Citizens’ Research Collective on SEZ

The inter-Ministerial group must settle expeditiously the twin issues of export obligations and a better legal framework for land acquisition for SEZ projects to progress smoothly.

Nine months after the Finance Ministry first raised the issue, the Empowered Group of Ministers was scheduled to meet a few days ago to discuss an export obligation clause for Special Economic Zones (SEZs). The details of that meeting, which the Commerce and Finance Ministers too would have attended, are not yet known but it is to be hoped that some sort of settlement will be reached on the differences between the two economic Ministries. North Block has insisted that SEZ units should be given the tax incentives only on the condition that they would export 51 per cent or more from the SEZ area. When first mooted, there were loud protests, with the Commerce Ministry retorting that the net foreign exchange earning provision for the units was enough to guarantee them tax breaks. Regardless of the manner in which this issue is settled it is fairly clear that the two most critical Ministries do not see eye to eye on the one policy initiative for which the Government can claim singular credit.

The Finance Ministry has always had its doubts about the SEZ policy, beginning with the prospect of revenue loss with the kind of tax breaks promised under the Act — fears that were repeatedly countered by the Commerce Ministry with its own figures. Since the issue is prospective, opinion has tended to be divided, just as it is on the amount of employment SEZs could generate a decade after their operations. But the inter-Ministerial differences do not reflect some other crucial problems with the SEZ route to rapid development, the most prominent of which is the policymakers’ assumption that land acquisition would be the least of the problems.

As the experience from various parts of the country has shown, acquiring land could prove the biggest deterrent to the industrial development of many States that most need it to boost employment through SEZs or otherwise. So far, New Delhi has not provided States with an enabling legislation for the process of land transfers that can address the growing suspicion among farmers in many States that the SEZ is just another garb for land-grabs. That in some States, savvy farmers are collectively organising their own SEZs or that in others, land transfers do not seem problematic does not absolve the Centre of the need for a framework that would help other States deal with violent opposition to land transfers as more than law and order problems. Getting the export clause right is not as difficult as persuading farmers in backward rural areas with falling incomes, especially in States that need industry, to perceive the SEZ as the best alternative to their status quo.

Source: The Hindu, February 07, 2008