Business Daily from THE HINDU group of publications
Friday, Oct 06, 2006
Industry & Economy - Infrastructure
`There are safeguards to prevent real-estate profiteering from SEZs'
The Special Economic Zones (SEZs) have, of late, become a polemical subject with political parties joining the fray in decrying the concept as a land scam that will drive farmers out of their farms. For instance, the 10,000-acre Mahamumbai SEZ and the Dadri SEZ, in Uttar Pradesh have provoked intense debate about giving away vast tracts of land for a song.
But the justification for large SEZs, such as the ones set up in China, stems from the fact that size of the land is crucial as housing, education, health, recreational and security facilities need to be made part of these enclaves if they are to attract investors.
Protagonists of big SEZs contend that it would be wrong to designate a manufacturing cluster an SEZ without making adequate provisions for state-of-the-art connectivity.
Even as the controversy over the growing number of SEZs rages, the Board of Approval (BoA) for SEZs is holding its sixth meeting in the Capital today (Friday) under the Chairmanship of the new Commerce Secretary, Mr Gopal K. Pillai. With 120 more SEZs awaiting in-principle approval, Mr Pillai has been promoting the concept with zeal from Day One, when the Commerce and Industry Minister, Mr Kamal Nath, took it upon himself to make SEZs a magnet for attracting investment and manufacturing activity, and generation of employment and export proceeds.
Excerpts from Mr Pillai's interview to Business Line, his first to the press since taking office.
There is much controversy concerning the SEZs. Could you clarify the concept and explain how it is going to result in higher exports and forex receipts?
SEZs have the objective, among others, of generating additional economic activity, promoting export of goods and services, promoting investments from domestic and foreign sources, and developing infrastructure facilities.
The SEZ Act, 2005 provides the investor with a predictable environment and attracts investments both from within the country and abroad.
Is it true that the mad rush before lifting of the ceiling on SEZs clearance was responsible for concerns of real-estate fortunes being made in developing SEZs to the detriment of the agriculture sector?
First, let me clarify that no land in the SEZ can be sold and there are adequate safeguards to prevent any real-estate profiteering. The Act itself provides that the SEZs will create world-class infrastructure, which includes roads, power and water supply, commercial complexes and housing, and these cannot be said to be real-estate scams. We are aware that some land acquisition is taking place in respect of certain cases where in-principle approvals have been given. The total extent of land that would be acquired would be insignificant compared to the total cultivable land in the country. Even then the BoA is aware of the concerns of the agricultural sector and has issued guidelines that State governments should acquire land, which is either barren or wasteland or single cropland. Where it becomes essential, for the purposes of meeting the area requirements, for double cropland to be acquired, this should not exceed 10 per cent of the total area acquired. State governments have also been sensitised to ensure that minimum area is acquired and that farmers are given adequate compensation and suitably rehabilitated.
What about the apprehensions of developers, who are given land at concessional rates, exploiting prime land for ulterior uses and not infrastructure development?
The BoA has laid down detailed guidelines on the authorised uses that could be undertaken in the SEZs by developers. In a multi-product SEZ, the cost of social infrastructure investments can range from Rs 1,500 crore to Rs 3,500 crore. These investments are not immediately financially viable and, therefore, tax concessions are provided to encourage developers to build social infrastructure, which are directly related to the requirements of the manufacturing/services units in the SEZs.
What is the status of the notified SEZs and how much activity have they generated in terms of employment, exports and attracting investments till date to deserve the various tax breaks they enjoy?
As of date, only 32 SEZs have been notified, of which only one is a multi-product SEZ. Only a few of these notified SEZs have become operational in the seven months since the Act and Rules were notified. It is expected that by December additional employment of 80,000 would be created in the zones and indirect employment created outside the zones will be three times that. The total investment so far is around $700 million and by December 2007 over five lakh additional jobs would be created within the SEZs and 15 lakh jobs outside. The total investment would be of the order of $10 billion, while the additional employment in the construction phase is expected to be 2.6 billion man-days by December 2007. Within five years, the total investment is expected to be around $30 billion and additional employment of 15 lakh will be created within the SEZs.
What is the assessment of the Commerce Ministry on the notional and genuine losses, voiced by the Ministry of Finance, of tax incomes by these entities and what is the inbuilt mechanism that the SEZ managers have evolved to obviate the misuse of such concessions?
The Commerce Ministry is of the view that the generation of additional economic activity and employment as indicated above would more than offset the loss of tax revenues due to the various fiscal concessions given by the SEZ Act. Our estimate is that in the next five years, there would be a positive gain for the Government in revenue.
The various provisions in the SEZ Act and Rules make sure that the possibility of misuse of tax concessions is minimal. Only activities approved by the BoA are eligible for tax concessions. The SEZs are tightly monitored and no misuse will be permitted.
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