GoM let Singur’s politics prevail over SEZ economics

The key points that the EGOM brushed aside as Mukherjee said that Nandigram and Singur “could not be treated lightly and were matters of concern”:

• On the Left demand for reviewing tax concessions: The Commerce Ministry pointed out that the Chinese rate of corporate tax in SEZs is around 15% compared to 30-33% in India not to mention that Beijing was giving land almost free of cost with powers to developers to hire and fire labour.

• Tax concessions and exemptions in SEZs was a global practice, the rate of corporate tax in Ireland was 10% and this had resulted in huge FDI inflows (Ireland was ranked 21 in the world in 2004 but is now number 7). United Arab Emirates, the GoM was told, provided 100% exemptions from corporate tax in perpetuity and in China, income tax exemptions continue for two more years after the units come into profit.

• On Left’s claim that labour rights will be diluted: The Ministry said that the SEZ Act and Rules envisage that the developer shall abide by local labour laws in force. Under the provisions of the SEZ Act, the Central Government does not have the powers to relax any law relating to the welfare of the labour in these zones. There are no separate labour laws in the SEZs.

• The delegation of powers of the Labour Commissioners to the Development Commissioner under the Industrial Disputes Act in the SEZ is aimed at facilitating early resolution of disputes. Declaration of SEZ units as public utilities was prevalent before the SEZs came into existence and were aimed at avoiding flash strikes.

• On criticism against “enclaves of speculative finance…off-shore banking units (OBU):” The Ministry said that the the operation of OBUs is governed by the provisions of the SEZ Act, 2006. Accordingly, any application for setting up and operating an OBU is to be made with the RBI. It is only after the RBI is satisfied that the applicant meets all terms and conditions that the Bank will grant permission for setting up of OBU.

• On why land belonging to closed industrial units isn’t used for SEZs: The Ministry said that the main objective of the SEZ was to generate additional economic activity, attract investment and infrastructure and therefore conversion of existing industrial units into SEZ could not be allowed as the former would not be free from encumbrances on the assets including land. Further liabilities in the form of labour dues, statutory dues, dues from financial institutions could arise

• On increase of non-processing area in multi-product SEZs from 35 to 50%: No request for relaxation in the processing area has been received from any of the developers. In sector-specific SEZs, the minimum processing area is 50%. The fact is that in a multi-product SEZ, residential land use is currently at 27% although Urban Development Ministry guidelines allow 35-40%. Commercial land use is 2.8% although 4-5% is allowed. And industrial land use is 35% although 10-12 per cent is allowed.

• On the Centre prescribing maximum area of SEZ developed in the private sector: The Ministry argued that under the rules, only a minimum land area requirement for different classes of SEZ has been prescribed. The maximum size of SEZ should be left to market forces and respective state governments.

On not allowing real estate companies with no track record in manufacturing or export from becoming SEZ promoters: Since SEZ focus is on developing industrial townships, the Ministry said, private enterprises which have proven track record in taking up greenfield self-contained township projects may be successful.

Further, the actual user developers may give priority only to companies connected with their business activity and not to competitors. It is expected that participation of these companies, which do not have any manufacturing and exports of their own, would result in creation of infrastructure for use by exporting companies including small and medium enterprises, which currently constitute about 90% of the SEZs.