedicated for infrastructure development. Building of residential and commercial complexes should be permitted over 25% of the total land area.

4.11  The Land Use within SEZ Area should also be regulated. There was a need to regulate real estate development within the SEZs.

4.12  The SEZ Rules should contain a Land Use Plan for the giant SEZs. The issue of housing facilities for workers in the giant SEZs should be concretely addressed. Wherever residential complexes would be permitted within the SEZs, they should be built not only for the management and the white-collared employees, but also for the workers.

4.13  Fiscal incentives for new units should not be for more than two years, as was done in the case of Chinese SEZs. Income tax concessions for a period longer than two years should only be provided for the reinvested portion of profits, and that too only for a maximum of five years.

4.14  The developers and the entrepreneurs should not be treated on par as far as tax exemptions and concessions are concerned. Fiscal incentives for developers, if they have to be provided at all, should be separately specified and should be considerably lesser than the ones provided for the entrepreneurs for income tax as well as customs and excise duties.

4.15  The exemptions, which are unrelated to exports, should not be granted;

4.16  The SEZ Rules have imposed the granting of tax and duty concessions upon the State Governments, which is not in keeping with the spirit of the Act. Either this rule has to be amended, or the Central Government should fully compensate the State Governments on the loss of revenue on account of these tax and duty exemptions.

4.17  The granting of duty concessions to goods sold by a Unit to the Domestic Tariff Area should not be permitted, This will imply major diversion of productive activities away from the Domestic Tariff Area to the SEZ, with substantial revenue loss for both the Central and State Governments.

4.18  Separation of powers between the Development Commissioner of an Export Processing Zone and the Grievance Redressal Officer should be considered.

4.19  There was no need for providing tax breaks for the financial entities within the SEZs. All financial activities should be within the regulatory ambit of the RBI, and subject to the same tax provisions, regardless of whether their offices are physically located within the SEZ or the Domestic Tariff Area. The RBI needed to ensure that the financial activities permitted within the SEZs are strictly related to the economic activities within the Zone.

4.20  The Government should initiate a review of the SEZ Act at the earliest, with a view of making appropriate amendment. The Board of Approval should stop granting fresh approvals, until completion of the review process. The changes suggested in the Land Acquisition Act and the formulation of a National Rehabilitation Policy, preferably through the passage of a Central legislation, should also be considered on an urgent basis. 

 

Shri Prakash Karat, General Secretary CPI (M)

4.21  It has become necessary to bring about appropriate amendments to the SEZ Act and Rules thereunder.

4.22  Granting en masse approvals for the setting up of SEZs in a few States would eventually lead to this situation.

4.23  The apprehension of industrial projects in the pipeline being converted into SEZ projects overnight, has actually come true. The approval for most of these SEZs needs to be reconsidered.

4.24  Imbalances should not be allowed to develop between States in terms of the number of SEZs permitted. The Central Government should consider setting up of SEZs through public investment in those States, where private investment is either not forthcoming or demands too many subsidies and concessions.

4.25  There can be no justification for acquisition of land by the state Governments in order to build SEZs, unless it is in keeping with a Land-use policy and planning laws.  Land acquisition by the State Governments should be in consonance with their optimal land use plans, based on principles of equity, sustainability, food security, and balanced economic development.  Any land acquisition by the State must also be for public good.  The land use, after acquisition must, be equitable and plan for all sections of society. State Governments should also be encouraged to frame/update their Land-use policy.

4.26  The Land Acquisition Act, which was enacted during the colonial period, is a misfit in the current Indian setting and needs to be amended, in order to make it congruent with an independent and democratic State.  This has to be done by properly defining ‘public purpose’ and making the eminent domain accountable and open to  public scrutiny. Besides, a National Rehabilitation Act needs to be adopted by the Central Government, so that the displaced people are legally entitled to a share of the development,  that causes displacement. Compensation and Rehabilitation must be integrated into project planning and implemented in a time-bound manner, in order to avoid the adverse socio-economic impact of land acquisition and land use changes.

4.27  The disproportionately large number of proposals for IT SEZs clearly shows an attempt by new IT units to avail the benefit of the ten years’ tax break under the SEZ Act, which otherwise cannot be availed by the IT companies beyond 2009. The idea of having small SEZs in sectors like IT should be dropped. Projects below a minimum land area should not be granted approval as a SEZ. A minimum land requirement of 100 hectares for sector-specific SEZs and 400 hectares for multi-product SEZ should be considered.

4.28  The justification for having separate minimum processing area requirements for multi product and sector specific SEZs is difficult to understand. If both types of SEZs are primarily meant for industrial development, they should not have separate minimum processing area requirements. The processing area of SEZs should not be less than 50%. Further, 25% of the non-processing area should be dedicated for infrastructure development like roads, and for trading or warehousing purposes. Building of residential and commercial complexes should be permitted only within 25% of the total land area.

4.29  Tax concessions in some of the areas in Chapter VI of the SEZ Act, under the "Special Fiscal Provisions for Special Economic Zones" need to be reconsidered.

4.30  The SEZ Authorities should be strictly under the control of the Government and no State Government should be allowed to deviate from this position. Provisions for democratic representation within the SEZ Authority should be made, especially since the Authority will also be responsible for the provisions of civic amenities like power and water supply within the SEZ Area.  Suitable amendments have to be made in the SEZ Act to address the concerns related to the democratic character of the SEZ Authority, the powers and accountability of the Development Commissioner and whether the Central or State Governments would have the powers to exempt SEZs from the laws of the land, especially those related to labour and crime.

 

Bhartiya Janata Party

 

4.31  The minimum area of the processing zone in an SEZ should be raised from the present 35% of the total area of the SEZ to 60%. “justification in permitting more than 40 percent of the total area for “non-processing” utilization in any category of SEZs”.            No fertile and irrigated agricultural land should be acquired for SEZs.

4.32  Considerations of equity for farmers, farm workers and allied rural workers cannot be sacrificed for the benefit of promoters of SEZs and the businesses operating in them.

4.33  State Governments must prescribe minimum prices for land in various areas, which should be high enough to reflect the opportunity prices of land. Instead of the State Governments using their coercive power of compulsory acquisition, SEZ developers should be required to obtain land from the farmers through direct purchases, but at prices higher than the minimum as suggested above.

4.34  The farmers should get benefit from substantial value-appreciation of their land after it has been developed. A minimum of 15 percent of the area in the processing and the residential/commercial parts in the non-processing zone should go back to the farmers, on a pro-rata basis.  Where feasible, farmers should be allotted equity shares in the developer companies.

4.35  In addition to suitable financial compensation, the displaced farm labour and allied eligible workers should be given preference in employment either by the SEZ developer or in the business units in the SEZ. For this, every SEZ developer must be required to set up a training institution.

4.36  Each SEZ proposal must include a plan for rehabilitation of the people who would be displaced from their traditional employment and livelihoods. The Development Commissioner of the SEZ should be enjoined to oversee implementation of the rehabilitation plan.

4.37  Every SEZ developer must be required to prepare a redevelopment plan for the village abadis falling within the SEZ limits and to execute that plan at his cost.

4.38  Tax incentives for business units in the processing zone of an SEZ should not be made available in the non-processing zone.

4.39  There should be level playing field for the Domestic Trade Areas (DTAs). Business in the DTAs should not be put to a disadvantage because of the incentives available to those in SEZs. There should also be no scope for abuse of benefits available in SEZs for scale of goods and services in DTA.

4.40  There should be special incentives for SEZs established closer to small towns.

4.41  The tax exemptions currently available to IT and ITES units upto 2009 should be extended immediately for a further period of 10 years. This decision must be announced, so that uncertainty on this issue, which has led many IT companies to consider relocation to SEZs, is put to an end.

4.42  The Union Government, in collaboration with State Governments, should evolve a New Township Development Policy, with suitable rules. Stronger incentives (fiscal and non-fiscal) should be provided for new townships located away from the existing metros and big cities. There should be adequate provision of housing, affordable means of mass transport, and access to basic social infrastructure amenities for people in the low-income category.

4.43  There should be independent regulatory authority to deal with the issues related to the SEZs.

4.44  There should be clear guidelines to protect worker’ rights and promote their welfare, as well as for environmental protection.

 

All India Kisan Sabha

4.45  The proliferation of SEZ proposals. within a period of few months, has given rise to concerns related to large-scale acquisition of fertile farmlands, massive displacement, enormous loss of tax revenue and gross misuse for real estate purposes. appropriate changes have to be brought in the SEZ Act and the SEZ Rules.

4.46     Detailed land-use maps should be prepared by the State Governments before embarking upon land acquisition. Every State should constitute a land Zonation team, consisting of soil scientists, agronomists and remote sensing specialists, to earmark soils with a low biological potential for farming, such as waste lands, lands affected by salinity, acidity, etc., for industrial activities and construction. The impact of such activities with respect to fragile or endangered ecological zones should be examined in detail and adequate safeguard measures should be taken. Acquisition of land for industrial projects should avoid fertile farmland and displacement as far as possible. Wherever acquisition of agricultural land was unavoidable, the responsibility of securing adequate compensation and proper rehabilitation for people displaced by SEZs and ensuring their livelihood security has to be shared by the Central Government. The Land Acquisition Act, which was enacted during the colonial period, needs to be amended in order to make it congruent with an independent and democratic State. Besides, a National Rehabilitation Policy needs to be adopted by the Central Government.

4.47     There should be no transfer of land ownership to the private developer. Private developers should only be allowed to take land on lease.

4.48  The Central Government should set an appropriate ceiling on the total land area under a SEZ, which can be developed by a private entity. SEZ Rules only specify minimum land area requirements for  different classes of SEZs. The maximum land area also needs to be specified.

4.49  SEZs, whose land area exceeds the specified ceiling, should be developed by the State only (Public Enterprises of the Central or State Governments). The State can undertake Joint Ventures in developing such SEZs; but in such cases majority stake should lie with the public sector.

4.50  A provision limiting the acquisition of multi-crop agricultural land should be built into the SEZ Act itself.

4.51  A model compensation and rehabilitation criteria should be framed by the Central Government, and included in the SEZ Rules, following consultations with the State Governments.

4.52  The model compensation and rehabilitation criteria for SEZs should ensure that the current owners of land are awarded compensation in line with market prices taking into account the expectation of future land development.

4.53  A provision must also be made to compensate sharecroppers as well as agricultural workers. The Central Government should share responsibility for implementation of the model compensation and rehabilitation criteria.

4.54  There should be separate caps for the total number of multi-product and sector-specific SEZs. Further categorization of SEZs into small, medium and big may also be considered with appropriate caps for the different categories. Transparent and stringent criteria should be set for granting approvals for SEZs. Imbalances should not be allowed to develop between States, in terms of the number of SEZs permitted.

4.55  A decision regarding extension of the tax or other benefits to the IT sector, or any other sector which contributes to exports, should be taken separately. Projects below a minimum land area should not be granted approval as a SEZ. The minimum land requirement for a sector-specific SEZ of 100 hectares, as specified in the SEZ Rules, can provide an appropriate basis.

4.56  The processing area of SEZs should not be less than 50%. Further, 25% of the non-processing area should be dedicated for infrastructure development. Building of residential and commercial complexes should be permitted only within 25% of the total land area. Besides revising the minimum processing area requirement for multi-product SEZs to 50%, there is also a need to lay down regulatory parameters for real estate development within the SEZs. The SEZ Rules should contain a Land Use Plan for the SEZs, which would ensure that housing or other commercial complexes constructed within the SEZs do not exceed the supportive infrastructural needs of industrial units in the processing areas.

4.57  Providing 100% exemption from income tax on profits for the first five years and 50% for the next five years which has been done in the SEZ Act, is clearly excessive. Income tax concessions for a period longer than two years should only be provided for the reinvested portion of profits, and that too only for a maximum of five years.

4.58  The SEZ Act provides for similar exemptions, drawbacks and concessions for the entrepreneurs setting up units within the SEZ and the developers of the SEZ. Fiscal incentives for developers, if they have to be provided at all, should be separately specified and should be considerably lesser than the ones provided for the entrepreneurs, for income tax as well as customs and excise duties.

4.59  The SEZ Rules have imposed the granting of tax and duty concessions upon the State Governments, Either this rule has to be amended, or the Central Government should compensate the State Governments on the loss of revenue on account of these tax and duty exemptions.

4.60  The exemptions, which are unrelated to exports, should not be granted.

4.61  There has been an attempt to dilute labour laws while framing the SEZ Rules. Deviations of the SEZ Rules, as well as the Model SEZ Act for State Governments, from the SEZ Act, have to be corrected to ensure that no dilution of labour laws occurs. The ILO recommendation regarding separation of powers between the Development Commissioner of an Export Processing Zone and the Grievance Redressal Officer should also be seriously considered.  

 

Centre of Indian Trade Union (CITU)

4.62  Implication of some of the rules goes far beyond the concept of a minimum regulated fiscal regime to a   self-contained Privatised Autonomous Entity, independent of the laws of the land.

4.63  There is no ceiling, either on the land or on the number of SEZs within a State. Rules should specify upper ceiling on the contiguous area, based on the type of products I services intended to be produced I carried out.

4.64  Rules should be so framed that at least 50% of the land is kept reserved for processing zone and the remaining land to be utilized for infrastructural development, specifically related to export production, thereby prohibiting the Developers I Co-Developers to go in for real estate business (also for catering to the domestic economy) in the non-processing area.

4.65  The rules should specify that land given to the Developers will be of lease hold nature only.

4.66 In order to avoid social unrest, there must be specific provisions in the Rules with regard to Modalities of acquisition of land and grant of compensation and rehabilitation package for the land losers and agricultural workers.

4.67 The Act does not touch on the labour-related issues, which are being governed by the existing labour laws of the land under designated agency as per the relevant Act. Further, Rule 5(5)(e), (f) and (g) calls upon the State Government to endeavor to delegate power to Development Commissioner under 10 Act, 1947 (No14 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. 

4.68  The aforementioned provisions in the rules, tinkering into and/or intruding upon the normal process of labour administration, militate against the spirit in which Parliament deliberated and decided on the issue.

4.69  With regard to transfer of power of State Labour Commissioner to Development Commissioner, such a rule, without a legislative backing, is totally untenable.

4.70  No such back-door vesting of powers to Development Commissioner through a Rule will be acceptable to the trade union movement of the country. Clauses 5(e), (1) and (g) of Rule 5 should be fully deleted from the Rules.

4.71  The rules should be so framed that powers of Development Commissioner are limited to the functions, for which he is deputed and his accountability should be clearly defined. Such unbridled power, without accountability, would be utilized 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.

4.72  The cost-benefit analysis has to be worked out and a set parameter fixed, based on which performance of each SEZ has to be assessed. 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, Rule 53 should be suitably amended, based on cost-benefit analysis.

4.73  None of the labour laws, including those on formation and activities of trade unions, are ever implemented in the industrial units/establishments in the EPZs

4.74  There should be no difference between the SEZ and non-SEZ areas in respect of applicability of Labour Laws. There cannot be any special dispensation for the employers in the SEZ-based units in respect of applicability of labour laws, as would legitimize the ongoing labour-law violations in the EPZs/SEZs. Special measures for both inspection (including joint inspection with Centra! Trade Union representatives) by impartial agency and enforcement of all the labour laws within the SEZ should be statutorily put in place.

 

Dr. Kirit Somaiya, Ex-M.P and Convenor, BJP Investors’ Cell  

4.75  Healthy implementation of the policy needed minimum dilution, deviation to avoid distortion.

4.76  There should be more concessions for SEZs in Backward Areas, compared to the ones in most developed areas and metro cities. Cost of Land should be cheaper. However, the great rush for Mumbai-Navi Mumbai, Delhi-Gurgaon for setting up of SEZs, suggests different trend.

4.77  There is a need for healthy, transparent and effective implementation of SEZ concept in India. Direct/indirect taxes provisions should be corrected, and loopholes should be plugged. Tax benefits should be only for export activities and infrastructure development.

4.78  Commerce Ministry and Finance Ministry should separately study the concept, provisions, and benefits to private entrepreneurs of different countries. It is an Illegal, non-scientific provision to have 75% area as non-processing Zone. The 75% non-processing zone demand/idea seems to be given/promoted by the SEZ developers of Navi Mumbai and Gurgaon, which will have negative impact on the farmers, due to manipulative acquisition/purchase of agricultural land for housing, hotels, medical, education, industries. Minimum 50%  to 60% area should be earmarked as processing zone in a Multi-sector SEZ. Activities in non-processing zone should be codified. No tax benefit for non-export/service sector business activities should be given. Strict provisions to restrict/limit housing, hotels, malls, education, medical should be made, and no tax benefits should be given for such activities.

4.79  National Policy on compensation and rehabilitation should be formed, wherein provisions of annuity and share in developed land, provision of one house and employment to one person of the project affected family be made mandatory.

4.80  Undue benefits to SEZ developers-cum-unit holders would affect competitiveness in the domestic industries. Tax/stamp duty/land price shall make the project cost 40% to 50% cheaper in SEZs, which will have negative impact on the domestic industries, employment, etc. In future domestic industries will demand same relaxations/benefits. There should be Level playing field for domestic industry.

4.81  The size of mega SEZs should be curtailed and an entrepreneur should be given permission for one or two SEZs.

4.82  The tax Exemptions should only be for Bonded Area i.e. processing zones. Non-processing Zones are as good as DTA (no separate boundary-fencing-gates-excise barriers/gates).

4.83  There should be transparent decision-making process. Ambiguity, loopholes regarding provisions for 25% to 35% processing zones/taxes/land acquisition/compensation/market price, should be removed.    Commerce Ministry, CBDT, CBEC should review all the provisions, correct the language, plug the loopholes and illogical provisions.

 

Bhartiya Mazdoor Sangh (BMS)

4.84  Developing the SEZs was against the interest of the farmers, labourers and the common man. The land of crisis-ridden tiller was being sold for pittance to the industrialists, to be converted into real Estate. The Government should establish a Regulatory Authority to reconsider the whole issue. Moreover, waste and barren land should be put to use for such purposes, instead of fertile and productive farmland. The  Government should permit Trade Unions to function in SEZs, so as to prevent exploitation of labour. 75% of the land should be used for setting up the industry, and 25% for other commercial activities.

Hind Mazdoor Sabha (HMS)

4.85  The important areas of concern were rehabilitation of Farmers and Agriculture Labour to be displaced from a huge mass of land.

4.86 The revenue loss due to Tax sops to these SEZs was unimaginable and non-recoupable.        Hind Mazdoor Sabha (HMS) was strongly opposed to exempting SEZs from the labour laws. All the labour laws and other laws of the land, must be made applicable and enforceable in SEZs. HMS totally rejected the idea of creating 'foreign enclaves' in the country, by exempting them from labour and other laws of the country. It was also opposed to the transfer of powers of Labour Commissioners to the Development Commissioners of the SEZs.

4.87 AII the Trade Union rights, including Right to organise and Collective Bargaining in SEZs, and all the legal protections viz. Job Security; Income Security; Social Security; Good Working Conditions; Medical Care; Education facilities etc., and participation of workers in Management, should be made available to the workers in SEZs.

         

All India Trade Union Congress (AITUC)

4.88  Land acquisition for setting up of Special Economic Zones under the Special Economic Zones Act, 2005 had become a highly controversial matter in the country.  A National Commission should be appointed by the Central Government to comprehensively review the entire Act, and the concept behind it, in consultation with the Central Trade Unions and other affected parties, in order to ensure that the rights of the workers, farmers, including rural labour and others involved, are fully protected.

4.89  AITUC was against creation of unlimited number of Special Economic Zones. Their number should be the barest minimum, and there should be a cap on the total number of Special Economic Zones in a State. If all the 300 Special Economic Zones proposed to be set up were created, it would not only affect the agriculture adversely, but also food the security, and will undermine the availability of resources for development. It would also result in regional imbalance and locational disparities. It would expose the workforce to the whims and mercies of entrepreneurs. The country needs a balanced economic growth, social justice, for amelioration of human distress, and not creating independent entities .of prosperity at select places, for generating super profits for the corporates.

4.90  AITUC industrialisation should not be made contingent upon creation of Special Economic Zones.

4.91  Land ownership should not be transferred to the corporates. The title of the land should be in the name of the Government. Farmers should not be compelled to surrender their land, and as far as possible, only wasteland or fallow/barren land should be utilised for Special Economic Zones. The land acquisition should be totally transparent, and made public, before acquisition of the land. Private Corporates should be given limited land for SEZs, half of which should statutorily be used for development of Processing Area and the other half for the development of infrastructure. AITUC was against State Government offering land, many times more than what was actually required, for setting up of a Processing Area. AITUC rejected the idea that Special Economic Zones would generate employment. The number of farmers and the rural workers, who would get dispossessed by  acquisition of land by corporates, would be more than the number who may get employment. It demanded not only full and generous compensation to the dispossessed, but also a provision in the SEZ Act for providing jobs to those affected by the acquisition, including the farm labour. Larger SEZ should be given to public sector undertakings for development and industrialisation. Activities connected with the development of real estate and Malls in the SEZs should be curbed. Before acquiring agricultural land, land belonging to closed industrial units should be used for SEZs.

4.92  The massive tax concessions to corporates for creation of SEZs would increase the burden of taxation on the common people. Once given the status of SEZ, private industries would simply reap the benefits of all the leverages provided by the Government, the most critical being land acquisition in the name of public purpose.

4.93  The definition of the economic activity in the SEZ Act was very opaque and gives free hand to any activity - service, packaging, entertainment, hotels, golf courses, etc. The disproportionate growth, as a result of SEZs, would adversely hit small-scale industries, manufactures and entrepreneurs in the long run. There was no justification for huge and massive concessions to corporates. It will only add to their super profit, at the cost of fulfillment of more urgent tasks and commitments made in the National Common Minimum Programme, like enactment of a comprehensive law for the workers of the unorganized and agricultural sectors. The SEZs would become foreign enclaves which would encroach upon the rights of the local self Government like Gram Panchayats', and would be violative of the 73rd Constitutional Amendment.

4.94  SEZs would  snatch the sovereignty of locals from their lands and the natural resources, which was the backbone of local economy and sustenance, and also their fundamental right to movement as Indian citizens is being violated. The fact that the SEZs would have their own regulations, the rights for environmental and labour related clearances, security arrangements will actually mean that they would be self-contained privatized autonomous entities.  This was against the Indian Constitution and the nationhood.

4.95  Though under Section 49 of SEZ Act, matter relating to trade unions, industrial and labour disputes, welfare of labour, including conditions of work, provident funds and employers liability towards workers were applicable, handing over of powers of enforcement and ensuring applicability to Development Commissioners negate the same, as they are not accountable to either the appropriate Government specified in various Acts or to the trade unions. Trade Unions were not allowed to be formed in SEZs and no statutory mechanism had been provided to ensure applicability of various labour laws.

4.96  AITUC was firmly and strongly opposed to exempting SEZs from labour laws. All labour laws and other laws of the land must be made applicable and enforceable in SEZs. It totally rejected the idea of creating foreign enclaves by exempting them from labour and other laws of the country. AITUC is also opposed to the transfer of powers of Labour Commissioners to the Development Commissioner provided under the Rules.

4.97  A National Commission be set up to review the SEZ Act and the concept behind it.

4.98  No transfer of land ownership to private developers. All efforts should be made to locate and identify the barren, fallow and wasteland, for setting up industries under the SEZ Act. The States should help to develop infrastructure in such areas.

4.99  Appropriate ceiling on land area under a SEZ developed by private developer, and bigger SEZ should be built by the Public Sector. The current pattern of usage of land in SEZs needs to be thoroughly reversed, to curb the chances of building mafias and real estate dealers' mischief.

4.100         Limiting of acquisition of agricultural land should be ensured. Acquisition of multi crop lands should not be allowed.

4.101         National rehabilitation policy should be formulated. SEZ should not be allowed to become foreign enclaves. All laws, including labour laws, be made applicable in such zones and powers given to Development Commissioners in the matter of labour laws should be withdrawn.

4.102         Framing a model compensation and rehabilitation policy that should cover all affected people, including farm labour, apart from the land-­owning farmers.

4.103         Before opting for agriculture land for industrialisation, all possibilities of recycling the land,  blocked in closed units, be explored.

 

 


 CHAPTER V

Written and Oral Submissions: Developers, Entrepreneurs and NGOs

5.1    The Committee considered written submissions as well as oral evidence of the following Developers, Entrepreneurs and NGOs, which are summarized as below:

 

Infosys

5.2    Sec 10 AA of the Income Tax Act, has been initiated by the SEZ Act 2005, wherein all units in SEZ are eligible for a tax exemption based on the following formula:

Profits of the Undertaking X Export Turnover

                            Total Turnover

 

5.3    The Export Turnover in this formula disallows expenses, if any, incurred in foreign exchange in rendering of specified services ( including computer software) outside India.  The manner in which Sec 10AA is drafted completely dilutes the tax benefit intended to be given for industries set up under the SEZ Act. The formula is faulty as:

5.4    It defines Export Turnover to exclude expenses incurred in foreign exchange. 'Turnover' refers to Gross proceeds received or value of sales made by an exporter. Expenses being debited to P&L account should not be normally reduced from the Export Turnover.   Though it defines Export Turnover, it does not talk about Total Turnover. By matching Principle, if any such reduction is defined in the numerator (export turnover), a similar reduction should be used for the denominator (total turnover) as well.

5.5    This section primarily discriminates Manufacturing Industry with that of Service Industry. There is no such disallowance for Manufacturing Industry and even they do incur foreign exchange expenses for import of raw materials. Similarly, Service Industry spends in foreign exchange during the course of delivery of services ( or software) outside India. This is in line with the spending of foreign exchange by the Manufacturing Industries.   Therefore, the definition of Export Turnover in the Act be amended accordingly, and equal treatment Service sector be given.

5.6    Section 26 (e) and Rule 31 talk about exemption from payment of Service Tax on taxable services rendered to a Developer or a Unit, by any service provider, provided the same is related to authorised operations. This clause has been suitably amended at the Draft Rules stage, to remove the doubts from the mind that irrespective of the location where the service is rendered, so long as the relativity to authorized operations has been established, service tax exemption is allowed. According to the Ministry of Finance, services consumed within the zone alone are allowed. Lack of clarity on the above is acting as a hindrance to our day to day operations.

5.7    All Duties and Tax benefits as envisaged in Sec 26 of the SEZ Act, apply to a Unit under construction too. However, where the Units or the Developers get the respective approvals at a later date or when the notification is passed with a retrospective date, there exists no provision to claim refund of taxes or duties incurred by the Unit/Developer from the date when the notification is passed, till the date when the units get the actual exemption forms approved by the authorities designated in this regard.

5.8    Under Rule 10, in relation to procurement of duty free items, there is a proviso, which talks about giving duty benefits to the Developer or Co-developer and also to the contractor, appointed by such Developer or Co-developer. There are no forms prescribed for passing on the benefits to the contractor and the field officers are not accepting for giving the tax benefits to the contractor. In effect, the Contractor has to incur out of his pocket and then claim refund or adjust with his payables to the Department.

5.9   Procedure and treatment relating to scrap emanating out of construction materials procured duty free may be clearly explained by the Rules.

5.10  The main objective of SEZ being employment generation, the Centre and the States should enable units to achieve this objective by relaxing the stringent labour laws of the country. Tedious ledgers and minimum wages requirements act as an hindrance in achieving the objective.  Moreover, The SEZ Rules, 2006 envisage delegation of powers to the Jurisdictional Development Commissioner of the Zone. This would ease out the impediments and ensure a smooth functioning of SEZs.

5.11  Private SEZs in Tamil Nadu were suffering for want of an In-house Customs, in charge at the Gate round the clock. The Zone has become operational more than a year but without the Customs Staff at the Gate.

Once the Zone gets notified, adequate powers to be given to the Board of Approval to sanction necessary Budgets, for successful operation of the Zones.

WIPRO

5.12  The representatives of WIPRO Ltd. informed that WIPRO, an IT company, has so far done quite well in the SEZ.  It is already operating in about five SEZs, situated in Bangalore, Pune, Kolkata, and Hyderabad. It has one approval pending with the Department for an SEZ at Greater Noida.

5.13  With regard to a query as to why the IT sector needed an SEZ, since that Sector had all the benefits and all the exemptions, even when there was no SEZ, he replied that the STPI has given opportunity for making good export turnover for the country.   But the STPI tenure is getting over in 2009.  Presently, Indian IT industry is in the midst of capturing bigger market in the world.  So far, the Indian IT industry is US-driven; though some European companies are also there.  SEZs will certainly provide a competitive edge in high value bid in the world.  There are some procedural issues in STPI and SEZ.  In terms of administration and procedural points of view, it proved quite a support to the industry.  But the procedural issue is in terms of taxation, where the industry often seeks refund after having paid the duty. It is not there at all in SEZs.  Hence, procedures are more simplified.  The SEZ Act is quite comprehensive.  It is not sector-specific.  It gives weightage to all, whether it is industry, service and manufacturing.  So, it makes sense to go alongwith the global trade policy.

5.14  On a query on opting for the SEZ, instead of STPI, by the IT industry he stated that it is going over by 2009, and if it is extended, the IT industry will be happy to continue with it.  As regards how much land was required for a viable unit, he stated that it depends on certain parameters. Going by the international standard of IT services, space requirement for one person is about 100 sq. feet of area, which includes all the ancillary units, processing as well as non-processing.  Going by that parameter, we will generally employ 5000-10,000 people in the next five years.  Therefore, ten to fifteen acres of area is required. 

5.15  With regard to the query as to whether WIPRO had any problems with the Act or the Rules, he stated that it is quite a comprehensive Act and they were quite happy with it.  For ensuring security and whether the SEZ complex was secured enough, he stated that in Kolkata, the Company had employed about three thousand people. So far, it has not come across any incident which could be alarming or which could have posed a problem.  The State Government has been able to provide extra support, as far as security is concerned.

5.16  With regard to recruitment policy he submitted that there are certain lapses.  For recruitment, campus interviews is the norm.  The Company has started to accommodate people who are not engineers, like people from ITIs and others, so that those people come forward and participate in the IT development of the country.  Training is predominant and a key part, and the company is working in league with the universities. 

5.17  With regard to work done in the field of social responsibility clause, he submitted that the Company has started many initiatives in education, especially for the primary schools, in villages. It has set up a Foundation called Azim Premji Foundation for Education, which is not a part of WIPRO.  It was a personal initiative of Mr. Premji, where about 200 plus people from WIPRO are working, to promote the cause of primary education in 14 States.

5.18  There was no union of employees. Employees were quite happy and the issues of unsatisfactory attitude and growth of an employee come from their perks. It is a specialised industry and we have lot of exposure. There is a need to keep training these people, almost on a quarterly basis. No employee in WIPRO today gets the benefit of growth or promotion, unless he attends some training programme.  No employee is also eligible for further projects, travelling, etc., unless he has accomplished certain targets and acquired certain skills. We do not want a person to stick to one task. We move people across various tasks. With regard to the working-hours schedule in the BPO industry, he informed that it is a 24Χ7 job. Generally, when America wakes, we sleep and when we are working, they are sleeping. However, there is eight hours’ working shift in the BPO sector, depending upon the State laws. The laws vary from State to State. All State laws, including labour laws, are followed.

 

 Reliance Industries Ltd.

5.19  The SEZ Act- 2005 is visionary and is focused on India’s strong integration into the global economy, and it is visible by the large serious investments into SEZ development. It is important to maintain the SEZ Act’s global manufacturing services objectives. Government have several other policies/instruments for other types of industrialization in backward areas, domestic manufacturing/services/development, etc., which should not be confused with SEZs.  Pragmatic SEZ Rules regime towards that focus is needed. 

5.20  The infrastructures, not the real estate size/acrages, should be the defining features of SEZs.  Besides infrastructures, SEZs also generate long-term higher unskilled employment. RIL’s multi-product SEZs go well beyond Utilities, with additional mega-infrastructures for the entire Region’s overall development.

5.21  SEZ land acquisition privately, at market prices, optimizes returns At least the transaction cost goes directly to the farmers.  State acquisition can be for only the balance contiguity areas, as in Haryana. Further, early R&R clarity will ease land consolidation processes for all stakeholders, eg. Gujarat has a Rehab cess, even on barren land without any habitation. Developers value local support and want proper R&R.

5.22  Quality world-class workplaces, instead of industrial ghettos, should be encouraged at the SEZs.  Over-large processing areas, beyond the present 35% limit, is counter-productive, as 65% non-processing areas are essential to provide matching housing and other living services, to make Indian SEZs globally successful.

5.23  Current SEZ contiguity rules insist on the physical land integration.  It is more pragmatic to have a operating contiguity, without disturbing the existing connectivity of roads, rail, power lines, etc.  An operating contiguity is then possible with secured bridges/flyovers/ underpasses, etc., which SEZs Developers will execute, to integrate their area.

5.24  Reliance Stands committed to rehabilitation as per the existing and the applicable State R&R policy, parallel to land acquisition at all three locations.   The early initiatives of the company target specific schemes to strengthen school education, women-child health and skills-training towards full employment.

5.25  The representative of the Reliance Industries informed that the Reliance Group has got four SEZs, which were at land acquisition and planning stage. Whether any formal or in-principle approval for SEZs under the Group had been given, he stated that Jamnagar is at the additional notification stage, where they have been given notification for 1100 acres, and are awaiting notification for the balance 1924 acres.  This is an SEZ which is being planned with a major infrastructure of the port expansion. It is planned to have almost three single bio jets, a cargo terminal, a container terminal, and a solid cargo container also. With regard to Navi Mumbai SEZ, 1100 acres had been transferred in a joint venture, and the balance was being processed through private acquisition. At Jamnagar SEZ, the entire land is barren area, and almost 70 per cent of it is privately acquired. Acquisition of land for Maha Mumbai SEZ is being done by a private channel. A major port is being planned. A minor port has been allotted to the company, to develop it as a major port. There is also a major transharbour road link, which is coming across Bombay. All SEZs are inclusive of infrastructure.

5.26  With regard to the Jamnagar unit he informed that 1100 acres had already been acquired, and 1900 acres would be applied for. With regard to the type of land, i.e. whether it was Government land or farmers' land, the representative replied that the entire area in Jamnagar is barren. Thirty per cent land has come through Government, and the balance 70 per cent through private acquisitions. The SEZ at Haryana was at the in-principle stage.  Jhajjhar district is quite a backward area. The SEZ will spread over an area of 20,000 acres. This will include a cargo airport. It is still at the planning stage.

5.27  With regard to processing and non-processing area in these SEZs, the representative replied that 35 per cent area should be for processing and 65 per cent for non-processing.  This is a fair enough formula, as nobody wants an industrial ghetto, as we see in some of the industrial estates.  He endorsed the view of the Committee that there is a need to develop Indian models, instead of having Hong Kong and Dubai models of SEZs.

5.28  With regard to rehabilitation, consequent upon acquisition of land, the representative replied that the Company is at the stage of acquiring land.  People have not moved yet.  The Company has established a health camp with a couple of NGOs.  As to whether some part of wealth generation, consonant to setting up of SEZs, is percolating down to those who have been displaced or who have been permanently alienated from their land, the representative replied that they have already committed full employment.  To make it possible, they are planning ITIs. Also 80 per cent of the farmers who sold their land to them, went and bought land in Rajasthan and in other areas.  So, the land alienation did not happen with many of them.  Further, Reliance persuaded the ICICI people to open a branch in Jhajjar district, and asked them to advise people who were flush with funds, and they are today advising people how to invest their money.  It is also felt that since all are not farmers, people will stay back also, and Reliance would train these youths with the help of the ITI.

5.29  With regard to the experience with the Ministry and with the Act he stated that the Act is pragmatic, especially with the WTO scenario.  The policy mentions about the infrastructure character of SEZs.  Besides export earnings, infrastructure part is also an important key element.    It is felt that addition in the rules of a simple thing like if we are going to build an SEZ, it should not be overloading the existing ones  like water, bijli, road connectivity.  It should be adding to whatever is available in the region.  From that point of view, the Rules should be strengthened to build environment, to build the process, where the infrastructure is encouraged. This is one aspect of the Rules which we are adding to the infrastructure part of it.

 

DLF

 

5.30  The representative of DLF stated that DLF has two types of SEZ business.  One is IT-SEZ business, and the other is multi-product SEZ business.  The Company has got in-principle approval for nine IT-SEZs, covering all the important cities or major towns of the country.  Its SEZs are in Chennai and Gurgaon.  In Gurgaon the Company has about six million square feet of IT space, operational and functional, and eleven million square feet of space is already contracted and under construction.  After the STPI, IT companies have shown keener preference to go to the ecology of the SEZ type of environment. 

5.31  With regard to export out of the IT SEZs of the Company, the representative informed that they were only providing infrastructure and contracting with IT companies.  These major IT companies operate from the infrastructure and the space provided by DLF.

5.32  The Company is not exporting anything.  On a query that DLF was getting all the facilities which one would receive as an exporter in any other area,  alongwith some tax benefits, some duty-free benefits, steel, cement, but nothing was being exported,  the witness replied that  they are  part of the supply chain of the exporters, by providing space, power, an integrated infrastructure to the person, who wants to operate from there.  There are large companies who can build infrastructure on their own.  But there are small companies which want to share infrastructure.  DLF was filling that gap as a shared infrastructure provider.  Even before the SEZ Policy, the business of IT was just part of the service providers like DLF.

5.33  As to why DLF should be treated at par, the representative replied that in terms of building the SEZ, all the materials like steel, cement or equipment that go into power generation or air-conditioning, fire-safety, security systems, etc., are being provided.  If a person were to do it on his own, he would have also got some concessions as an SEZ company, or unit. The only thing that they are doing is to reduce the cost, by giving a comparative space by import-free materials.  Thus, the cost of space and services is reduced. Every other major players in India, like IBM, come to the service providers.  With regard to a query if after five years, these units wind up and go away, what will happen to the infrastructure, the witness replied that they would give it to other units as per the SEZ Act. 

5.34  Regarding the query that DLF was only selling space and how can they be treated as an export-oriented unit, the witness stated that they are not treated as a unit.  They are treated as a developer.    It is distinctly defined who is a builder or developer, and who is an operator.

5.35  When the Act came into existence, the basic concept was that duties and taxes should not be exported.  There are various infrastructure schemes where benefit is being provided.  This was the Government scheme, which came from the perspective where employment generation is talked about.  There are four mega players, who are making their own SEZs.  There are various companies from outside, which are coming up with 500 employees or 2,000 employees.  They don't want to land up into the land business.  They don't want to acquire land.  They say that we are in the business of telecommunications, we are not interested in real estate.  They want some kind of a service provider or infrastructure service provider.  There are clients who are coming today.  They want to get their places booked.  That is the reason why in the policy, it was being put at par.

5.36  With regard to a query about estimate of foreign companies utilising their infrastructure facilities and the likely total quantum of investment in the country, the representative replied by illustrations  that the Chennai SEZ, which is in four million square feet, will employ about 40,000 people, besides 10,000 people in indirect jobs.  50,000 people would be working there.  It will cost Rs. 840 crore.  Every developer or business house or industry has its own segment, which it operates or specialises.  More than 80 per cent of the space is let out to multinational companies who come to India.  With regard to  query that whatever Telecom Companies will be bringing to this country would be a third generation technology, the representative stated that it is in their self-interest that they produce a product for exporting competitively in their markets and they cannot use lower technology. Otherwise, their business will fail, they have to bring equipment and technology because they have to compete.

5.37  Regarding employment generation, the representative stated that an SEZ  will involve a minimum investment of Rs. 4,000 crore, including cost of grid infrastructure like roads, services, built up area, social and logistic infrastructure, warehousing infrastructure, transportation and other facilities.  An investment of Rs. 4,000 crore would generate an export value of 1.25 billion dollars.   Further, there are two great objectives and challenges before the policy makers of the country; economic growth and employment and poverty alleviation is possible only through industrialisation.  Agriculture contributes to only 20 to 30 per cent of GDP.  Industry and services have to be developed.

 

Mundra Port and Special Economic Zone Ltd. 

5.38  Regarding  the security management in its SEZ,   the Company submitted that its port is under the continuous vigilance of two security companies, guarding the different areas.  Whilst one is responsible for the security of the whole port, the other is entrusted with the responsibility of guarding the marine facilities.  The port is an International Ship and Port Security (ISPS) compliant, port certified by Indian Registrar of Shipping (IRS).  Their port facility is also certified to ISO 9001:2000 Quality Management systems since the last four years.

5.39  The company has started installing Video Surveillance System across the key locations of the port, for ensuring online security vigilance and quality services to the customers.  The company have also Access Control Systems at their Main Gate, to ensure that only the personnel having the permission to work enter the port.  The security department carries out scheduled security vigilance rounds in the port, round the clock.

5.40  The entire port area is under the control of the Customs.  The company is maintaining a close co-ordination with the Indian Navy and Coast Guard, and their vessels keep on calling their port frequently.  Majority of the cargo which comes in and goes out, is the dry Bulk & Break Bulk and Liquid Cargo.  All the gates through which the cargo trucks, trailers and tank lorries enter or leave the port, are manned by their security and the customs.  Similarly, all the loaded containers, coming in and going out, are checked, to ensure that their seals are intact.  All empty containers coming in and going out of the port are physically checked, to ensure that nothing undesirable comes in or goes out.

Celebrity Fashions

 5.41 M/s. Celebrity Fashions highlighted the following points:

(i)                      SEZ units have been paying Excise Duty and Cess for High Speed Diesel and Furnace Oil, since September, 2004. As the High Speed Diesel and Furnace Oil are used for production purposes, the same should be exempted from payment of Excise Duty and Cess.

(ii)                    Service Tax for services rendered to SEZ units outside the SEZ premises is not exempted, though the services are availed during the export process, like service tax for Ports charges, Air & Sea.

(iii)                  Exemption of profits under See 10(a) & 10(b) of the Income Tax Act is available only up to the Financial Year 2008/2009. An extension of exemption of profits for another five years, from the financial year 2009/2010, may be given.

(iv)              Infrastructure like roads needs to be strengthened, for better projection of the Zone.

5.42  The container and the heavy vehicles movements were restricted between the Zone and Tambaram during day time, resulting in hardships for sending export consignments outward from the Zone, and raw materials inward to the Zone, particularly in MEPZ-SEZ, Chennai.

Campaign for Survival and Dignity

 

5.43  Campaign for Survival and Dignity, a federation of tribal and forest dwellers’ groups working in eleven states, in their written note submitted that there were some potentially problematic issues around SEZs. The current frame of the law will make SEZs into zones where companies have effective power over all aspects of peoples’ lives and their rights like labour rights, infrastructure rights and the right to freedom of speech and assembly - will be badly curtailed.

5.44  While no specific reference is made to local institutions in the SEZ Act or Rules thereunder, the Model SEZ Policy states that "The State Government will declare SEZ as Industrial Township and if necessary, relevant Act would be amended so that SEZ can function as a governing and autonomous body as provided under Article 243(Q) of the Constitution."

5.45  All States with public policies on SEZ's have adopted this position. Industrial townships do not have municipalities, but are generally run by a planning authority. This planning authority have equivalent powers to an elected municipal body, such as planning powers, licensing powers, responsibilities for provision of infrastructure, etc.

5.46  Thus, in "multi-product" SEZs, huge areas are going to be brought under authorities with no democratic institutions whatsoever. There is no reason to suspend the operation of local government inside SEZ's.   

5.47  No provision of infrastructure in an SEZ is possible without the agreement of the Developer (section 3(11) of the SEZ Act) and the approval of the Board of Approvals. Moreover, the Model SEZ Policies for States that were issued by the Centre further state that within an SEZ, "Distribution Company shall have freedom to fix tariff for consumers" (5(b)). This provision has also been adopted by a number of States.  Given that the SEZ Developer and/or the Development Commissioner of the SEZ are effectively going to be in control of local government within the Zone, the result will be that infrastructure and tariffs will essentially be under the control of these institutions with no democratic accountability at all. Developers can fix prices for electricity, tolls for road use, etc., entirely at their will and fancy.

5.48  Serious moves have also been made to modify the operation of criminal law and to create what can only be seen as a special mechanism of maintaining law and order in an SEZ. Section 22 of the SEZ Act specifies that no investigation, search or seizure within an SEZ can be undertaken without the permission of the Development Commissioner, except in the case of an agency authorised by the Central Government to investigate "notified offences" (to be notified by the Centre).

5.49  The Central Government has been given a large number of powers under the Act, including the power to declare "notified offences", exempt application of laws, etc. A highly unclear section in the SEZ Act (section 31(1)) would seem to imply that these powers can be delegated to the SEZ Authority, to exercise the powers conferred on, and discharge the functions assigned to it, under the Act." This Authority, in turn, consists of four Central officers, including the Development Commissioner, all from Departments associated with SEZs, and two representatives of entrepreneurs. These officials and entrepreneurs could then exercise the sweeping powers of the Central government under the Act. This section should be removed.

5.50  Further, the Model State SEZ Policy and the policies of several States - state that separate and exclusive arrangements will be made for law and order and control of crime within SEZs.

5.51  Section 46 of the SEZ Act provides that every person whether employed or residing or required to be present in an SEZ, will be provided with an identity card. Rule 70 of the SEZ Rules goes on to state that the entry of persons to the processing area of the Special Economic Zone shall be regulated  through issue of identity cards,  while Rules 11 (1) and 11 (2) of the SEZ rules require a two meter high wall, with barbed wire fencing, around the processing area of the SEZ.   Reading between the lines, there is a clear attempt to suppress both labour monitoring and labour organizing.  Insistence on walling off zones, as well as a separate police force, will make it easier to target and repress union organizing in these Zones, as has been done in Export Processing Zones around the world. If the aim is to prevent smuggling of goods, etc., there is no reason to apply such measures to the processing area alone.

5.52  There appears to be no conceivable economic or regulatory benefit from the provisions on criminal law, law enforcement and security and the same should be removed from the Act, Rules and the Model Policy forthwith. Undoubtedly many Zones will, in any case, use such methods to repress workers' struggles, but there is no reason that there should be a legislative and policy mandate for them to do so.

5.53  While section 49 of the SEZ Act blocks the Central government from relaxing labour laws, there is a clear effort to use every possible opportunity to weaken labour laws in the SEZs. Rules 5(e) and 5(t) insist that SEZ'S must be declared to be "public utility services" and the powers under the Industrial Disputes Act delegated to the Development Commissioner.  The Model Policy advocated by the Central Government contains a long list of exemption clauses in labour laws, including in the Minimum Wages Act and the Contract Labour Regulation and Abolition) Act, that the States are advised to invoke.

5.54  Section 49 of the SEZ Act further provides that the Central Government can, by notification, direct that "any provisions of this Act... or any other Central Act or any rules or regulations made thereunder or any notification or order issued or direction given thereunder" will not apply to a specific SEZ or all SEZs. The only exemption is "matters relating to trade unions, industrial and labour disputes, [and] welfare of labour." However, even with such an exemption, this section amounts to allowing the Central government to de facto repeal a law (in so far as its application to Special Economic Zones is concerned) and thus to override Parliament and the State Governments with the issuance of a notification. Section 49 is unconstitutional and violates basic democratic and federal principles. Any exemptions to laws should be provided within the SEZ Act itself and such undemocratic powers should not be conferred on the Centre.

 

Hyderabad Gems Ltd.

 

5.55  The Committee heard the views of promoters/Developers and units of SEZs.  Shri Srikanth Badiga, Vice President, informed that Hyderabad Gems and Jewellery is the 100 per cent subsidiary of Geetanjali Group.  The Government of Andhra Pradesh allocated 200 acres of Government land, which was meant for hardware development park, at the rate of Rs. five lakh per acre, around 2-2.5 years back.  The present market rate is close to Rs. 15 lakh per acre.  The SEZ is expecting investment of Rs. 500 crore by 40 big units, and with employment of about 5,000 people by each unit.  Within three years, the SEZ will be employing not less than 50,000 people.  Geetanjali Group would be having its own units, spread over a land of 10 acres, and it will give employment to about 7,500 to 10,000 people.  With regard to exports, the SEZ is looking at close to Rs. 75,000 crore, by the end of the financial year. 

5.56  Regarding land requirement for a vital gems and jewellery unit, he submitted that there could be large units of one lakh square feet or two lakh square feet for each factory.  Gitanjali, in its SEZ, is putting up two factories, each of one lakh square feet, one for diamond cutting and the other for jewellery manufacturing.    The Company is having main unit for diamond cutting in Borivali and jewellery manufacturing facilities at SEEPZ.

5.57  In Hyderabad, this SEZ is very near the new airport, which is coming up.  It is a very ideal situation for a gems industry.  Demand for an SEZ for the gems and jewellery is much higher, because its export is around 17 billion dollars and it is expected to reach 45 billion dollars in the next 3-5 years.  Looking at the growth in the jewellery, it is felt that there is going to be a great demand and not only one SEZ, but a number of SEZs can come up, which can give large employment generation and add foreign exchange to the exchequer.  

5.58  With regard to facility to train people, the training centre is already working.  The Company has already given employment to 1128 people.  The training centre has been set up outside the SEZ, to train people on an on-going basis, so that these trained manpower can be used by the factories and the manufacturers, who are going to set up their units in the Zone.  In fact, the Company has got a lot of enquiries, not only from India, but also from international manufacturers, to set up units in the SEZ.  The Company is looking forward to make it a world class SEZ. 

5.59  With regard to the adequacy of Customs or Excise personnel, he submitted that they do not have any problem and hoped that the same kind of facility will be provided in Hyderabad.  On a query regarding problem with the SEZ Act or Rules, it was stated that the SEZ Act  is very self-sufficient and compact. However, there is scope for improvement. 

5.60  With regard to sale of their products in DTA, he informed that it is very negligible.  But in Hyderabad SEZ, it will be going up to 50 per cent in the DTA. 

Chapter-VI

 

Observations and Recommendations

 

6.1    Special Economic Zones are the dream projects of the Government, aimed at GDP growth, infrastructure development, increase in Foreign Direct Investment and generation of direct and indirect employment. The SEZ Policy was launched by the Government of India, with great fanfare, as a growth catalyst, on the model of the Special Economic Zones in China, in the fond hope that they would help India replicate the Chinese success story of rapid industrialization. SEZs are being developed, along the lines of some of the internationally known SEZs such as Shenzhen in China, Jabel Ali in Dubai, and Europark Mielic in Poland. But the reception to SEZs amongst various Indian stakeholders has not been on the expected lines. There have been voices of dissent, and at some places violent protests. A section of the farmer community, whose lands are being acquired for setting up SEZs, is particularly agitated and aggrieved with the policy.  There is an imperative need to understand the cause of the farmers’ agitation and grievance.

 

6.2              Soon after the coming into force of the SEZ Act, 2005 in February, 2006 the policy got mired into a deep controversy. India is not the only country to have set up Special Economic Zones.  China, Indonesia, the Phillipines, Iran, Jordan, Poland, Pakistan, Bangladesh, South Korea, Thailand, Russia, Kazakhstan, Ukraine, etc. also have SEZs. Even the USA is known to have 285 Free Trade Zones.   The total number of SEZs in the world is around 3000, though China has only 6 of them.  The avalanche of 401 proposals being cleared (237 “formal” approvals and 164 “in-principle” approvals) within a few months of the promulgation of SEZ Act and SEZ Rules, seems to have generated a fierce debate in India about the “real” objectives of the SEZ concept.  Several political parties, mass organizations, civil society groups, academics and experts, and even some corporate groups began to view the entire SEZ policy framework with suspicion.

 

6.3      The proliferation of SEZ proposals has given rise to concerns about unplanned and unbalanced regional development, large scale acquisition of fertile farmlands, massive displacement of people, enormous loss of tax revenue, needless Government subsidies to corporates, questionable implementation of labour laws in SEZs and gross misuse of SEZs for real estate purposes.  There are fears about the likelihood of unrestricted movement of contraband and national security.  There are also allegations that the Commerce Ministry is approving SEZs in haste, without examining the proposals in detail or receiving recommendations/observations from States. In some cases, even objections and reservations of State Governments have been reportedly bypassed. The Committee feel that the undue haste in approving SEZ proposals and the consequent proliferation of SEZs have contributed to the development of resistance against the SEZ policy.

 

6.4    SEZs were meant to be engines of growth, both for industry and exports.  However, the opposition with which it has met during the last one year must make the Government take a fresh look at the policy as a whole and to re-frame it in such a manner that would make it people-friendly, besides achieving the objective of export-led industrial growth.

 

6.5    The Committee recommend that no further SEZs should be notified till the SEZ Act and the Rules made thereunder have been amended to meet the public concerns with regard to various provisions contained in the said Act and Rules.

 

6.6    Secretary, Ministry of Agriculture, mentioned in his submissions before the Committee that the total cultivable land in the country decreased from 185 million hectares in 1980, to 183 million hectares in 2003.  The per capita availability of cultivable land declined from 0.27 hectare to 0.18 hectare and non-agricultural use of land increased from 19.66 million hectares to 24.48 million hectares during the same period.  During the period between 1980-81 and 1990-91, the annual average increase in non-agricultural use of land was 1.68 lakh hectares, whereas during the five years from 1999-2000 to 2003-04, the annual average increase in non-agricultural use became 2.25 lakh hectares.  The satellite imageries and space research analysis have found a drastic reduction in agriculture land.   The Committee feel that diverting land from agriculture does not merely mean reduction in production or income to farmers, it affects the entire gamut of social and cultural life of the farmers, agricultural labourers and others connected with the agricultural activities.

 

6.7    There is a concern for sustaining agricultural production, to meet the requirements of an increasing population in the country.  The net sown area in the country is about 141 million hectares, of which 55 million hectares is irrigated and 86 million hectares is unirrigated. The overall productivity of agricultural crops, especially the cereals, coarse grains, pulses, etc. has been stagnant. About 127 million cultivators, 107 million agricultural labourers and others depend upon farm income.  Diversion of agricultural land to non-agricultural purposes could be detrimental to the food output of the country. It is estimated that diversion of 1000 hectares of cultivated land to non-agricultural uses can deprive about 900 cultivators and 760 agricultural labourers of their livelihoods. The diversion of land used for grazing can also have adverse implications. 

 

6.8    Expansion of housing and related infrastructure and widening of roads in the countryside have resulted in fast depletion of land under cultivation. Emergence of townships near big cities is also eating up considerable land under cultivation.

 

6.9    It takes huge investment and time to develop land for intensive cultivation and to provide it with irrigation.  If such highly productive lands are consumed by urbanization, big housing complexes and industrialization, including for Special Economic Zones, it will be hard to compensate their loss through development of equally productive new lands.  If this process is not controlled, it may cause threat to our food security.  The Committee recommend that the Government should take all necessary measures to ensure that the food security of the country does not get jeopardized at any cost.

 

6.10    There is a hue and cry by many farmers whose lands have been acquired.  If such acquisition continues, it can ignite social unrest.  The SEZ policy, in its present form, seems to pitch the Government’s industrial priorities against agricultural priorities, which is not a correct signal. Globalisation and liberalization do not imply that all the attractive ideas from outside should be transplanted in our country, without evaluating their suitability and efficacy in our own socio-cultural and economic context. It would be equally wrong to promote industrial growth at the cost of agricultural growth. In a predominantly agricultural country like India, even an impression that the interests of agriculture or of farmers are being sacrificed at the altar of industrial growth, could be ruinous. SEZs, therefore, should not be allowed to come up at the cost of farmers.   The country should develop its own model for industrial growth and expansion, while safeguarding the interests of the farmers.

 

6.11  The Ministry of Agriculture is known to have expressed concern over the transfer of agricultural land to SEZs.  The Regional Plan, 2021 for the National Capital Region emphasizes that good agricultural land should be protected and conserved. The National Commission of Farmers has also emphasized the importance of conserving agricultural land in the following terms:

“Prime farm-land must be conserved for agriculture and should not be diverted for non-agricultural purposes and for programmes like the Special Economic Zone.  Such special programmes should be assigned on wastelands and/or land affected by salinity and other abiotic stresses that reduce the biological potential of land for the purpose of farming. Every State should constitute a Land Zonation Team consisting of soil scientists, agronomists and remote sensing specialists to earmark soils with a low biological potential for farming such as wastelands, lands affected by salinity, acidity, etc., for industrial activities and construction. It is in our national interest that agriculture and industry both prosper in a mutually reinforcing manner.”

 

6.12      The Committee, therefore, recommend that the existing cultivated land should be conserved for agricultural purposes and should not be diverted for non-agricultural purposes.  It should not be used even for extension of urbanization and industrialization. In the long term, the Regional Master Plans and Development Plans should incorporate land suitability analysis for the land use allocations, to identify the areas, intrinsically suitable for settlement, agriculture, industry, forestry, recreational uses, etc.  While preparing such Master Plans and Development Plans, it should be ensured that industrial development is not permitted in the Natural Conservation Zones, planned green areas, agricultural areas, ground water recharging areas and water bodies.  Instead, industries should be set up on wastelands, thereby putting a vast unutilized natural resource to a productive use.  The Committee further recommend that town planning should provide for green belts. Heavy penalties should be imposed against those who interfere with land resource and its productivity.  Environmental protection cannot succeed unless these measures are taken. The rights of tribals and poorer sections on common land should also be protected through legal and administrative structures.

 

6.13     Left to Developers and Entrepreneurs, they would like SEZs to come up in areas which are infrastructurally developed, so that the amount of investment required is minimal and the returns are very fast. The Developers would, therefore, try to acquire land in already developed areas or very close to such areas without regard to the agricultural worth and value of that area. If they are allowed to do so in an unrestricted manner, there would indeed be benefits to industry, besides huge profits to the Developers. However, the country would lose in the process precious agricultural land, which would be irreplaceable and irrecoverable in all times to come. Long-term casualty of this would be a fall in the agricultural produce and the food security of the country.

 

6.14     The Committee were informed that the land area involved under 237 “formal” approvals was 34510 hectares and under 164 “in-principle” approvals, 134587 hectares. The Committee were further informed that availability of barren and uncultivable land in the country was to the extent of 18 million hectares.    If SEZs are developed on wastelands, it would serve a double purpose of expanding industrial space in the country and, at the same time, bring uncultivable and unutilized lands into mainstream use.

 

6.15     SEZ Act and Rules do not put any restriction on the use of cultivable land for setting up SEZs.  So much so that Form-A (Application for setting up SEZs) appended to the SEZ Rules does not have any column for the quality or “kisam” of land being used for a prospective SEZ.  Responding to concerns about diversion of prime agricultural land for industrial use, the Union Commerce Minister wrote thus to the State Chief Ministers in September, 2006: 

“The issue was discussed in the SEZ Board of Approval meeting held on 21st September, 2006 and the general consensus emerged that mainly waste and barren land and if necessary single crop agricultural land alone should be acquired for the SEZs.  It was discussed with the State Government representatives that if perforce a portion of double cropped agricultural land has to be acquired to meet the minimum area requirements, the same should not exceed 10% of the total land required for the SEZs.” 

"I would, therefore, request you to ensure that the land acquired for the purposes of SEZs in your state is primarily waste or barren land.  Agricultural land may be acquired only if necessary to meet the minimum area requirements.”

 

6.16     The Committee feel that restriction on use of agricultural land for SEZ purposes should not be a matter of administrative advice or guideline.  Rather, it should be clearly reflected in the SEZ Act and rules made thereunder. The Committee are also not in favour of double-crop/multi-crop/irrigated land being used for SEZs. The Committee, therefore, urge upon the Government to build unambiguous provisions in the SEZ Act, regarding the land to be utilized for setting up SEZs, on the following lines:

i)                   There should preferably be a ban on the use of irrigated double-crop or multi-crop land for setting up SEZs.

 

ii)                Normally, only waste and barren lands should be used for setting up SEZs.

 

iii)              If it becomes unavoidable to make use of cultivable land, only single-crop, rain-fed land should be used. The percentage of such land should not exceed 20 % of the total area of a multi-product SEZ.  In respect of SEZs other than multi-product ones, this ceiling could be 40%.  These ceilings are with reference to the minimum and maximum areas proposed in paras 6.23 and 6.24.

 

iv)              It should be mandatory for the Developer to obtain permission of the State Government for purchasing single crop cultivable land for SEZ use. 

 

6.17  There have been complaints that the land being alienated was agricultural land and, in some cases, farmers were not even informed of the purpose for which their land was being acquired.  Cases were brought to the Committee’s notice where the records in possession of the farmers showed the land as agricultural and cultivated, whereas the Developer was projecting the same land as non-agricultural, fallow land, without any crop, or only a single-crop land.  This was perhaps done through manipulation of records, with the connivance of revenue officials.

 

6.18  Perturbed over the increasing discontent among the farmers over the alleged forcible acquisition of their cultivable agricultural land, the Committee decided to constitute a Sub – committee, to interact with the affected farmers so as to get to the crux of the problem. The Sub-committee visited Jhajjar (Haryana), Hyderabad, Bangalore, Jamnagar and Mumbai for the purpose. The Committee are pained to note that at some places, the farmers were not allowed to meet Members of Parliament. The role of the State Government or the local administration should have been to facilitate the Sub-committee to meet the affected people, especially the farmers, who had come to express their grievances before the Sub-committee.  However, they were prevented from meeting the Sub-committee by the administration itself. It created the impression that the local administration at those places did not want the Sub-committee to meet the farmers and to go into the question of land use, land sale and rehabilitation.  The Committee expect the State Governments to ensure that in such cases co-operation from their local administration is forthcoming.

6.19  It would be necessary to enforce restrictions with regard to the ‘kisam’-type and quality of land so that fertile land is not recklessly alienated. To ensure this, it would be necessary to put in place an efficient mechanism to screen applications for setting up SEZs. The onus of verifying the quality of land should lie with the State Government concerned.  The Gram Panchayats should also be involved in this process.  When the land for SEZs is proposed to be purchased by the private developers, the process should be preceded by a public notice inviting objections to the stated ‘kisam’ of land.  Response to such a notice could alert the State Governments to the possibility of manipulation of records.   The Committee recommend that the Government should specify a mechanism for this purpose in the SEZ Rules, besides introducing a column for the ‘type and quality of land’ in Form-A (application for setting up of SEZ).

6.20  The Committee also recommend that the Board of Approval should not entertain any application directly from a Developer and the system of giving “in-principle” approvals should be discontinued forthwith. Applications should be considered by the Board of Approval only after obtaining the inputs of the State Governments, including those with regard to the type and quality of land.

6.21  At present, the following Ministries/ Departments are represented on the Board of Approval (besides the DGFT, the State Government concerned, the Development Commissioner concerned and a Professor of IIM/IIFT):-

(1)

Department of Commerce

 

(2)

Department of Revenue

 

 

(3)

Department of Economic Affairs,

 

 

(4)

Department of Industrial Policy & Promotion

 

 

(5)

Ministry of Science and Technology

 

(6)

Ministry of Small Scale Industries and Agro & Rural Industries

 

 

(7)

Ministry of Home Affairs

 

(8)

Ministry of Defence

 

(9)

Ministry of Environment and Forests

 

(10)

Ministry of Law and Justice

 

(11)

Ministry of Overseas Indian Affairs

 

(12)

Ministry of Urban Development

 

 

The Committee are surprised to note that the Ministry of Agriculture is not represented on the Board. Being an important stakeholder as well as an affected party, the Ministry of Agriculture must be represented on the Board of Approval.

 

6.22     The Committee were informed that recommendations for liquidation of 1254 private sector units, 31 Central PSUs and 41 State PSUs were  pending in  various High Courts. The Government may consider unlocking and recycling of land and assets of the closed industrial units under liquidation. A mechanism should be set up, to make available unlocked land of the closed units for setting up SEZs.  Similarly, land acquired for Growth Centres and other schemes, which have not been found sustainable, may be diverted for SEZs.

 

6.23  The SEZ Act and Rules prescribe a minimum area for various types of SEZs, viz.

Type

Minimum Area

Minimum Area For Special States/UTs

Multi-product

1000 hectares

200 hectares

Multi-Services

100 hectares

100 hectares

Sector specific

100 hectares

50 hectares

IT

10 hectares & min. built up area of 1 lakh sq. mtrs.

10 hectares & min. built up area of 1 lakh sq. mtrs.

Gems and Jewellery

10 hectares & min. built up area of 50 thousand sq. mtrs

 10 hectares & min. built up area of 50 thousand sq. mtrs.

Bio-tech and Non-conventional energy (including solar energy equipments/cell but excluding SEZs for non-conventional energy production and manufacturing)

10 hectares & min. built up area of 40 thousand sq. mtrs.

10 hectares & min. built up area of 40 thousand sq. mtrs

Free Trade and Warehousing Zone (FTWZ)

40 hectares & min. built up area of 1 lakh sq. mtrs.

40 hectares & min. built up area of 1 lakh sq. mtrs.

 

6.24  The Committee feel that, under the present system, the Developers may be tempted to acquire more area than is necessary, particularly for developing profitable support activities in the non-processing area. It may, therefore, be necessary to prescribe a maximum area also for various types of SEZs, with the stipulation that at least 50 per cent of the area of the SEZs would be used as “processing area”.   This stipulation should not be relaxable.  The proposed upper limits are as follows:

     Type

               Maximum Area

 Maximum Area for Special States/UTs

 With an element of Cultivable Land

Only Wasteland

Multi-product

 2000  hectares

5000 hectares

 500  hectares

Multi-Services

200  hectares

500  hectares

200  hectares

Sector specific

200  hectares

500  hectares

200  hectares

IT

20  hectares

50  hectares

20  hectares

Gems and Jewellery

20  hectares

50  hectares

20  hectares

Bio-tech and Non-conventional energy (including solar energy equipments/cell but excluding SEZs for non-conventional energy production and manufacturing)

20 hectares

50  hectares

20 hectares

FTWZ

100 hectares

200 hectares

100 hectares

 

6.25     The Committee note that 148 out of the 237 SEZs approved so far are IT SEZs. This disproportionately large number of proposals for IT SEZs may not be a sheer coincidence.  Rather, it may be an attempt by the new IT units to avail the benefit of 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 Committee feel that if the existing tax benefits to the IT sector are extended for ten more years, the mad rush for SEZs in IT sector would automatically stop.  The Committee, therefore, recommend that the Government should take a decision on extending the tax holiday to IT sector for a further period in the light of this analysis. 

6.26  Different countries have followed varying norms for development of SEZs. As already mentioned, China has six large SEZs: Shenzhen, Zhuai and Shantou in Guangdong province; Xiamen in Fujiyan province; the whole of Hainan province; and Pudong in Shanghai. Poland, a much smaller country, has 14 SEZs. Iran has 5 SEZs, Kazakhstan and Ukraine have one each.

 

6.27  It has been recommended in para 3.10 that India should develop its own model of SEZ, keeping in view its own socio-cultural and economic imperatives. While doing so, it should be seen whether the SEZs are expected to be instruments of export-led industrial growth or should also ensure, at the same time, a balanced industrial growth in all regions of the country. The compatibility of these two objectives will also have to be examined. The Committee recommend that the much discussed issue of putting over-all and region-wise caps on the number of SEZs should be decided in the context of the scope, dimensions and objectives of the scheme.  The caps can be revised after a few years, considering the experience of the functioning SEZs.

 

6.28  Acquisition of land is being done in the country for various reasons, all of them being labelled as “public purpose”. SEZs are the latest addition to the growing list of public purposes. Be that as it may,it is equally important to adequately compensate the land –owner whose land has been acquired. Even before the SEZs came on the land acquisition radar, monetary compensation was being paid to the farmers/land-owners at a notoriously low rate, based on the sales statistics of the past which do not always represent the actual value of land, with the result that litigation with regard to land acquisition has been on the increase. There is a growing realization that change of use of a piece of agricultural land affects the farmer, the agricultural labourer and many more connected with land, in more ways than one, both tangible and intangible.  For the progeny of the farmers, their source of livelihood gets extinguished for all times to come. The land owner, his family and other connected persons, like share-croppers, farm laborers and rural artisans are forced to take up other professions, thereby affecting their life styles, sometimes to their grave detriment.

6. 29 The Committee feel that the Land Acquisition Act, 1894 should be replaced by a modern legislation, which is relevant to the needs of the time.  The new land acquisition law should, inter-alia, be transparent in that it should inform the affected persons the purpose of acquisition, its implications for them and the resettlement package that would be offered to them.  Unless the public purpose for which the land is being acquired involves an over-riding national interest like defence/national security, the acquisition should take place with the consent of the affected parties.  Further, a National Relief and Rehabilitation Act should be enacted to provide a comprehensive compensation package to those  deprived of their lands.  The Committee understand that Ministry of Rural Development is already seized of the matter and is in the process of formulating  a new policy regarding relief and rehabilitation. While the Committee recommend that the new policy and legislation should be finalized expeditiously, in tandem with the amendments to be made in the SEZ Act and Rules, the following may be kept in view while deciding the new paradigm for relief and rehabilitation, in lieu of land:         

-                     Monetary compensation should be only a part of the compensation package and should be calculated on the basis of the prevailing market rates.  To ensure this, the State Governments should prescribe minimum prices for land in various areas, which should reflect the market rate, and review/revise these prices periodically.  Thereupon, whether the land is acquired by the Government or the SEZ Developer, the acquisition/purchase price should be higher than the minimum price fixed by the Government.

 

-                     It should be ascertained from the land-owner and his co-workers, including share-croppers and agricultural labourers, as to how they proposed to re-settle/rehabilitate themselves. The Government should provide assistance to the affected persons, accordingly, by way of an adequate resettlement allowance, employment, training, bank loans, etc.

-        Where the impact of acquisition is felt beyond the pale of land-owners and their co-workers, provision should be made to rehabilitate the affected community as a whole.

 

6.30  Multi-product SEZs, to be viable, would be in the nature of industrial townships and may lead to massive displacement of  people, off the land on which an SEZ is being set up. It may, therefore, be of advantage if these people, instead of being displaced and compensated, become a part of the development process of the SEZ. This could be done in the following manner:

-                     Land should be taken from the land-owners on lease so that they get a one-time lump-sum premium, followed by periodic rentals for sustenance.  If the land is on lease, it would revert to the lessor in case the SEZ fails or is dissolved for any reason.

 

-                     At least one family member of the land-owner should be offered a suitable employment in the SEZ venture. It should be the responsibility of the developer to arrange necessary training of that person in skill acquisition/upgradation.

 

-                     Similarly, the whole range of agricultural workers, rural artisans, etc., depending upon farming activities and connected with the acquired land as well as other persons supporting and sustaining farming, should be given suitable employment in the “processing” or “non-processing” areas, in keeping with their skills.  They should also be imparted requisite training, as necessary.

 

-                     The feasibility of allotting equity shares to the land-owners in the Developer’s Company should also be considered.

 

6.31  Two modes for acquisition of land from farmers are followed.  The first is the compulsory acquisition under the Land Acquisition Act, the other is to let the SEZ developers purchase land directly from the farmers.  In either of the modes, the farmer stands at a disadvantage.  In the compulsory acquisition mode, the recorded sales do not disclose the real market price.  In the other mode, the farmer is the weaker bargaining party.  The State Governments must devise a system of periodic market surveys, to elicit the prevailing market rates for land in different areas.  They should fix minimum land rates based on such market surveys to strengthen the land-owners’ bargaining position vis-a-vis the SEZ developer. This will not only secure the interest of the farmers, but also result in reducing the element of black money in land deals, higher realization of stamp duty, and more economical use of land for Urban and Industrial purposes.

 

6.32  The Department of Commerce had informed that out of the 34510 hectares of land required for 237 “formal” SEZ approvals, 17800 hectares were already available with the State Industrial Development Corporations, etc. Apparently, this land was not necessarily acquired for SEZ purposes. Further, in a written reply to a question posed to the Department of Commerce, the Department had stated as follows:

“The developer can acquire the land by direct purchase for establishing a SEZ. In cases where State Government acquires the land or the land is in the ownership and possession of the State Government or a State Government Undertaking, the State Government may either transfer on ownership basis or on lease to the developer, depending on the terms and conditions under which the land is acquired, and on the policies and procedures adopted in the particular State. However, as per the SEZ Rules 2006, the developer cannot sell the land in a SEZ and the land in the processing and non-processing area can be allotted only on lease basis.”

 

          The Committee are of the view that the ownership of land acquired by the State Government, even for a SEZ, should not be transferred to the Developer. Instead, the land should be leased out to the Developer on a long-term basis, with the provisions of extension duly built into the lease deed.

6.33  The State-wise distribution of the 237 approved SEZ proposals shows that only four States taken together, namely Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu, account for 146 SEZs, i.e. over 60% of the total approvals. On the other hand, the States like Bihar or the North Eastern States have not received any such proposal. The SEZ is construed as an engine of growth. This trend indicates concentration of SEZs in a few States, which could aggravate already existing regional imbalances. The Reserve Bank of India is also reported to have warned against uneven development among different regions. The Committee are of the view that if the SEZs are a vehicle of development and an instrument  of growth, then less-developed and low-productivity areas also have an equal right to development, rather a better claim, because of being under-developed, and they should be encouraged to come into the mainstream of development, by making use of the SEZ Scheme. The Central Government should take suitable initiatives in this regard.      

 

6.34  When an area gets urbanised, it is to be accorded an appropriate local body status. This is now a Constitutional requirement and it is normally for the State Governments to take necessary steps in this regard.  Barring some exceptions, every part of the country has to be a constituent of a Panchayat or a Municipality for the purposes of local administration. Likewise, each SEZ should get the cover of a representative local self-government. The Government should make the status of the SEZs clear from the angle of local administration and incorporate it suitably in the SEZ Act/Rules.

6.35  The SEZs should have a Master Plan for management of the civic amenities, which would determine the areas for the residential space, the commercial area, the green area, roads and pathways, etc. for an integrated development of an SEZ. The guidelines in that regard should include all the building structures and the services to be provided in SEZs, conforming to the planning and other requirements, as prescribed in the National Building Code.

6.36  When a township comes into existence, the related facilities need to be provided.  Presently, there are no guidelines as to who would provide the civic amenities in the immediate vicinity of a SEZ; whether it would be with the Central Government, State Governments, the SEZ administration, or the Developer of the SEZ. It is also not clear whether civic amenities to be provided would be uniform throughout the country or vary from SEZ to SEZ.  The significance of urban planning and civic amenities increases manifold when the SEZ is coming up in or close to a mega city. There is also the aspect of future expansion of a SEZ, which is linked to its potential and performance. The Indian planners of SEZs must take note of the fact that one of the earliest Chinese SEZs at Shenzhen used to be small village and it grew into a city of 10 millions within a short span of 20 years. The Government should, therefore, enunciate a clear policy with regard to governance issues emerging as a result of setting up of SEZs in relation to areas surrounding SEZs.

6.37     Apprehensions have been expressed that large SEZs are being planned by various Developers, mainly for real estate exploitation, particularly when the location of SEZs is in the vicinity of cities like Delhi and Mumbai.  There is need to put such fears at rest.  The Committee recommend that provisions should be made in the SEZ Act/Rules that all assets, including housing, created in the non-processing area would meet and subserve the requirements of those working in the processing area only and not for anyone else.

 

6.38  The issue of housing facilities for the workers in the giant SEZs should be concretely addressed. The residential complexes within the SEZs should be built, not only for the management and office staff, but also for the workers. If the workers of the SEZ units are forced to stay outside the SEZ area, it would lead to a proliferation of shantytowns in the neighbouring areas.

 

6.39  The Development of housing and other social infrastructure in the non-processing areas would enjoy the same incentives, as the business units in the processing areas.  While the need for well planned habitats, with modern amenities, for various sections of the employees and stake-holders in SEZs is undeniable, the unplanned construction of housing and non-housing structures, within and around the SEZs, would be a bane of urban development.  The Central Government, in collaboration with State Governments, should evolve a new Townships Development Policy, so as to attract investments and right kind of developers.  The incentives for the townships, farther from the existing Metros and big cities, should be stronger.  These new townships should be used for the benefit of the employees , workers and other stakeholders in the SEZs.

6.40  Section 50 of the SEZ Act empowers the State Governments to take decisions related to exemptions from State taxes. However, Rule 5(5) of the SEZ Rules states that before recommending any proposal for setting up of a SEZ, the State Government shall endeavour that the following are, inter-alia, made available in the State to the proposed Special Economic Zone Units and the Developer:

(a)        exemption from the State and local taxes, levies and duties, including stamp duty, and taxes levied by local bodies on goods required for authorized operations by a Unit or Developer, and the goods sold by a Unit in the Domestic Tariff Area, except the goods procured from domestic tariff area and sold as it is;

(b)        exemption from electricity duty or taxes on sale of self-generated or purchased electric power, for use in the processing area of a Special Economic Zone”.

 The Committee feel that SEZ Rules seem to have gone farther than the enabling provision under the SEZ Act, which needs to be looked into.  An assessment also needs to be made of the loss of revenue that the States would suffer in consequence of extending such tax exemptions to SEZ Developers and Units and whether such loss would or would not be offset by the gains accruing to the State Governments.

 

6.41  Chapter VI of the SEZ Act provides for exemptions, drawbacks and concessions for the entrepreneurs setting up units within the SEZ, as well as for the developers of the SEZs. The private developers will be able to derive tax benefits, without contributing to exports. Developers will have 10 years’ exemptions from direct taxes, which would be applicable to all authorized activities and operations in the non -processing area also. The purpose of tax and duty exemptions and concessions to Units is to ensure that taxes and duties do not enhance the export cost.  It is not clear as to how the tax and duty concessions given to a Developer will keep the exports cost competitive.  There is no mechanism in the Act/Rules whereby the fiscal benefits given to the Developer will get passed on to the Units and exports. The Committee, therefore, recommend that the fiscal incentives for the Developers should be specified separately and only such incentives should be given as are conducive to attracting FDI and promoting exports.

 

6.42  Exemption from Service Tax has been given to the developers in a Special Economic Zone. The units in the International Financial Services Centre and Offshore Banking Units have also been given income tax exemptions, equivalent to those for other units in the SEZs. Securities transactions by non-residents through the International Financial Services Centre in a SEZ have been exempted from the Securities Transaction Tax. These exemptions will simply encourage investors, including those in financial services, to move from other locations into SEZ areas, with no benefit to the economy and substantial revenue loss. The Committee recommend that fiscal exemptions, which are unrelated to exports, should not be granted.  The provisions regarding direct/indirect taxes should be corrected, and loopholes should be plugged. Tax benefits should be granted only for export activities and infrastructure development.

 

6.43  Section 30 of the SEZ Act stipulates that customs duties shall be charged on any goods removed from a SEZ to the DTA.  It is not clear in the Act/Rules whether or not the non-processing area of a SEZ would be treated, for the purposes of the Section, as a part of the DTA.  The Committee recommend that ambiguity in this regard should be removed in the SEZ Act and Rules.

6.44  The Finance Ministry is reported to have made an estimate, based upon the first 70 SEZ approvals, showing a loss of total tax revenue worth Rs 102621 crore from 2006-07 to 2009-10, on account of the tax incentives provided under the SEZ Act. Out of this, loss of direct tax revenue is estimated to be Rs 53740 crore, and loss of indirect tax revenue, Rs 48881 crore.  The Ministry of Commerce feels that these figures are notional and do not take into account all the relevant factors.  Quite interestingly, both the Ministry of Finance and the Ministry of Commerce have commissioned separate expert agencies to make a cost-benefit analysis with regard to the Special Fiscal Provisions made for SEZs.  The reports of these agencies are awaited.  The Committee recommend that the whole gamut of fiscal incentives given to SEZ Developers and Entrepreneurs should be reviewed and so revised that the purpose, for which these concessions are being granted, is fully achieved.

 

6.45  It is often argued that the tax incentives provided in the SEZ Act and the consequent revenue loss will be more than compensated by the gains in terms of additional exports and employment generation. Equivalent tax concessions for the SEZ developers are also justified in terms of the extant income tax concessions provided for investment in infrastructure. However, the RBI has recently raised the interest cost of credit for SEZ developers, which shows that the Central Bank is unwilling to view SEZs as instruments of infrastructure development. Besides, the Finance Ministry has already initiated an exercise of rationalizing tax concessions, in keeping with the recommendations of the Kelkar Committee. The tax incentives and concessions provided in the SEZ Act would need to be reconsidered in the light of these facts.  For instance, there appears no justification for extending tax benefits given to the units in the processing area to the business activity in the non-processing area.  The Committee strongly recommend that the revenue implications of the tax holiday under the SEZ Policy should be seriously considered.

 

6.46  Fears have been expressed in many quarters that fiscal benefits to SEZ developers-cum-unit holders would affect competitiveness in the domestic industries. The said benefits have the potential of rendering the project cost cheaper in SEZs by 40% to 50%, which could have negative impact on the domestic industry. The SEZs could, thus, act as a disincentive and a dampener for DTA business.  The Committee are of the view that a level playing field should be provided to  the domestic industry vis-a-vis SEZs.

 

6.47  The provision for setting up Offshore Banking Units and International Financial Services Centres within the SEZs needs to be re-considered.  While the need for efficient financial intermediation and credit delivery for the purpose of industrial and export promotion within the SEZs is understandable, utmost care should be taken to ensure that these financial entities do not develop as tax havens for speculative finance capital. The Committee recommend that all financial activities should be within the regulatory ambit of the RBI and subject to the same tax provisions, regardless of whether their offices are located within the SEZ or in the Domestic Tariff Area. Moreover, the RBI should ensure that the financial activities permitted within the SEZs are strictly related to the economic activities within the Zone.

 

6.48  According to Rule 54 of SEZ Rules, read with Rule 53, the performance of a SEZ Unit is to be measured, based on Net Foreign Exchange Earnings only. This method of evaluating the performance of a Unit is not comprehensive enough to cover the avowed objectives of setting up SEZs, namely:

(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; and

(e)             development of infrastructure facilities.

 

Moreover, no yardstick has been laid down to evaluate the performance of a Developer.

6.49  The Department of Commerce has informed that in the SEZs notified after 10th February, 2006, an investment of Rs. 13500 crore approximately has been made.  These SEZs have provided direct employment to 18,457 persons.  The Department has projected that an investment of Rs. 53,561 crore and creation of 15,75,450 additional jobs are expected from these notified SEZs by December, 2009.  In fact, the Department expects an investment of Rs. 3,00,000 crore and creation of four million additional jobs if all the “formally approved” SEZs become operational. On the exports front, the Department has informed that the level of exports was Rs. 13,854 crore during 2003-04 and Rs. 22,840 crore during 2005-06.  The Department has projected the exports to grow to a level of Rs. 67,300 crore during 2007-08 and to cross the Rs. 1,00,000 crore mark by 2008-09.  In the light of these statistics the Committee feel that a holistic Performance Evaluation Approach should be developed to measure the performance of the Developer as well as the Entrepreneur, with specific reference to the stated  objectives and the projected targets of the SEZ scheme.

 

6.50  At present, there is no specific mechanism to check the flow of hawala or dirty money as well as the antecedents of the FDI in the SEZs. There is shortage of Customs Staff in the SEZs.  Some of the SEZs are employing security guards as agencies of customs.  There is an urgent need to augment the Customs staff of SEZs.   Besides, equipment like cameras, CCTV, containers, etc., are also required.   There is also a need to build an information system to link the ports and the SEZs, to improve connectivity and vigilance.

 

6.51  There is a need to counter the threat perception of anti – social elements causing law & order problem, in the context of deteriorating security scenario in the country. Greater vigil would be needed if an SEZ is located in a sensitive or hyper-sensitive security area. The Ministry of Home Affairs has issued guidelines requiring that the Department of Commerce, while granting permission to set up an SEZ, would include a security clause that the Developer would be responsible for providing security. However, it is not known whether the configuration and standards of the security to be provided by the developer have been laid down.  The Committee recommend that the Government should ensure standardization with regard to security to be provided by the Developers in SEZs.  Specific security measures should be prescribed for the SEZs located in sensitive and hyper-sensitive areas.  The Ministry of Home Affairs should devise a mechanism to monitor and evaluate the quality of security provided in the SEZs by their respective Developers.  That Ministry should also permit deployment of CISF for the security of SEZs, on payment basis.

 

6.52  Sub-section (1) of Section 49 of the SEZ Act empowers the Central Government to decide if any of the provisions of the SEZ Act (other than Sections 54 and 56) or any other Central Act or any rules or regulations made thereunder or any notification or order issued or direction given thereunder (other than the provisions relating to making of the rules or regulations) shall or shall not apply to SEZs. However, the proviso to this Sub-section restricts this power of the Central Government to laws, rules, regulations, notifications, orders and directions relating to matters other than those relating to trade unions, industrial and labour disputes, welfare of labour, including conditions of work, provident funds, employers’ liability, workmen’s compensation, invalidity and old age pensions and maternity benefits applicable in any Special Economic Zone.  It had been represented to the Committee that there has been an attempt to dilute the said Section 49 (1) through the instrumentality of  Rules 5 (5) (e), (f) and (g) of the SEZ Rules, which requires the State Governments to delegate powers under the Industrial Disputes Act to the Development Commissioner, and to declare SEZs as Public Utility Services. Moreover, the Model SEZ Act for the State Governments, framed by the Centre, contains a list of exemption clauses in labour laws, including in the Minimum Wages Act and the Contract Labour (Regulation and Abolition) Act. The Committee recommend that the deviations from the SEZ Act in the SEZ Rules, as well as the Model SEZ Act for State Governments  should be corrected, to ensure that no dilution of labour laws occurs.

 

6.53  It was pointed out to the Committee that the function of Grievance Redressal Officer (GRO) in a SEZ should not be performed by the Development Commissioner or any officer under him. It was also represented that the GRO should be an independent person or body, having the confidence of all the parties. The Committee feel that nobody should be allowed to be a judge in his own cause and, therefore, the functions of the GRO should be taken away from the Development Commissionerate, by making suitable changes in the SEZ Act.

 

6.54  The Labour Conciliation Machinery should be separate.  The Development Commissioner should not take on the role of Labour Commissioner.  He may be assisted by an officer of the Labour Department of the State Government, who has the experience in dealing with the labour issues. The idea should be to make applicable effectively the labour law of the land in each SEZ.

 

6.55  Section 31 of the SEZ Act provides for the constitution of a Special Economic Zone Authority (SEZA) in respect of each SEZ.  The functions of the said Authority, listed in Section 34 of the said Act, are as follows:

(a)             the development of infrastructure in the Special Economic Zone;

(b)             promoting exports from the Special Economic Zone;

(c)             Reviewing the functioning and performance of the Special Economic Zone;

(d)             Levy user or service charges or fees or rent for the use of properties belonging to the Authority; and

(e)             Performing such other functions as may be prescribed.

 

 

          Presently, SEZA comprises six members, with the Development Commissioner, as its Chairperson.  Other five members include three officers of the Central Government and two entrepreneurs or their nominees, all to be nominated by the Central Government. The composition of the Special Economic Zone Authority seems to be narrow, in as much as it does not appropriately represent different constituents involved in the functioning of SEZs. Moreover, the provision of 1/3rd Members forming the quorum which is equal to two members, including the Chairman, also seems to be inadequate. The Committee feel that the composition of the authority should be expanded to represent some more stake-holders. At least one nominee of the Developer, two nominees of the concerned State Government, one nominee of the resident workers, one financial expert and one security expert may be included in the composition of the Authority. One half of the total members may form the quorum for its meetings.

6.56  The Committee found during its visits, including at Chennai, about the shortage of staff in the Development Commissionerates, particularly on the Customs and Central Excise side. The Department of Commerce has been sending proposals for the creation of posts to the Ministry of Finance, after obtaining Cabinet approval for the staffing pattern of multi-product SEZs, with 23 numbers of staff, including the Development Commissioner, Joint Development Commissioner, Customs officials, etc. Despite having the Cabinet approval, the proposals of the Department of Commerce for creation of posts got stuck with the Ministry of Finance. After considerable time and effort, the Ministry of Finance is reported to have sanctioned 698 posts for 63 notified Zones. The Committee observe that development pursuit of such gigantic proportions should not be left to the whims and fancies of the Ministry of Finance and miniscule financial considerations should not come in the way of creating posts in the SEZs.  In future, creation of posts and posting of officials may be done alongwith the notification of a SEZ. For an effective administrative monitoring of SEZs, a single Development Commissioner should not be made to look after more than one SEZ and no time should be wasted in creating the remaining required posts.

6.57  The SEZ concept in India is still in its infancy.  Much more would need to be done, to make the scheme an epitome of success.  The fate of schemes like the Growth Centre Scheme is well known. The Government should, at some stage, pause and ponder, to evaluate the efficacy of the SEZ policy.  It should, therefore, consider to put in place a system for appraisal of the scheme, after a particular number of SEZs have been set up and after these SEZs have functioned for five years.

 


 

OBSERVATIONS AND RECOMMENDATIONS AT A GLANCE

 

1.      There is an imperative need to understand the cause of the farmers’ agitation and grievance. (Para 6.1)

2.      The Committee feel that the undue haste in approving SEZ proposals and the consequent proliferation of SEZs have contributed to the development of resistance against the SEZ policy. (Para 6.3)

3.      SEZs were meant to be engines of growth, both for industry and exports.  However, the opposition with which it has met during the last one year must make the Government take a fresh look at the policy as a whole and to re-frame it in such a manner that would make it people-friendly, besides achieving the objective of export-led industrial growth. (Para 6.4)

4.      The Committee recommend that no further SEZs should be notified till the SEZ Act and the Rules made thereunder have been amended to meet the public concerns with regard to various provisions contained in the said Act and Rules. (Para 6.5)

5.      The Committee feel that diverting land from agriculture does not merely mean reduction in production or income to farmers, it affects the entire gamut of social and cultural life of the farmers, agricultural labourers and others connected with the agricultural activities. (Para 6.6)

6.                Expansion of housing and related infrastructure and widening of roads in the countryside have resulted in fast depletion of land under cultivation. Emergence of townships near big cities is also eating up considerable land under cultivation. (Para 6.8)

7.      It takes huge investment and time to develop land for intensive cultivation and to provide it with irrigation.  If such highly productive lands are consumed by urbanization, big housing complexes and industrialization, including for Special Economic Zones, it will be hard to compensate their loss through development of equally productive new lands.  If this process is not controlled, it may cause threat to our food security.  The Committee recommend that the Government should take all necessary measures to ensure that the food security of the country does not get jeopardized at any cost. (Para 6.9)

8.      Globalisation and liberalization do not imply that all the attractive ideas from outside should be transplanted in our country, without evaluating their suitability and efficacy in our own socio-cultural and economic context. It would be equally wrong to promote industrial growth at the cost of agricultural growth. In a predominantly agricultural country like India, even an impression that the interests of agriculture or of farmers are being sacrificed at the altar of industrial growth, could be ruinous. SEZs, therefore, should not be allowed to come up at the cost of farmers.   The country should develop its own model for industrial growth and expansion, while safeguarding the interests of the farmers. (Para 6.10)

9.      The Committee, therefore, recommend that the existing cultivated land should be conserved for agricultural purposes and should not be diverted for non-agricultural purposes.  It should not be used even for extension of urbanization and industrialization. In the long term, the Regional Master Plans and Development Plans should incorporate land suitability analysis for the land use allocations, to identify the areas, intrinsically suitable for settlement, agriculture, industry, forestry, recreational uses, etc.  While preparing such Master Plans and Development Plans, it should be ensured that industrial development is not permitted in the Natural Conservation Zones, planned green areas, agricultural areas, ground water recharging areas and water bodies.  Instead, industries should be set up on wastelands, thereby putting a vast unutilized natural resource to a productive use.  The Committee further recommend that town planning should provide for green belts. Heavy penalties should be imposed against those who interfere with land resource and its productivity.  Environmental protection cannot succeed unless these measures are taken. The rights of tribals and poorer sections on common land should also be protected through legal and administrative structures. (Para 6.12)

10.           The Committee feel that restriction on use of agricultural land for SEZ purposes should not be a matter of administrative advice or guideline.  Rather, it should be clearly reflected in the SEZ Act and rules made thereunder. The Committee are also not in favour of double-crop/multi-crop/irrigated land being used for SEZs. The Committee, therefore, urge upon the Government to build unambiguous provisions in the SEZ Act, regarding the land to be utilized for setting up SEZs, on the following lines:

i)             There should preferably be a ban on the use of irrigated double-crop or multi-crop land for setting up SEZs.

ii)          Normally, only waste and barren lands should be used for setting up SEZs.

iii)        If it becomes unavoidable to make use of cultivable land, only single-crop, rain-fed land should be used. The percentage of such land should not exceed 20 % of the total area of a multi-product SEZ.  In respect of SEZs other than multi-product ones, this ceiling could be 40%.  These ceilings are with reference to the minimum and maximum areas proposed in paras 6.23 and 6.24.

iv)        It should be mandatory for the Developer to obtain permission of the State Government for purchasing single crop cultivable land for SEZ use.  (Para 6.16)

11.    The role of the State Government or the local administration should have been to facilitate the Sub-committee to meet the affected people, especially the farmers, who had come to express their grievances before the Sub-committee.  However, they were prevented from meeting the Sub-committee by the administration itself. It created the impression that the local administration at those places did not want the Sub-Committee to meet the farmers and to go into the question of land use, land sale and rehabilitation.  The Committee expect the State Governments to ensure that in such cases co-operation from their local administration is forthcoming. (Para 6.18)

12.    The onus of verifying the quality of land should lie with the State Government concerned.  The Gram Panchayats should also be involved in this process.  When the land for SEZs is proposed to be purchased by the private developers, the process should be preceded by a public notice inviting objections to the stated ‘kisam’ of land.  Response to such a notice could alert the State Governments to the possibility of manipulation of records.   The Committee recommend that the Government should specify a mechanism for this purpose in the SEZ Rules, besides introducing a column for the ‘type and quality of land’ in Form-A (application for setting up of SEZ). (Para 6.19)

13.    The Committee also recommend that the Board of Approval should not entertain any application directly from a Developer and the system of giving “in-principle” approvals should be discontinued forthwith. Applications should be considered by the Board of Approval only after obtaining the inputs of the State Governments, including those with regard to the type and quality of land. (Para 6.20)

14.    The Committee are surprised to note that the Ministry of Agriculture is not represented on the Board. Being an important stakeholder as well as an affected party, the Ministry of Agriculture must be represented on the Board of Approval. (Para 6.21)

15.    The Government may consider unlocking and recycling of land and assets of the closed industrial units under liquidation. A mechanism should be set up, to make available unlocked land of the closed units for setting up SEZs.  Similarly, land acquired for Growth Centres and other schemes, which have not been found sustainable, may be diverted for SEZs. (Para 6.22)

 

16.    The Committee feel that, under the present system, the Developers may be tempted to acquire more area than is necessary, particularly for developing profitable support activities in the non-processing area. It may, therefore, be necessary to prescribe a maximum area also for various types of SEZs, with the stipulation that at least 50 per cent of the area of the SEZs would be used as “processing area”.   This stipulation should not be relaxable.  The proposed upper limits are as follows:

     Type

               Maximum Area

 Maximum Area for Special States/UTs

 With an element of Cultivable Land

Only Wasteland

Multi-product

 2000  hectares

5000 hectares

 500  hectares

Multi-Services

200  hectares

500  hectares

200  hectares

Sector specific

200  hectares

500  hectares

200  hectares

IT

20  hectares

50  hectares

20  hectares

Gems and Jewellery

20  hectares

50  hectares

20  hectares

Bio-tech and Non-conventional energy (including solar energy equipments/cell but excluding SEZs for non-conventional energy production and manufacturing)

20 hectares

50  hectares

20 hectares

FTWZ

100 hectares

200 hectares

100 hectares

(Para 6.24)

17.    The Committee feel that if the existing tax benefits to the IT sector are extended for ten more years, the mad rush for SEZs in IT sector would automatically stop.  The Committee, therefore, recommend that the Government should take a decision on extending the tax holiday to IT sector for a further period, in the light of this analysis.  (Para 6.25)

 

18.    It has been recommended in para 3.10 that India should develop its own model of SEZ, keeping in view its own socio-cultural and economic imperatives. While doing so, it should be seen whether the SEZs are expected to be instruments of export-led industrial growth or should also ensure, at the same time, a balanced industrial growth in all regions of the country. The compatibility of these two objectives will also have to be examined. The Committee recommend that the much discussed issue of putting over-all and region-wise caps on the number of SEZs should be decided in the context of the scope, dimensions and objectives of the scheme.  The caps can be revised after a few years, considering the experience of the functioning SEZs. (Para 6.27)

 

19.    The Committee feel that the Land Acquisition Act, 1894 should be replaced by a modern legislation, which is relevant to the needs of the time.  The new land acquisition law should, inter-alia, be transparent in that it should inform the affected persons the purpose of acquisition, its implications for them and the resettlement package that would be offered to them.  Unless the public purpose for which the land is being acquired involves an over-riding national interest like defence/national security, the acquisition should take place with the consent of the affected parties.  Further, a National Relief and Rehabilitation Act should be enacted to provide a comprehensive compensation package to those  deprived of their lands.  The Committee understand that Ministry of Rural Development is already seized of the matter and is in the process of formulating  a new policy regarding relief and rehabilitation. While the Committee recommend that the new policy and legislation should be finalized expeditiously, in tandem with the amendments to be made in the SEZ Act and Rules, the following may be kept in view while deciding the new paradigm for relief and rehabilitation, in lieu of land:      

-                     Monetary compensation should be only a part of the compensation package and should be calculated on the basis of the prevailing market rates.  To ensure this, the State Governments should prescribe minimum prices for land in various areas, which should reflect the market rate, and review/revise these prices periodically.  Thereupon, whether the land is acquired by the Government or the SEZ Developer, the acquisition/purchase price should be higher than the minimum price fixed by the Government.

-                     It should be ascertained from the land-owner and his co-workers, including share-croppers and agricultural labourers, as to how they proposed to re-settle/rehabilitate themselves. The Government should provide assistance to the affected persons, accordingly, by way of an adequate resettlement allowance, employment, training, bank loans, etc.

-        Where the impact of acquisition is felt beyond the pale of land-owners and their co-workers, provision should be made to rehabilitate the affected community as a whole. (Para 6.29)

 

20.    It may, therefore, be of advantage if these people, instead of being displaced and compensated, become a part of the development process of the SEZ. This could be done in the following manner:

-                     Land should be taken from the land-owners on lease so that they get a one-time lump-sum premium, followed by periodic rentals for sustenance.  If the land is on lease, it would revert to the lessor in case the SEZ fails or is dissolved for any reason.

-                     At least one family member of the land-owner should be offered a suitable employment in the SEZ venture. It should be the responsibility of the developer to arrange necessary training of that person in skill acquisition/upgradation.

-                      Similarly, the whole range of agricultural workers, rural artisans, etc., depending upon farming activities and connected with the acquired land as well as other persons supporting and sustaining farming, should be given suitable employment in the “processing” or “non-processing” areas, in keeping with their skills.  They should also be imparted requisite training, as necessary.

-                     The feasibility of allotting equity shares to the land-owners in the Developer’s Company should also be considered. (Para 6.30)

 

21.    The State Governments must devise a system of periodic market surveys, to elicit the prevailing market rates for land in different areas.  They should fix minimum land rates based on such market surveys to strengthen the land-owners’ bargaining position vis-a-vis the SEZ developer. This will not only secure the interest of the farmers, but also result in reducing the element of black money in land deals, higher realization of stamp duty, and more economical use of land for Urban and Industrial purposes. (Para 6.31)

22.   The Committee are of the view that the ownership of land acquired by the State Government, even for a SEZ, should not be transferred to the Developer. Instead, the land should be leased out to the Developer on a long-term basis, with the provisions of extension duly built into the lease deed. (Para 6.32)

23.    The Committee are of the view that if the SEZs are a vehicle of development and an instrument  of growth, then less-developed and low-productivity areas also have an equal right to development, rather a better claim, because of being under-developed, and they should be encouraged to come into the mainstream of development, by making use of the SEZ Scheme. The Central Government should take suitable initiatives in this regard.   (Para 6.33)  

24.    Barring some exceptions, every part of the country has to be a constituent of a Panchayat or a Municipality for the purposes of local administration. Likewise, each SEZ should get the cover of a representative local self-government. The Government should make the status of the SEZs clear from the angle of local administration and incorporate it suitably in the SEZ Act/Rules. (Para 6.34)

25.    The SEZs should have a Master Plan for management of the civic amenities, which would determine the areas for the residential space, the commercial area, the green area, roads and pathways, etc. for an integrated development of an SEZ. The guidelines in that regard should include all the building structures and the services to be provided in SEZs, conforming to the planning and other requirements, as prescribed in the National Building Code. (Para 6.35)

26.    The Government should, therefore, enunciate a clear policy with regard to governance issues emerging as a result of setting up of SEZs in relation to areas surrounding SEZs. (Para 6.36)

27.    The Committee recommend that provisions should be made in the SEZ Act/Rules that all assets, including housing, created in the non-processing area would meet and subserve the requirements of those working in the processing area only and not for anyone else. (Para 6.37)

28.    The issue of housing facilities for the workers in the giant SEZs should be concretely addressed. The residential complexes within the SEZs should be built, not only for the management and office staff, but also for the workers. If the workers of the SEZ units are forced to stay outside the SEZ area, it would lead to a proliferation of shantytowns in the neighbouring areas. (Para 6.38)

29.    The Central Government, in collaboration with State Governments, should evolve a new Townships Development Policy, so as to attract investments and right kind of developers.  The incentives for the townships, farther from the existing Metros and big cities, should be stronger.  These new townships should be used for the benefit of the employees , workers and other stakeholders in the SEZs. (Para 6.39)

30.    The Committee feel that SEZ Rules seem to have gone farther than the enabling provision under the SEZ Act, which needs to be looked into.  An assessment also needs to be made of the loss of revenue that the States would suffer in consequence of extending such tax exemptions to SEZ Developers and Units and whether such loss would or would not be offset by the gains accruing to the State Governments. (Para 6.40)

31.    The Committee, therefore, recommend that the fiscal incentives for the Developers should be specified separately and only such incentives should be given as are conducive to attracting FDI and promoting exports. (Para 6.41)

32.    The Committee recommend that fiscal exemptions, which are unrelated to exports, should not be granted.  The provisions regarding direct/indirect taxes should be corrected, and loopholes should be plugged. Tax benefits should be granted only for export activities and infrastructure development. (Para 6.42)

33.    The Committee recommend that ambiguity in this regard should be removed in the SEZ Act and Rules. (Para 6.43)

34.    The Committee recommend that the whole gamut of fiscal incentives given to SEZ Developers and Entrepreneurs should be reviewed and so revised that the purpose, for which these concessions are being granted, is fully achieved. (Para 6.44)

36.    The tax incentives and concessions provided in the SEZ Act would need to be reconsidered in the light of these facts.  For instance, there appears no justification for extending tax benefits given to the units in the processing area to the business activity in the non-processing area.  The Committee strongly recommend that the revenue implications of the tax holiday under the SEZ Policy should be seriously considered. (Para 6.45)

37.    The Committee are of the view that a level playing field should be provided to  the domestic industry vis-a-vis SEZs. (Para 6.46)

38.    The Committee recommend that all financial activities should be within the regulatory ambit of the RBI and subject to the same tax provisions, regardless of whether their offices are located within the SEZ or in the Domestic Tariff Area. Moreover, the RBI should ensure that the financial activities permitted within the SEZs are strictly related to the economic activities within the Zone. (Para 6.47)

39.    In the light of these statistics the Committee feel that a holistic Performance Evaluation Approach should be developed to measure the performance of the Developer as well as the Entrepreneur, with specific reference to the stated  objectives and the projected targets of the SEZ scheme. (Para 6.49)

 

40.    There is an urgent need to augment the Customs staff of SEZs.   Besides, equipment like cameras, CCTV, containers, etc., are also required.   There is also a need to build an information system to link the ports and the SEZs, to improve connectivity and vigilance. (Para 6.50)

41.    The Committee recommend that the Government should ensure standardization with regard to security to be provided by the Developers in SEZs.  Specific security measures should be prescribed for the SEZs located in sensitive and hyper-sensitive areas.  The Ministry of Home Affairs should devise a mechanism to monitor and evaluate the quality of security provided in the SEZs by their respective Developers.  That Ministry should also permit deployment of CISF for the security of SEZs, on payment basis. (Para 6.51)

42.    The Committee recommend that the deviations from the SEZ Act in the SEZ Rules, as well as the Model SEZ Act for State Governments  should be corrected, to ensure that no dilution of labour laws occurs. (Para 6.52)

43.    The Committee feel that nobody should be allowed to be a judge in his own cause and, therefore, the functions of the GRO should be taken away from the Development Commissionerate, by making suitable changes in the SEZ Act. (Para 6.53)

44.    The Labour Conciliation Machinery should be separate.  The Development Commissioner should not take on the role of Labour Commissioner.  He may be assisted by an officer of the Labour Department of the State Government, who has the experience in dealing with the labour issues. The idea should be to make applicable effectively the labour law of the land in each SEZ. (Para 6.54)

45.    The Committee feel that the composition of the SEZ authority should be expanded to represent some more stake-holders. At least one nominee of the Developer, two nominees of the concerned State Government, one nominee of the resident workers, one financial expert and one security expert may be included in the composition of the Authority. One half of the total members may form the quorum for its meetings. (Para 6.55)

46.    The Committee observe that development pursuit of such gigantic proportions should not be left to the whims and fancies of the Ministry of Finance and miniscule financial considerations should not come in the way of creating posts in the SEZs.  In future, creation of posts and posting of officials may be done alongwith the notification of a SEZ. For an effective administrative monitoring of SEZs, a single Development Commissioner should not be made to look after more than one SEZ and no time should be wasted in creating the remaining required posts.  (Para 6.56)

47.    The Government should, at some stage, pause and ponder, to evaluate the efficacy of the SEZ policy.  It should, therefore, consider to put in place a system for appraisal of the scheme, after a particular number of SEZs have been set up and after these SEZs have functioned for five years. (Para 6.57)


 

 

APPENDICES

 

 

 

 APPENDIX - I

List of approved SEZs

(Vide para 1.46 of the Report)

 

Sl. No.

Statewise No.

Name of the developer

Location

State

Type of SEZ

Area Hectares

 

Andhra Pradesh

 

 

 

 

 

1

1

M/s. Divi’s Laboratories Ltd

Chippada, Visakhapatnam, A.P.

AP

Pharmaceuticals

101

2

2

WIPRO Limited

Hyderabad, A.P.

AP

IT

6

3

3

Apache Investment Holdings Pvt. Ltd.

Hyderabad

AP

Footwear

101

4

4

M/s. Hyderabad Gems SEZ  Ltd.

Hyderabad

AP

Gems and Jewellery

80.93

5

5

M/s.  Ramky  Pharma city (India) Limited

Village Lemarthi, Visakhapatnam District, Andhra Pradesh

AP

Pharmaceuitacals

243

6

6

M/s. K. Raheja IT Park (Hyderabad) Pvt. Ltd.

Madhapur, Ranga Reddy District, Andhra Pradesh

AP

IT/ITES

16.29

7

7

Information Technology and Communications Department, Government of A.P. and APIIC

Village Madhurawada, Visakhapatnam, A.P.

AP

IT/ITES

16

8

8

M/s. Satyam Computer Services Ltd.

Thotlakonda, Visakhapatnam

AP

IT/ITES

20.23

9

9

M/s. Satyam Computer Services Ltd.

Bahadurpalli, Hyderabad

AP

IT/ITES

10.52

10

10

M/s. Satyam Computer Services Ltd.

Hyderabad

AP

IT/ITES

12.14

11

11

M/s. A.P. Techno Projects Pvt. Ltd.

Madhupur, Hyderabad

AP

IT/ITES

10

12

12

M/s. C.A. Computer Associates India Private Ltd. (since withdrawn)

Nanakramguda Village, Ranga Reddy District, A.P.

AP

IT/ITES

12.14

13

12

Information Technology and Communications Department, Government of A.P. and APIIC

Village Madhurawada, Visakhapatnam, A.P.

AP

IT/ITES

36

14