Preferential treatment industrial enclaves such as special economic zones (SEZs) — a key ingredient of industrial and export promotion policy in India over the past two decades — seem to be faltering, if the utilisation of land is anything to go by. Out of the total notified area of 44,177.69 hectares in respect of 349 notified SEZs, 27,029.77 hectares — or over 60 per cent — was reported to be lying vacant as on January 31, 2016, according to the latest data collated by the government for submission before a parliamentary panel.
The SEZs, which were originally supposed to be Chinese-style, self-sustaining industrial enclaves aimed at transforming India into an export-led manufacturing powerhouse, have largely struggled to take off. It is evident from the export numbers: the total exports from all of India’s operational SEZs, at $72 billion in 2015-16, was just over half the turnover of China’s Pudong New Area SEZ ($126.9 billion in 2016) and a quarter of the Shenzhen Special Economic Zone’s turnover of $283.2 billion in 2016, according to data from the China Daily and Asia News Network. When developing Shenzhen in the 1980s, China was still a planned economy that was only beginning to open up, while in the 1990s, when developing Pudong, China had started making a significant transition to becoming a market-oriented economy.
The vacant SEZ land in India, according to officials, is primarily with the private sector, while some of it is also with state public sector undertaking (PSU) developers. A detailed break-up was not available.
Exports from India’s SEZs have largely been struggling to grow. There was a decline of around seven per cent in exports in 2014-15 as compared to exports during 2013-14. However, there has been a marginal increase of 0.77 per cent in the exports from SEZs during 2015-16 when compared to exports during 2014-15. “While exports have been affected adversely due to general decrease in demand from major export markets, the performance in respect of exports from SEZs has been better as compared to overall exports from the country,” a senior government official said in response to queries on the issue.
Government records show that at last count, there were a total of 224 SEZs that were designated as “non-operational”, while another 109 have been approved for cancellation, primarily on account of the lack of substantive progress in the project or on a request by the developer (see chart). Currently, 210 SEZs are operational, according to the government data updated till April 2017.
Technically, as per Rule 6(2)(a) of the Special Economic Zones Rules, 2006, the letter of approval granted to a SEZ developer is valid for three years, within which time effective steps are to be taken by the developer to implement the approved proposal. The Board of Approval (BoA) may, on an application by the developer, extend the validity period of the letter of approval. There are cases where some SEZs developers have sought extension of validity period of the letter of approval granted to them for the execution of their projects for various reasons, including adverse business climate due to global recession, delay in approvals from statutory state government bodies, delay in environmental clearance, lack of demand for space in SEZs, unstable fiscal incentive regime for SEZs. During the last three years and the current financial year (up to January 2017), the BoA has granted more time to 143 developers of SEZ across the country to complete their projects.
“The development of land and allotment to units by the developers is done based on the demand and market conditions. The government, on the basis of inputs received from stakeholders on the policy and operational framework of the SEZ Scheme, periodically reviews the policy and operational framework of SEZs and takes necessary measures so as to facilitate speedy and effective implementation of SEZ policy,” a government official said, justifying the cancellations.
“The setting up of SEZs is a long-term process and delay in commencement of commercial operations of the special economic zones may be due to various reasons which include time taken in getting approvals from statutory bodies, adverse business climate due to changed global economic situation or changes in fiscal incentives,” he added.
The slew of cancellations and withdrawal of approvals is despite a number of review measures and incentive schemes aimed at revamping the SEZ policy in the country and resolving the hurdles, including a move to reduce the minimum land area requirement for setting up of new SEZs and a new category — “agro-based food processing” sector — having been introduced to encourage agro-based industries in SEZs. Also, dual use of facilities such as ‘social and commercial infrastructure’ by SEZs and non-SEZs entities has been allowed in order to make SEZ operations more viable and online processing of various activities relating to SEZ developers and units has been introduced for improving ease of doing business.
On January 9 this year, following a plea seeking the return of unused land acquired for setting up of SEZs to farmers and a court-monitored Central Bureau of Investigation (CBI) probe into alleged flouting of SEZ rules by beneficiary corporates, the Supreme Court had sought responses from the Centre and seven states. The court had issued notice to the Ministry of Commerce and Industry and states of Telangana, Andhra Pradesh, Maharashtra, Karnataka, Tamil Nadu, West Bengal and Punjab, on the public interest litigation (PIL) that alleged that much of the land acquired for the SEZs were lying unused.