EGoM on SEZs has merely tried to answer critics

EXIM MATTERS

The empowered group of ministers (EGoM) has missed an opportunity to take a holistic view of the policy on special economic zones (SEZ). It has merely tried to answer the critics.

The purpose of the SEZ policy was to help developers create world-class infrastructure, offer a package of fiscal incentives and assure a hassle-free environment that would attract investments from across the world. With the maximum land area now capped at 5,000 hectacres, out of which a minimum of 50 per cent is to be reserved for processing activities, few developers will be interested in creating infrastructure. The SEZ that come up will probably resemble the industrial estates created by state governments in the seventies and eighties.

The major flaw in the SEZ policy is to allow sector-specific SEZ with very little minimum area stipulation. The policy enables many companies to establish their own SEZs. So, many companies have decided to set up their own SEZs and carry out their expansion plans in SEZs with a view to take full advantage of the fiscal incentives, in particular the income-tax exemptions.

The EGoM has allowed itself to be influenced a bit too much by the land acquisition issue. Commerce Minister Kamal Nath has repeatedly made the point that land acquisition and rehabilitation are not SEZ-specific issues. They are issues to be necessarily tackled whenever any agriculture land has to be diverted for industrial use. This matter should have been best left to states because in some states (like Gujarat), there is enough waste or saline land that is not being used. There ought to be no objection to the development of any such land for industrial use. The Adani SEZ project at Mundra in Kutch district of Gujarat is a good example of private developers bringing to use large tracts of unused land.

By putting a cap on the land area without a closer look at the minimum area, the EGoM has discouraged creation of the much-needed infrastructure in large multi-product SEZs and encouraged too many small SEZs all over the country. This will create severe administrative problems. The Customs, for example, will have to find enough manpower for all SEZ Customs stations. Large movement of goods from domestic tariff area (DTA) to SEZ, from one SEZ to another SEZ, from SEZ to gateway ports and the other way round "� the procedural aspects and paperwork relating to such activities can tie down an army of bureaucrats and lead to litigation. The finance ministry has already expressed grave reservations regarding revenue leakages due to the SEZ scheme. The commerce ministry has countered the objections by alleging that the revenue leakages are merely notional because without the necessary tax breaks, the investments will not materialise in the first place. Even after conceding the arguments of the commerce ministry, it is difficult to find merit in a policy that will result in creation of thousands of small SEZs.

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