Reflecting the political opposition to Special Economic Zones from within a section of his own party, Congress Working Committee member and former Karnataka chief minister Veerappa Moily sent a letter on January 4 to the Group of Ministers, headed by Pranab Mukherjee, listing his objections and “suggestions.” He based these on his observations at another meeting, on December 20, between the UPA government and the Left parties on the SEZ issue.Official records obtained by The Indian Express show that Moily’s questions on SEZ overlooked some basic facts. This point was reinforced by the Commerce Ministry’s detailed reply presented at the GoM last week. Consider the following: Moily: Main thrust of the SEZ scheme should be exports. Whether tax exemption of export profits from corporate tax, which are in the nature of export subsidy, should continue? Fact: Tax concessions to SEZs are similar to the ones already in existence for 100 per cent Export Oriented Units (EOUs) and Software Technology Parks. Concessions given to SEZ developers are given as incentives for their huge investment in setting up world-class infrastructure. This infrastructure is primarily for use by SEZ units, which have a long gestation period to become economically viable. Further, income tax concessions are available to units only on export income. The export obligation for EOUs and the SEZs is the same. In fact, the duty on domestic sales by EOUs is far lower than the duty required to be paid by SEZ units for clearance of their products in the domestic market. Not only is the SEZ export-oriented but it also lays equal emphasis on creation of additional investment, infrastructure resulting in economic activity and generation of employment. The SEZ units have to maintain export-focus since they are under obligation to achieve a positive net foreign exchange earning within five years of commencement. Thus, the benefit derived from multiplier effect of investments and additional economic activity outweighs the tax exemptions. Moily: Give importance to manufacturing sector.Fact: Given India’s competitiveness in the services sector, it may not be appropriate to restrict SEZs only for manufacturing and excluding services. But of the 237 formal approvals given to date, 80 are for textiles and apparels, leather footwear, automobile components, engineering and other sector specific SEZs that involve labour intensive manufacturing. The employment projected in 63 notified SEZs so far is over 8,90,000 and the total investment touches Rs 60,000 crore. In Sriperumbudur, SEZs are spread out in 100,000 acres with investment expected to touch Rs 20,000 crore with top-end manufacturing going on in Motorola-Dell, Flextronics, Nokia, Foxconn, Samsung and Dell SEZs. Moily: Land Acquisition Act, 1894 does not take holistic approach on issues such as livelihood security, rehabilitation, compensation etc and needs to be revisited. Livelihood concern of those ousted in SEZ scheme should be the prime concern. Special rehabilitation package for SEZ to be designed. Fact: Each state has its own specific land acquisition policy as also relief and rehabilitation package depending on the circumstances. In Maharashtra, the state industrial development corporation has come out with a package that includes assured employment for members of the displaced families and land at concessional rates for them in developed areas. Acquisition is carried out by the state governments for various purposes such as national highway, roads, ports, airports, power projects, education institutions. As the policy could have an adverse impact on other state projects also, any special provision for a rehabilitation package for SEZ may be counter-productive. Already SEZ developers are required to provide adequate relief and rehabilitation. If the land acquisition act is amended then the same will applicable to all SEZs. Moily: Need for vigilance on social costs and consequences of the SEZs. Fact: With the GoM looking into implementation and functioning of SEZs at regular intervals, the social costs including regional imbalances are duly addressed. As of now, the SEZs are spread over 16 states and three Union Territories and the SEZ Act was passed by Parliament with three amendments. In Moily own’s state, there were no land acquisition in the 3000 acre Karnataka-ONGC SEZ near Mangalore and Karnataka State Industrial Corporation proposed SEZ in Hassan that is stuck due to security problems.Moily: Need for far-sighted planning to build SEZs into future world class cities with proper land use planning and adequate social infrastructure facilities. Fact: The non-processing area concept in SEZ is for creation of support infrastructure so as to develop self-sustaining townships and to ensure that increased economic activity does not put pressure on the municipal system. The SEZ developer would be responsible for all civic amenities and infrastructure including roads, sewerage, open spaces, green spaces, education facilities, power, water, housing. The SEZs follow the Centre’s Urban Development Plan Formulation and Implementation guidelines. They have to abide by state town planning regulations and have a master plan. Moily: The State should be ultimate equity holder in SEZs and such projects to be in a public private framework. Fact: One of the SEZ objectives is to attract additional investment from domestic and foreign sources as well as development of infrastructure facilities. Limiting the establishment of SEZ to only public-private partnership may be counter-productive and may strain the limited public resources that stand committed to health care and other social schemes. As of now, over 60 approved SEZs are by the SIDC or their agencies. Moily: Need to restructure the Board of Approvals by putting in people who are objective and take a balanced view. Fact: All decisions take in the BoA, headed by Commerce Secretary, are by consensus. With 18 members in the Board from all walks of government, even relevant state governments are consulted during SEZ approvals. (Part III : How politics over economics prevailed in SEZ GoM)
