A K Bhattacharya: SEZs: It`s now time to move on

NEW DELHI DIARY

A K Bhattacharya / New Delhi October 11, 2006

Special economic zones are now here to stay. Prime Minister Manmohan
Singh has lent his weight behind the SEZs. Notwithstanding the many
valid objections raised by Finance Minister P Chidambaram, Planning
Commission Deputy Chairman Montek Singh Ahluwalia and several other
experts, promoters and proponents of SEZs should heave a sigh of relief.
The policy may see some tinkering here and some tweaking there, but the
SEZ bandwagon should roll on.

So, perhaps it is time now to accept these zones as reality, and,
instead of merely opposing them, work towards a scheme in which the
least damage is done to the economy. Note that the Left, which was once
strident in its opposition to the SEZ scheme, has modified its stance
and seems to be at peace with the policy. Not entirely unrelated to this
change of heart is the fact that the two Left-ruled states of West
Bengal and Kerala have 13 and 10 SEZs approved for themselves,
respectively.

For the record, 181 zones have already been approved and 225 more are
awaiting clearance. The total area to be covered by these zones will be
approximately 1,000 square kilometres or equivalent to about two-thirds
of Delhi’s total land area. Close to one-third of this area (350 square
kilometres to be precise) will have to be used for processing
activities, while 400 square kilometres will be used for maintaining a
green belt and creating sewage and water treatment facilities, according
to the government. And the rest—about 250 square kilometres—will be used
for real estate projects.

Clearly, the scale of these operations is going to be huge. There are
implications for the real estate sector, social and economic
infrastructure in and around these zones, and of course the millions of
farmers whose land will have to be acquired before the zones are set up.
The government has argued so far that not an inch of agricultural land
will have to be acquired to set up the first lot of 181 zones, approval
for which has already been granted. But that argument will not hold
water for the 225 new zones, whose approval is under consideration.

Yet, it is not enough for the government to focus only on the farmers
and the need to protect their land rights. The issues thrown up by the
SEZ scheme are far more complex and need a co-ordinated policy approach.
A good beginning for the government will be to agree on a set of
conditions that will never be violated or diluted. If necessary, the
government could even set up a group of ministers (this is one policy on
which the Manmohan Singh government seems to have forgotten to set up
such a body!) to decide on these conditions. Here is a list of what
these conditions could be.

First, the government should make a solemn announcement that once the
SEZ norms have been finalised, there will be no further change in them.
For, far too many times has the government altered the norms for these
zones. Should the land use norms be changed to allow promoters to build
more residential complexes? Or should more area be reserved for the
processing activities? These are norms that should be sealed and signed
once and for all. The government should send out a clear signal to all
that rules once framed are not going to be changed or diluted under any
pressure.

Secondly, promoters of the zones should not be allowed to trade in them.
Rules should be so framed as to disallow promoters to sit on the project
after obtaining the government clearance and then sell that to some
other party who is willing to pay a premium. In fact, the government
should insist on a time-bound roll-out plan from the promoters whose SEZ
plans have been cleared. No modification in the roll-out plan should be
permitted and stiff penalties imposed on those who fail to stick to the
agreed schedule.

And finally, all clearances should be subject to a transparent land
acquisition programme to be submitted by the promoter. The land
acquisition programme should have specific clauses to ensure adequate
compensation for the land owner at a market-determined price. Additional
incentives should be thrown in by ensuring that jobs or shares in the
SEZ project are given to those who agree to sell their land. And these
should be monitored and regulated not by the existing government
machinery. It would be better if a special authority was set up to
ensure that the new compensation package for farmers selling their land
was implemented.

The government was responsible for having spawned a scheme that has many
flaws. Now that the scheme is upon us, the government should frame
transparent and inviolable rules and move out of the decision-making
process. Let an independent SEZ regulator take over the task of clearing
the projects as also of enforcing the rules including those for land
compensation packages
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