Does death of SEZ policy mean biggest real estate scam?

The government has lost interest in the Special Economic Zone policy, which it had devised in 2005 in order to boost economic activity in the country.

According to a report in the Business Standard today, the government may discontinue its SEZ policy as it is tired of the controversies and protests that the policy has given rise to.

The Icrier (Indian Council for Research on International Economic Relations) will study whether the policy has indeed delivered on the objectives it was devised for. If it has not, there is no reason to continue with the policy, a commerce ministry official has been quoted as saying in the report.

Reuters

Reuters

It is significant that the comment is coming from an official of the department of commerce, which has always favoured the policy. Had this been from an official with the finance ministry, it would not have been a surprise, as this ministry has always been against the policy.

The commerce and finance ministries have always been at loggerheads as far as the effectiveness of the policy is concerned.

At the outset, the finance ministry was of the opinion that the promotion of SEZs, by giving huge tax breaks to the developers, result in a loss of over Rs 1,60,000 crores to the public exchequer in the first four years.

The commerce ministry was not ready to buy this argument. On the contrary, it expected a net revenue gain of Rs 44,000 crores in the first two years and creation of 500,000 jobs. It also expected the SEZs to attract Rs 100,000 crores worth investments in this short span.

The differences of opinion never ebbed. According to the BS report, the finance ministry never believed the numbers given out by the commerce ministry about the exports from and jobs created by these zones.

So what were the objectives of the policy? As envisioned by the SEZ Act of 2005, they 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.

As per the BS report, the SEZs that are now operational are doing well. In 2012-13, exports from SEZs rose 30 percent to $88 billion, which forms 29 percent of the total exports. In 2011-12, the increase was 17 percent. At $44 billion in 2012-13, investments in SEZs are also significant. The fairing on the jobs front is also good. As of March 31, SEZs have generated 1,074,904 jobs.

If these figures are to be believed, the policy's stated objectives have been by and large met. Then why is the government veering towards such a drastic decision?

The answer can only be the controversies related to land use and acquisition. There have been peasant protests against takeover of agricultural land, some of them, like that of Nandigram in West Bengal, even took a bloody turn.

"The current promotion of SEZs is unjust and would act as a trigger for massive social unrest, which may even take the form of armed struggle," former Prime Minister VP Singh had once warned.

So at the heart is the question whether agricultural land should be used to set up industries? How can the government effectively bring about a rehabilitation and resettlement policy for the farmers who are displaced from their land?

According to the BS report, the commerce ministry wants to do away with the SEZ policy so that it can go full steam ahead with the National Investment Policy, which envisages setting up of the National Manufacturing and Investment Zones.

According to a report by Corporate Catalyst India, NMIZ are a "combination of production units, public utilities, logistics, environmental protection mechanisms residential areas and administrative services". These will be set up over 5,000 hectares. The objectives are a) increasing the sectoral share of manufacturing in GDP to 25 percent by 2022; b) doubling the current employment level in the sector; c) enhancing global competitiveness of the sector.

So, the government should have ideally devised the new policy by taking into account the flaws in the SEZ policy. But has that really happened? Media reports suggest it has not.

According to a report in the Economic Times, as many as five states have written to the department of industrial policy and promotion, saying they are finding it difficult to acquire such huge tracts of land as they will have to acquire agricultural land. They want the Centre to revise the minimum land requirement.

So, here is a new policy, which will have to grapple with the old problems on implementation. This gives rise to doubts as to why is the commerce ministry trying to discontinue the SEZ policy.

The BS report says once the SEZ policy is discontinued, the government will allow the developers who have got the approval for SEZs to use the land acquired for other purposes.

As per the report, the government has given formal approval for 577 SEZs. Of this, 389 have been notified. Notifying is the last step in setting up the SEZ. So there are 188 SEZs that have got the formal approval and possesses the land. If these developers hold on to their land until the government scraps the policy, they can use this land for other purposes.

Scrapping of the SEZ policy definitely has the potential to turn into the biggest real estate scam in India.