Thursday, September 28, 2006

Why kill the goose before it lays its eggs?

For, SEZs will not only help boost India’s exports but also generate employment in rural areas
Posted online: Thursday, September 28, 2006 at 0000 hours IST
 Disparate voices and opinions—in sections of the government and outside—on why special economic zones (SEZs) are a bad idea seem to miss the big picture. The SEZ policy is, perhaps, the only initiative by the United Progressive Alliance (UPA) government that reflects a strategy to make India a manufacturing hub for exports by utilising the pool of young but semi-skilled workforce in rural India.
The criticism of the policy on seemingly valid grounds—of revenue loss, uneven development, real estate exploitation, neglect of agriculture—does not hold much water if one foresees the paradigm shift SEZs can bring about in the country’s growth pattern. They come with the promise of attracting big-ticket foreign direct investment into the country and significantly boosting manufacturing exports.

India’s manufacturing sector, we all know, has lagged behind that of China’s in the past two decades. Its share in the country’s gross domestic product (GDP) has remained stagnant at 17% for over a decade. In China, its share is almost double. The services sector in India, on the other hand, has grown dramatically, contributing almost 54% to the GDP in 2005-06. While India has successfully exploited its burgeoning English-speaking and technology-oriented IT pool, it has hardly managed to get its act together where manufacturing is concerned.

According to the national strategy for manufacturing outlined by the National Manufacturing Competitiveness Coun-cil, the sector has to grow 12-14% a year to raise its contribution to 23% in the next 10 years. Yet, India will still not be able to match the Chinese manufacturing output. SEZs, though not an out-of-the-box idea, hold the promise of enabling India to compete with China.

Having said this, the action of say, the Reserve Bank of India to treat SEZ lending as similar to that for commercial real estate, and the views of the finance ministry which feels that the exchequer will lose Rs 2 lakh crore in revenues, only gives the impression that the government is not working as a cohesive team. As it is, India took a long time to put in place the policy. The SEZ concept was first mooted in the Exim policy of 2000-01 by Murasoli Maran, the commerce and industry minister then. It has taken five years and two governments to enact the SEZ legislation. After deliberating threadbare all the issues, if doubts persist, it is only a reflection on the government.

It is for state governments to ensure their farmers do not lose out on the
market value of their land when it is acquired 
Let’s consider the two main objections: one economic and the other socio-political, to SEZs. The biggest opposition to SEZs has come from the finance ministry which estimates revenue losses to be a staggering Rs 1.6 lakh crore. The estimates are only notional. SEZs will cater to the export market, but still generate huge economic activity in and around the region. Multi-product SEZs, especially, will be like large townships. Since the raison d’ etre of SEZs is exports, to think these would still have been set up otherwise can be termed only an assumption. Given the China experience, the trade-off weighs in favour of employment generation and FDI inflows. The commerce ministry expects SEZs to attract Rs 1,00,000 crore (Rs 25,000 crore in FDI) and create five lakh jobs by 2007-end.

The second relates to agricultural land being usurped by the State for setting up SEZs and farmers getting a raw deal in terms of compensation for their land. In a letter to the states, the commerce ministry has made it clear that prime agricultural land should not be given to SEZ developers. The zones must be set up on barren land. It is for state governments to ensure that their farmers do not lose out on the market value of their land-holdings when they are acquired for SEZ promoters.

Here, of course, the promoters must try and ensure that farmers who give away their land enjoy the fruits of prosperity that the economic development of the region will bring. This will be in the true spirit of corporate governance. And a rehabilitation policy by the concerned state governments should take care of farmers’ interests.

The RBI’s treatment of SEZs as commercial real estate is another indicator of the simmering discontent within sections of the government. By increasing the risk weightage and provisioning requirement for banks’ lending to SEZs, it just made life that much more difficult for SEZ developers by raising their cost of funds. Why kill SEZs even before they are set up?

Who SEZ what

Better would be an informed debate

The Global Competitiveness Report identifying institutional maturity as India’s medium-term advantage over China is a good context in which to analyse the gathering controversy over special economic zones (SEZs) and the related but broader issue of land acquisition and farming as an occupation. Because India is a robust democracy, major public policy attracts vigorous, sometimes vitriolic, debate. China lacks that and will perhaps reap one day what it has sowed by making policy through diktat. Would that India’s political debate over economics were more informed, though. The Congress in Bengal has joined Mamata Banerjee in agitating against efforts to secure land for industry. Farmers in Punjab have started protesting. The commerce ministry has issued a long list of do’s and don’ts . The Left wants a ceiling on SEZ land to ensure “food security”. Raghuvansh Prasad, the rural development minister, has called SEZs a “scam”. Some basic issues are being forgotten.

First, SEZs need to be regulated as everything else but the whole idea about fast-tracking the creation of world-class infrastructure will be defeated if an inspector raj is also created. The commerce ministry saying only barren land should be acquired for SEZs assumes that every agricultural plot is of vital importance to this country. This is plainly wrong and it leads to the second misconception. Farming, as our columnist today explains while looking at farmers’ suicides, is a risky business. There are far too many agriculturists in this country and India can’t hope to buck history and develop by holding urbanisation/ industrialisation at bay. SEZs are one of the many solutions we need to speed up urbanisation, create new jobs and take people out of farming. So it benefits no one if politicians keep on saying SEZs won’t affect farmers.

Third, the issue of “proper” compensation comes up because there isn’t a proper market for land in most areas SEZs are being proposed. Auctions, as we have argued, is one solution. Another is to encourage land-owners to form commercial collectives. Fourth, to argue SEZs will threaten food security is absurd. Then what about encouraging manufacturing on a huge scale, which will require more land? Lastly, Indian politicians should wonder whether they will end up being more disruptive than the Taliban. While they agonise over SEZs, Bush, Musharraf and Karzai are planning to use a variant of the idea to create economic dynamism in the troubled Afghan-Pak border.

Tuesday, September 26, 2006

Maharashtra plans farmers’ rehabilitation package in SEZs

MUMBAI, SEPT 25:  Even before Congress president Sonia Gandhi expressed concern over the manner in which agriculture land was acquired to set up special economic zones (SEZs), the Congress-led government in Maharashtra was in the midst of finalising a comprehensive rehabilitation package for farmers. Under the special package, land acquisition will be done at market rate. It will also provide exgratia payment to farmers apart from market rate, will create social infrastructure for projected affected people and provide training to farmers to tackle the problem of unemployment.
The package, once approved by the state government, will be applicable to all 45 SEZs, approved by the Centre so far. Of 45 SEZs, the Maha Mumbai SEZ near Mumbai by Navi Mumbai SEZ, a project of Reliance Industries Ltd, has been in the news for receiving strong opposition from local villagers and the Left parties for taking over fertile lands.

The Bharat Forge, Mahindra & Mahindra and other SEZs, to be developed by the state-run Maharashtra Industrial Development Corporation, will also have to implement the proposed package.

A committee headed by state rehabilitation minister Patangrao Kadam will meet on Tuesday to give finishing touch to the proposed rehabilitation package.

“MIDC has already roped in non-government organisations and Tata Institute of Social Sciences to do exhaustive studies to assess social and economic impact of SEZ development in areas where such projects will come up. MIDC has also launched a massive awareness drive among farmers to remove their doubts. MIDC will provide plot to the project affected people at the concessional rate to start their own activity during the SEZ development,” a government functionary told FE.

Two Steps Ahead
The state will...
• Acquire lands for SEZs at market price
• Provide exgratia payment to farmers
• Develop social infrastructure for the affected
• Provide training to tackle unemployment
The package...
• Once approved by the state will apply to 45 all SEZs
• Also to be provided by MIDC for developing SEZs
The finetuning...
• Of sops will be done by a panel headed by state rehabilitation minister Patangrao Kadam on Tuesday
Sources said Bharat Forge, which has recently inked an MoU with the government for the development of SEZ in Pune district, has agreed to upgrade the Industrial Technical Institute (IIT) in the the area and provide funds. Similarly, M&M will train locals through its technical and vocational education institute.

Meanwhile, the committee would also consider suggestions made by Union agriculture minister Sharad Pawar on the payment of compensation to farmers whose lands would be acquired for SEZ projects.

Pawar has advocated that farmers should be adequately compensated for the agriculture lands acquired by the governments for setting up SEZs. This apart, he has strongly emphasised the need for providing some share, at least 12.5% of the developed land, to farmers.

Jharkhand plans IT, lac-based, SEZs in Ranchi, Jamshedpur

JAMSHEDPUR, SEPT 25:  The Jharkhand government is planning to set up separate biotechnology and IT parks in Jamshedpur and Ranchi. The state has a sizeable number of lac-producing units, who have been taking the material outside the state for product development and export.
Speaking to FE, state industry secretary AK Singh said, “According to Central guidelines, even 25 acres of land would be sufficient for both an IT and a biotech park.” Singh was here in connection with a workshop on “empowering SMEs with trade and finance solutions” organised jointly by EEPC India and ICICI Bank.Singh said he had discussed the issue of land allocation for the IT SEZ and the biotechnology park with themanaging director of the Adityapur industrial area development authority (Aiada) Vandana Dadel. “We can have the lac SEZ as our lac producers in Ranchi are exporting the lac. They are cent percent export-oriented units,” he said. “When we have so much strength within us, we must avail it and come up with better solutions,” he added. Jharkhand produces a sizeable quantity of lac.

Some lac producers here have been thinking of moving over to other states, including West Bengal. The industry secretary, who has been in dialogues with the lac producers, has promised the industry that a dedicated lac SEZ would come up in the Ranchi area.

The Indian Lac Research Institute, the only one of its kind in the country, is also based in Ranchi. “Lac has a good potential here as all the lac being produced here is moving out,” said Singh.According to the industry secretary, while the Jharkhand government has signed 56 MoUs in the steel, power and cement sectors, engineering is going to be the “key-word for Aiada”, the state’s most prosperous industrial area.

Jharkhand has already made a mark in the engineering sector, especially as a majority of the units housed in Aiada serve as ancillary units to Tata Motors .

Out of the three auto SEZs cleared by the Centre, two have gone to Maharashtra and the third has come to Jharkhand.

SEZs — Stop the runaway train

The concept is a dangerous force that aligns self-interest in a particularly intense manner
Posted online: Tuesday, September 26, 2006 at 0000 hours IST
 I wrote an article in this publication a few weeks ago that was critical of Special Ecomomic Zones (SEZs). Among the responses were a surprising number from professionals in the corporate sector — those who were involved in working on SEZs. And their sentiments were deeply disturbing: without exception, the common refrain was that the SEZ idea was a runaway train, and that it was using the singular, concentrated force of greed and self-interest to rip open the land market in the country.
An executive from one of the big four consulting firms told me: “I advice my clients on succeeding in being a part of these SEZs, but I am selling my soul.” Another lawyer said: “Unfortunately, it’s the biggest money-making opportunity we have ever seen.” A senior IT industry executive said: “I agree that it’s a land scam, and it shouldn’t be happening. But we ourselves are bidding for them, because we can’t be left behind. I have my shareholders’ interests to protect — they would tell me, ‘You want to be Gandhi, don’t do it on our money’”. So much for Munnabhai.

I consider myself a middle-of-the-road person: I believe in the potential of the market, but also in an affirmative state that regulates the market vigorously and transparently. I recognise that public policy choices are not black-or-white, and need to balance various views, while always keeping the citizens’ and the nation’s interests in mind. But for the life of me, I cannot figure out the compelling argument for SEZs in India. Their stated benefits are debatable.

On the promise of job creation, five lakh jobs is too trivial a target for the incentives being provided — close to 50,000 hectares of subsidised and clean-title land, leaving aside the tax-breaks. These jobs — and more — could surely be created through other, cheaper means. On catalysing economic development, there is little credible evidence that SEZs actually make a difference by themselves, unless accompanied by a slew of accompanying actions.

I have tried to educate myself by talking to people, and reading up material related to SEZs. There are some successful examples across the world, and there is apparently far greater understanding today of the conditions to make SEZs more effective — one trend seems to be to make them bigger, with more mixed utility—almost like private cities with their own,individual governance environment.

Even supporters of SEZs concede: “When evaluating the success of an SEZ, it is important to determine how the resources would have been used in the absence of the zones. Would capital have remained in the country and would employment be created in more productive areas? When there has been a failure to put in place adequate legal and regulatory frameworks, and a trained administration to oversee its correct implementation, the cost of SEZs outweigh the benefits since the benefits, such as job creation, are short-term and considerable amount of existing revenue is lost through avoidance.” This comes from a World Bank site on debate about SEZs.

Shenzhen, arguably among the most ‘successful’ of China’s SEZs, raises more questions than answers for us. A sampling: “The costs to the state for developing Shenzhen will not be recaptured until probably the second decade of the 21st Century. The size of the net loss was projected in 1990 to be US $131 billion by 2003.” (Wu, China’s Shenzhen Special Economic Zone, 1990). “Early on, manufacturing took on the most important focus. The following few years saw more real estate speculation than industrial development. Speculation in the property market has been ‘little short of anarchic’” (Studwell, Unlocking China: A Key to Investment Regions). I looked up the list of countries that have SEZs: Brazil, China, Hong Kong, Kazhakstan, Leichtenstein, Monaco, the Philippines, Russia, Singapore, Sri Lanka. I thought of India’s buzzword in Davos 2006, when we made the big splash — “The world’s fastest growing democracy”.

Examine our august SEZ company when it comes to this qualifier: there is not one mature, functioning democracy in that list—with Kazhakstan, we are really scraping the bottom of the barrel. So have we reduced democracy to a tagline now? There is an old proverb— “cross the river by feeling the stones”, meaning, do it carefully. As we gingerly tread the path to economic prosperity, our democracy is what is holding us together. We do have a system of checks and balances—however inefficient it may seem to an outsider or a layman.

Clearly, there is an urgent national economic imperative, especially given our demographics, and what seems like an opportunity to capitalise on the current momentum. But we are also beginning to slowly rip apart into two countries, with the naxalite movement spreading across more than 30% of the districts. There is an 85-km barrier fence with check-points that separates Shenzhen SEZ from the rest of Shenzhen municipality. Is this what we want our cities to look like, walled-off economic fortresses? These boundaries will become the contested terrain of conflict between the two Indias, one globalised and competitive, the other left behind, with no tools to participate and only the rage of disaffection. This is besides other distortions, like the the use of fertile agricultural land for non-agricultural purposes, or skewed spatial planning outcomes.

I have a great deal of faith in the sensitivity of our business leaders to know that they are aware of this. But the SEZ concept is a dangerous force that aligns self-interest in a particularly intense manner, and corrodes checks-and-balances, as the earlier statements from those involved in these structures shows.

So, if the executive and legislature have failed us, should we — as we are beginning to do with increasing regularity–––turn to the judiciary? If this be so, I hope that an effective case is made, because I am not sure that we can afford the price that SEZs will extract. This runaway train must be stopped.

—The writer is founder of Janaagraha. He can be reached at


Agri land not to be used for SEZs: Nath

NEW DELHI, SEPT 25:  The Centre on Monday said it had asked all states to ensure that prime agriculture land was not used for setting up special economic zones. This came two days after Congress president Sonia Gandhi cautioned states, ruled by her party, against converting farm land for industrial use. Commerce and industry minister Kamal Nath told reporters on the sidelines of a Ficci conference here that the Board of Approval for SEZs had already decided that proposals for setting up SEZs on prime agriculture land would not be cleared.
Pointing out that land was a state subject under the Constitution, Nath said his ministry had written to states not to acquire land for private developers. Agreeing with his party president, he said SEZs should be set up only on wasteland or less fertile farm land.

But he took a dig at the RBI for its stand on SEZs. On the central bank’s move to consider SEZs as real estate projects for lending purposes, he said the RBI should ensure it did not contradict itself after lauding the SEZ policy in its annual report for accelerating economic development. Asked if the RBI’s move would impact SEZ developers, he said, “Industry will have to take up this issue with the RBI.”

Saturday, September 23, 2006

Videocon gets nod to set up IT, biotech SEZs in WB



KOLKATA: The Videocon group has finalised its proposed IT and bio-tech special economic zones (SEZs) with the West Bengal government. The consumer electronics and home appliances major is also keen to set up three more SEZs in the state.

Videocon group chairman VN Dhoot met West Bengal chief minister Buddhadeb Bhattacharjee on Friday evening to discuss the proposed SEZs. After the meeting, Mr Dhoot said: “The state government has given a green signal to our proposed IT and biotech SEZs which will come up at Siliguri.

The CM has assured me that the government will shortly arrange land for the other three SEZs which will be either multi-product or single product.”

The state government has allotted 100 acres in Siliguri for the proposed biotech and IT SEZs. “The government will assist Videocon to identify land. I have asked the commerce and industry department to look for land, ” the CM said.

The Videocon chairman arrived in the city on Friday morning and went around visiting the sites of the SEZs. Braving the rains, Mr Dhoot travelled to three such sites in around Kolkata. “We have already applied to the central government for our proposed SEZs. We are hoping to get clearance soon,” added Mr Dhoot.

Apart from the two SEZs proposed to come up at Siliguri, Videocon wants to set up a multi-product SEZ at Kharagpur. For this, the company will require 2,500 acres. The other two would be single-product SEZs, one of which may come up in Uluberia-Sankrail area. One of the two SEZs may only deal with electronic goods.

At the 45-minute meeting, Mr Dhoot also discussed about his proposal to takeover state-owned Webel. The company is keen to set up a finishing school for IT engineers and picture tube manufacturing unit there.

SA Ahmed, special secretary to the CM, said: “We have told Mr Dhoot that the matter is now lying with the state IT ministry. It is under active consideration of the government and we are hoping to come out with a workable formula for Webel takeover.”

Singapore co to invest $1bn Timil Nadu SEZs



NEW DELHI: Singapore-based property developer, Ascendas, has proposed to invest $1bn in two multi-product special economic zones (SEZs) in Tamil Nadu. The proposal will be taken up at the Board of Approvals (BoA) meeting for SEZs in October. The company’s Indian arm is already developing an international technology park in Chennai in a joint venture with the Tamil Nadu Investment Development Corporation (TIDCO), at the cost of Rs 450 crore.

Commerce ministry officials told ET, the interest of foreign players in Indian SEZs was growing. Apart from Ascendas, international majors, including South Korean steel company Posco and Indonesia’s Salem group, are also waiting to get their SEZ proposals cleared.

The BoA already has its task cut out with 200 pending proposals spilling over from its previous meeting. However, ministry officials said there will be no problem in accommodating fresh proposals. “As we have decided to hold five meetings to clear proposals state-wise, there will be no problem in taking up new applications,” an official said.

Interestingly, less than half-a-dozen new proposals have been submitted to BoA after the ceiling on the number of approvals was lifted last month. Officials said that the mad rush of applicants last month was because of the 150-cap imposed by the empowered group of ministers (EGoM) on SEZs. Once the cap was lifted, applicants became more relaxed.

The commerce ministry hopes to clear all pending proposals by October 10. Although the EGoM has removed the cap on the number of applications, it will relook at the situation in February ’07, or sooner if 70 SEZs get notified before February. As only 24 SEZs have been notified so far, it is unlikely that the next EGoM meeting will take place before February ’07.

STPI directors to manage IT SEZs

New Delhi, Sept 22: The Commerce Ministry has decided to appoint directors of Software Technology Parks of India as development commissioners of information technology Special Economic Zones but rejected the demand by IT and communications ministry to hand over the administrative control.

"STPI directors can be development commissioners in IT SEZs, but they will be under the administrative control of commerce ministry," a senior government official said. He said IT and IT-enabled services SEZ do not require physical checks by customs or tax authorities similar to manufacturing and industrial SEZs as these zones export software services and there is no movement of goods.

While multi-product zones require 16 customs officials, there was no such need in IT SEZs, he said, adding that STPI directors would be suitable as they were already well versed with IT parks. The Board of Approval has so far given final approvals to 164 SEZs. These include more than 100 SEZs in IT and ITeS sectors.

The appointment of STPI directors in IT SEZs was one of the demands raised by IT and Communications Ministry. It has been pushing a proposal to treat STPIs at par with SEZs.

‘RBI move on SEZs could hit access to funds’

MUMBAI, SEPT 22: Developers and consultancy firms at the Ficci-organised real estate summit here differed with the apex bank’s view of treating special economic zones (SEZs) at par with any other real estate project.
In a recently-issued notification, the Reserve Bank of India (RBI) had said, “Keeping in view the current market conditions, it has been decided that the exposure of banks to entities for setting up SEZs or for acquisition of units in SEZs, which includes real estate, would be treated as exposure to commercial real estate sector with immediate effect.”

“The RBI is definitely controlling the flow of funds to the real estate sector with an endeavour to slow down the market. This is not a positive move,” Colliers International (India) Ltd chairman Akshaya Kumar said.

PriceWaterhouse Coopers executive director Vivek mehra said the RBI move would make funds difficult to raise and make them expensive as well. “It is unfair to treat real estate and SEZs in the same bracket. Development of an SEZ is actually development of infrastructure - social as well as industrial,” he said.

RSM Advisory Services also felt that the move stems from RBI’s over-sensitivity to the real estate sector. “The move would certainly create a lot of problems for real estate entities to source funds from banks. It is not desirable,” a company official said.

The Call of the SEZs

Despite hurdles, this is an idea whose time may just have come

Picture this: Five years from now manufacturing and export-oriented units in a given town or city in the country may have a common locational address — the neighbourhood special economic zone. Going by the number of SEZ proposals approved so far (150, on last count) the scenario above is a distinct possibility. In fact, proponents of the concept —especially Corporate India, which has embraced it wholeheartedly —are banking on this to boost the phenomenon. By some estimates, industrial investment alone in the proposed 400 SEZs, besides the 150 SEZ proposals approved till now another 220-250 applications are in the pipeline, could be about Rs 30,00,000 crore in the next 5-7 years. Of course, all of this will only come about if the proposed projects take off smoothly, which is highly unlikely, say observers. Says Mukesh Khandelwal, president of Delhi-based infrastructure advisory Feedback Ventures, “If all the proposed SEZs get off the ground it will lead to huge overcapacities. It is unlikely, though, that all these proposals will make a start in the first place. Many of them will fall by the wayside.”
Despite this, the rush to secure SEZ projects simply refuses to quell. Videocon, for instance, is the latest in a long list of corporate players and developers to join the SEZ bandwagon. V N Dhoot, chairman of Videocon Industries, whose unlisted entity Videocon Realty Infrastructure Ltd. is helming the project, says, “The logic for this rush is simple. With the gross domestic product growing at about 8%, there is need for adequate infrastructure to support industrial development. SEZs will help that, which is why the interest by players to set them up.” Arun Nanda, vice-chairman, Mahindra Gesco, which is eyeing SEZs in Jaipur, Pune and Thane apart from an expansion of its Chennai special economic zone, says, “Special economic zones are geared to help both the manufacturing and services sectors. The objective is to boost exports. So the provision of world-class facilities is a must.”

In fact, the major point of difference between the Indian and Chinese SEZ policies is that infrastructure in the case of the latter is provided by the government, whereas in India, the onus of providing the same rests on the developer or the promoter of the SEZ. “In that sense, the Indian developer shoulders the entire responsibility of the project,” says Amit Bansal, head of business development, Crisil Infrastructure Advisory. Players also talk of providing jobs — a point reiterated by the Commerce Ministry, which says that the 150 SEZs approved so far will generate 5 lakh jobs straightaway, while indirect employment will be in the region of about 15 lakh.

For all these activities undertaken by private players what the government assures is major tax benefits — both for the developer and the tenant, who will eventually set up his unit in the SEZ—which is the real driver of the phenomenon. According to observers, two types of players seem to be emerging from the current rush. Those who are treating an SEZ proposal as a real-estate project and those who are keen to get an SEZ tag for their business initiative. Reliance’s Jamnagar SEZ is a case in point.

The SEZ story
• The policy for setting up special economic zones was first introduced in April 2000
• Eight export processing zones have been converted into SEZs
• An SEZ Act was drafted
in 2005. New SEZ rules have since been incorporated
this year
• The SEZ policy basically seeks to boost exports by providing a safe haven for manufacturing and service units
• The highlight of the policy is the tax breaks it provides to developers and tenants
• So far 150 SEZ proposals have been given approval. 220 applications are pending
• RBI has tightened SEZ funding norms treating the latter
as exposure to commercial real estate

The company has a petrochemical plant at Jamnagar and is looking to develop the SEZ into a petrochemical hub. However, its Navi Mumbai and Mumbai SEZs totaling14,000 hectares as well as the 10,000-hectare Haryana SEZ are independent projects that the company will undertake. Company officials insist that it does have the land bank, especially, for the Navi Mumbai-Mumbai projects, though commencement of work is still about a year-and-a-half to two-years away on the latter.

Says a spokesperson for Reliance’s Navi Mumbai SEZ: “This project is a joint venture with City and Industrial Development Corporation of Maharashtra (CIDCO). And about 4,000 hectares of land is available with them. So far about 1,250 hectares has been cleared by the Ministry of Environment and Forests. We are awaiting a clearance for the balance land.” On the Haryana SEZ, acquisition of land, incidentally, is being undertaken by the state government.

Interestingly, most approvals for SEZs so far have come with no significant land banks in place. Parsvanath Developers’ chairman Pradeep Jain says the company is acquiring land directly from prospective buyers for its projects approved so far (nine have been given the go ahead, three of which will get formal approvals soon).

“We are not involved in large multi-product SEZs. Our proposals are product-specific, smaller in size, which will be set up in a period of 3years-5 years. In that sense, acquiring land is not an issue for us.” R K Jain, executive director of Ansal API, which is looking to set up three SEZs in Rajasthan, Haryana and Uttar Pradesh, says the company is also in the process of putting its land bank in place. According to analysts, the success rate of smaller, sector-specific SEZs is higher than larger, multi-product ones.

Govt’s SEZ policy is a realty scam, says Sharad Yadav

NEW DELHI, SEPT 22: Calling the country’s special economic zone (SEZ) policy a real estate scam, Janata Dal (United) president Sharad Yadav on Friday demanded suspension of the SEZ Act (2005) and said SEZs should come up in backward regions of the country and not on fertile agriculture land.
"The SEZ scam is the biggest scam of independent India, which involves grabbing of fertile agriculture land of the ’green revolution’ belt, comprising Punjab, Haryana and Western Uttar Pradesh, by corporate land mafia with the help of central and state governments. That is, these SEZs are coming up around Delhi," Yadav told reporters here, a day after the Centre laid new norms to curb SEZ misuse.

"Changing the land use of this belt will end the food security of India and we will be pushed back to the Green Revolution phase of the late 50s and 60s of the last century," the JD(U) chief said, adding that these three states contributed 78% of wheat and 54% of paddy procured last year.

Saying that the SEZ is a burden to the economy, Yadav alleged, “SEZ is purely a real estate scam and nothing to do with export promotion and foreign capital inflow."

Quoting finance ministry estimates that the concessions will cause a revenue loss to the tune of Rs 90,000 crore, he pointed out that the commerce ministry has estimated an investment of Rs 1 lakh crore during the first three years.

He said the JD(U) would launch an agitation against the "anti-farmer and anti-national" SEZ policy. This would include a demonstration before the Parliament House on September 25. Noting that the RBI had on Wednesday directed the commercial banks to treat SEZ developers and units as any other real estate project, Yadav pointed out that the apex bank, in its earlier report, had already stated that SEZ would cause imbalance in the economy.

Friday, September 22, 2006

New SEZs norms elicit terse reaction

NEW DELHI, SEPT 21: The Reserve Bank of India's (RBI) direction to banks
to treat lending to special economic zones or acquisition of units in
SEZs as exposure to commercial real estate, has invited terse reactions
from the industry.
"The RBI move shows a lack of clear vision on its part. On one hand, the
government is trying to promote infrastructure development, on the
other; RBI is coming with new regulations like this. The Indian
financial market is not strong enough to absorb so much lending," says
Parsvnath CMD Pradeep Jain.
However, DLF VP finance Saurabh Chawala says, "The RBI move will have a
negligible impact on us as most of our SEZ projects are based on equity
accruals. But it may surely have an impact on smaller players who are
mostly dependent on debt for financing."

According to ministry of commerce and industry, SEZ-based industries are
expected to employ half a million people by December 2007 and to invest
Rs 100,000 crore, including Rs 25,000 crore of FDI.

“As it is, the imposition of 150% risk weightage on commercial lending
was wrong. A 100 basis points hike raises the bank-lending rate by 1%.
This will decrease the viability of the projects and increase costs.
When land titles are clear, approvals are in place, projects get good
ratings, and the RBI should not be worried. In products-specific SEZs
like gold and jewellery or IT SEZs, this move may make SEZs less
competitive,” says ex-Hudco CMD and CEO Gold Souk V Suresh.

Others like realty advisor DTZ's MD Ankur Srivastava believe that the
RBI move will make debt costlier, forcing SEZ developers to increase the
equity participation in SEZs.

However, Suresh feels that higher equity component will not be viable.
"SEZ developers want short term finances, not long term finances, so
equity will not be a very viable option," feels Suresh.

Some experts feel the RBI move may have a marginal impact as incentives
and the acquisition of land at low costs will negate the RBI move

SEZs who?

RBI signals they are a real estate play

The Reserve Bank of India has clarified in no uncertain terms that Special Economic Zones must be treated as commercial real estate rather than a priority sector proposition for bank lending. This clarification straightaway raises the cost of funds for SEZ developers, besides sharply reducing the availability of funds. SEZs were hitherto categorised as infrastructure projects, and carried a risk weightage of 100%. No longer. Banks will now have to allocate much more capital towards advances to SEZs, similar to the commercial real estate sector. RBI had earlier hiked the provisioning requirement on advances to the latter to 1%, besides raising the risk weightage to 150%, as this sector was exhibiting all the characteristics of a speculative bubble. There are thus no prizes for guessing that SEZ developers will hardly be amused, as they have to compete for a shrinking pool of costlier capital!
RBI’s latest move is, of course, very much in line with the tone and tenor of its annual report for 2005-06, in which it clearly indicated that SEZs could aggravate the uneven pattern of development by pulling out resources from less developed areas. More important, the revenue implications of the various tax boondoggles also needed to be factored in. A ballpark estimate of fiscal experts is that for every rupee of additional investment that would flow into SEZs, the revenue loss for the exchequer is as much as Rs 1.43. Thus, if Rs 100,000 crore is the expected order of investments, the fisc would have to forego Rs 143,000 crore of tax revenues. Doubtless, higher estimates are floating around, but the basic point RBI hammered home is that such incentives may be justified only if SEZs ensure forward and backward linkages with the economy.

RBI’s latest clarification, therefore, clearly signals that SEZs in their current avatar are only a real estate play. The upshot is that banks from now on would have to do their homework before they increase their exposure to SEZs. Allocating more capital towards advances to SEZs would, of course, compel them to hike their lending rates as well. True, developers with genuine expertise in this business ought to face no serious problem with bank funding, but many who are eagerly queuing up with their proposals surely would. Although the Union commerce ministry might demur against RBI’s move, a favourable consequence is the prospect of equity, rather than debt, going up in SEZs. Isn’t that a recipe for genuine investments flowing into SEZs?

Norms to curb SEZ land misuse

NEW DELHI, SEPT 21: To prevent special economic zones (SEZs) from becoming a pure-play realty business, the government on Thursday limited the number of houses, hospital beds, hotel rooms and office space an SEZ developer can create to avail of tax sops.
The government also laid down new criteria for assessing promoters’ quality: they should each have a net worth of Rs 50 crore or invest Rs 250 crore in a sector-specific SEZ. For multi-product SEZs, each promoter should invest Rs 1,000 crore or have a net worth of Rs 250 crore. The Board of Approvals (BoA), however, reserved the right to waive the conditions on merit.

Addressing mediapersons, special secretary (commerce) GK Pillai said, the new conditions would leave SEZ developers with little room for manoeuvring. “We want to ensure that SEZs are equipped with world-class social infrastructure,” he said.

According to the new norms, sector- specific SEZs will get full tax benefits for constructing specified social infrastructure. The upper ceiling for these benefits are 50,000 sq metre of office space, 7,500 houses, 100 hotel rooms, 25-bed hospitals and educational institutes on a 25,000 -sq metre area .

In multi-product SEZs, full tax benefits will be given for 25,000 houses, 250 hotel rooms, 100-bed hospitals and educational institutes on 2.5 lakh sq metre.

Realty bites
• Promoters must have Rs 50 crore networth or bring in Rs 250 crore for sector-specific SEZs
• To promote multi-product SEZs, networth must be Rs 250 crore or they must invest
Rs 1,000 crore
• Ceiling specified for number of houses, hospital beds, hotel rooms. No tax sop for extra facilities

The developers will, however, be free to build more such facilities without violating the master plan and earmarking 40% land as green-zone. Facilities created by SEZ developers over and above the specified ceilings will not qualify for full tax benefits. There could, however, be exceptions to this rule, subject to the BoA nod.

Pillai said, there would be no bar on outsiders availing of these social infrastructure facilities, although SEZ employees would get priority. The employees can sub-lease their houses or other property, but not sell them.

The authorised operations eligible for approval in IT/ITES, biotech, and gems & jewellery SEZs include Wi Fi/Wi Max services, roads and rain harvesting plants. In multi-product SEZs these include, rail heads, ports, airports, banks and golf courses.

Meanwhile, the BoA on Thursday approved 14 more SEZs, taking the total of SEZs cleared to 164. A 2,085-hectare multi-product SEZ in Nagpur by Maharashtra Airport Development Authority and a 284-hectare textiles and garment SEZ in Anjar, Maharashtra by the Welspun group were among the SEZs approved .

IRDA rules out special provisions for SEZ

NEW DELHI: Insurance regulator Insurance Regulatory Development
Authority (IRDA) on Thursday ruled out any special provisions, including
increased FDI limits, for Special Economic Zones (SEZs).

"There is no need for higher FDI limit in SEZs. Whatever is there should
be applicable for the whole country," CS Rao, chairman of IRDA said.
"SEZs are very small clusters and there is no need to treat them
separately," he said.

Rao said the country had good insurance service providers and the
world's major players were also already present. "We have good players
and they are in a position to provide whatever services are required in
SEZs," he said. The regulator denied that there was any move to allow
100 per cent FDI in these zones.

"What IRDA has recommended s 49 percent... We can't have a separate SEZ
insurance company," he said.

SEZs are nothing but real estates: RBI

dzrNEW DELHI: Reflecting its reservations on the policy for Special
Economic Zones (SEZs), the Reserve Bank of India on Thursday ruled out
any concessional finance to developers and units in these zones, saying
they should be treated on par with real estate projects.

Coinciding with the centre's ongoing exercise for finalising the
guidelines for states on land-related issues for SEZs, the apex bank
also directed the nationalised banks to offer credit to SEZs on same
terms and conditions as offered to real estate developers.

"Like any other land, it (SEZ) is real estate," RBI Governor Y V Reddy
told reporters on the sidelines of a seminar on Financial Education here
when asked if the latest directive would make the funding for SEZs costlier.

In a notification on Wednesday night, RBI said, "Keeping in view the
current market conditions, it has been decided that the exposure of
banks to entities for setting up SEZs or for acquisition of units in
SEZs, which includes real estate, would be treated as exposure to
commercial real estate sector with immediate effect."

RBI had recently expressed its reservations about the concessional tax
regime for SEZs, saying this would take away resources from other areas
and lead to uneven development.

RBI's views lend support to apprehensions expressed by the Finance
Ministry that SEZs would lead to massive revenue loss to the exchequer
due to various tax sops given to 150 SEZs already cleared and 225 others
that are pending.

The IMF too cautioned India last week to take a second look at its SEZ
policy, saying tax sops may divert a lot of activity from the rest of
the economy into these zones, creating problems of inequitable regional

The central bank had earlier increased upfront provisioning requirement
for exposure to commercial real estate to one per cent against 0.40
percent for lending to non-sensitive sectors. It means that banks have
to keep 60 paise more for every Rs 100 they lend to commercial real estate

New norms for SEZ development soon

Board of Approvals to meet today to advise States

150 proposals cleared so far
People's groups seek repeal of SEZ Act
Official denies any tax loss


NEW DELHI: The Board of Approvals (BOA) for Special Economic Zones will
shortly lay down new guidelines for developing such zones, including on
land acquisition.

Disclosing this here on Wednesday, Special Secretary in the Commerce
Ministry, G. K. Pillai, said the board, which is meeting on Thursday,
would consider guidelines on the percentage of processing and
non-processing areas in the SEZs, development of social infra- structure
within SEZs and the approvals process.

The board is meeting for the first time after the ceiling of 150 SEZs
was lifted by the empowered group of ministers.

Farmers' allegations

Mr. Pillai, who was speaking at a conference organised by the
Confederation of Indian Industry (CII), said the board would be meeting
the representatives of State governments on Thursday to advise them on
land acquisition for SEZs.

The move to lay down guidelines for land acquisition is a fall-out of
criticism over the government's SEZ policy, including allegations that
farmers' land is being taken over to benefit big companies.

Later in the day, a special delegation on behalf of the concerned
people's groups like the National Alliance of People's Movement and the
Maharashtra SEZ Virodhi Sangharsh Samiti submitted a memorandum to the
Union Commerce Ministry seeking repeal of the SEZ Act and a larger
public consultation with the people's groups.

During an hour-long discussion with Mr. Pillai, the delegation
highlighted issues related to large-scale displacement, loss of
sustainable farm-based livelihood, huge environmental loss and abuse of
labour rights in the SEZs.

In a release issued after the meeting, the delegation said the Special
Secretary had agreed to convene a meeting of the Board of Approvals with
the people's groups within 30 days to discuss the various issues raised
by them.

He also promised to organise a separate meeting of Chief Secretaries of
States with people's groups soon while assuring that the delegation's
concerns on SEZ projects would be raised in Thursday's meeting of the BOA.

Innovative models

Seeking to respond to some of these issues at the CII meeting, Mr.
Pillai said some companies such as Bharat Forge had adopted innovative
models to take along displaced people by offering them equity shares,
providing training and jobs in the SEZs besides monetary compensation
for the land.

He said the 150 proposals cleared by the BOA so far would come up on
26,800 hectares, which was either already acquired by State industrial
development corporations or companies and there was no fresh acquisition.

Another 225 applications were pending that would cover 75,000 hectares.
Besides, he stressed that no land on which two crops in a year could be
grown would be acquired.

Responding to the criticism that the SEZ policy would create regional
imbalances, he said the board would now be taking up proposals from the
States that had been slow to react on this issue.

Proposals were now being received, he said, from Orissa, Jharkhand,
Chhattisgarh, Uttaranchal and West Bengal.

He rejected the controversy over a projected tax loss of Rs. 90,000
crore over the next few years. "The Ministry has analysed this and feels
that the net benefit to the government through indirect taxes will be
Rs. 45,000 crore," he said.

Besides, he felt that the SEZs provided world-class infrastructure to
attract both local and foreign investment. "Industry is attracted by
offering land at concessional rates and social infrastructure.
Developers get a ten-year tax holiday and SEZ units, 15 years. In the
process, India is creating world-class infrastructure," he said.

Political parties join hands with farmers against SEZ

Vashi2Panvel.Com: Navi Mumbai: September 18: Cutting the party lines, all the political parties have joined their hands with the peasants that will be affected from the proposed Special Economic Zone (SEZ) of Navi Mumbai and Mahamumbai of the reliance group of industries. All the SEZ affected farmers of 45 villages including Pen, Panvel, Uran Talukas of Raighad district along with the members of different political parties will take out a massive morcha to Kokan Bhavan on September 21.

Vivek Patil MLA from Shetkari Kamgar Pakshe (SKP) and Jayantrao Patil (MLC) SKP and Krishna Khopkar, veteran leader (CPI –M) organized a press conference at K Star hotel, CBD to show the importance of the Morcha. “Around 40-50 thousand people are expected to participate in the All Party Morcha and all political parties are instructed not to bring their flags with them, no name is given to the group”, says a press note. So far more than 12,000 farmers have registered for the morcha.

The main two demands of the morcha will be –
1)Withdraw forthwith the notices served on the peasants under Section 4 of the Land Acquisition Act for the purpose of establishing Mahamumbai Special Economic Zone (SEZ) of the Reliance group.
2)Cancel the proposed formation of Navi Mumbai- Mahamumbai SEZ of the Reliance group unequivocally.

Krishna Khopar informed the Press that 35,000 Acres of cultivable paddy land owned by peasants from 45 villages of Pen- Panvel- Uran Areas of Raigad District are opposing the SEZ. He continued that Mukesh Ambani when approached on this matter said that we will give money to the farmers not jobs, as most of the people staying in this area are illiterate. “Government is trying to take away the land from the farmers forcefully but this time they will not be successful, says Krishna Khopar.” He adds further, “Panvel collector said that government would pay 1,28,000 compensation to the peasants where as the current market price of land will not be less than 40 lakh per acre. The original inhabitants of CBD who gave their land in early 70’s are still fighting for their rights and money. “We won’t give our land at any cost”, is the say of all farmers.”

Krishna Khopar also mentioned that if government is so intensely keen upon raising SEZ in Raigad district with no other motive, why don’t they turn their attention to hilly tracks, shrub lands and marbles which are abundantly available in the district.

Farmers feel that SEZ will be earning more than 100 times the price paid to the peasant owner. SEZ Act says that the SEZ area shall be considered as Foreign Territory where by Indian Law shall apply to any issues pertaining to industry, trade and services in the SEZ area. Further SEZ shall have its own policy and judiciary machinery separate from and different from its counter part in the India Union.

Vivek Patil said that it is for the first time in history that all Raigad Villagers leaving their personal grievances have come together for a common cause. He assured the press that even if the political parties split at a point of time, the farmers will not as the farmers want to preserve their land at any cost. When asked will they compromise if SEZ assures the farmers jobs and increase in the pay for land ? Vivek Patil said, “It is not possible as the farmers have decided this time that they will not sell their land at any cost since they have seen the condition of Navi Mumbai farmers after they sold their land to CIDCO.

CPI sees red on SEZ issue

NEW DELHI, SEPT 20: The CPI on Wednesday launched a scathing attack on the government, particularly on the issue of Special Economic Zones (SEZs) and price rise of essential commodities. It accused the Centre of ‘betraying’ the spirit of the common minimum programme.
The party’s top policy making body, the central secratariat, came out with a statement saying, “a new breed of ‘mansabdars’ and ‘zamindars’ are being created by the government under a legalised framework of the SEZ Act and a mis-interpretation of the Land Acquisition Act. Everywhere, the state is resorting to coercion against the poor and the farmers to help business houses.”

On the issue of price rise and food security, it said, “forward trading in foodgrains has been permitted by the government and it must enforce de-hoarding and the Essential Commodities Act should be applied effectively.”

Talking to FE, party leader AB Bardhan dragged Uttar Pradesh chief minister Mulayam Singh Yadav in the SEZ controversy and said, “his government is no longer socialist. They have collaborated with private businessmen to sell-off everything. We will not align with him in the name of ‘secularism,’ because there are other parties that are more secular.”

In UP, the CPI leadership decided to align with former Prime Minister VP Singh-led Jan Morcha’ and campaign against the Samajwadi Party. In Punjab, the party along with the CPI(M) is in the process of forging an alliance with smaller parties and has decided to campaign against both the BJP-Akali combine as well as the Congress party.

During the last assembly elections in the state, the Left parties had fought alongside the Congress.

NCR most active in multi-product SEZs

NEW DELHI, SEPT 20: The National Capital Region (NCR) with its surrounding areas in a radius of 400 kms is witnessing most intense activity in multi product SEZs.
The region accounts for 24 formal and pending approvals for multi-product SEZs—the highest in India.

Out of the 14 multi product SEZs in the NCR, Gurgaon accounts for five, Noida for three, Palwal for two, and Ghaziabad, Sonepat, Faridabad and Panipat for one SEZ each.

While Rajasthan accounts for three SEZs—two in Jaipur and one in Alwar, Punjab accounts for three SEZs in Chandigarh, Ludhiana and Amritsar.

By including SEZs at Gurgaon, Rewari, Ambala, Kundli, Faridabad and Palwal, Haryana becomes the top northern state with a total of 11 multi product SEZs.

But in terms of total (IT and multi product SEZs) formal approvals Haryana lags behind southern states.

“Maharshtra accounts for the most intense SEZ activity with 33 formal approvals followed by Andhra Pradesh at 30 approvals so far,” says Infrastructure advisory firm Feedback Ventures’ deputy manager Abhilesh Babel.

Once an SEZ, always an SEZ!

NEW DELHI, SEPT 20: SEZ status, if given to a territory of land in India, cannot be denotified, according to the current SEZ Act. If an SEZ fails after five years in operation, the land gets locked and cannot be put to any other (housing or institutional) use.
“The current provisions in the SEZ Act provide that in case a developer has difficulty in making profits, or is unable to make his project viable, then the government can interfere. A last opportunity can be given to the developer to turn around failure, for which an administrator will be appointed to find another developer,” says LB Singhal, director-general, Export Promotion Council for EOUs and SEZs.

“The provisions have been designed so that if the developer wants to de-bond the SEZ units that are profitable, or are interested in continuing, the units shall not suffer. That is why the SEZ Act specifies that once an SEZ is notified, it cannot be denotified,” Mr Singhal adds.

According to experts, a possible exit option is to relocate a profitable unit to another SEZ, while keeping its status intact. “But this will also not be easy as relocating huge plant and machinery is difficult in a multi-product SEZ. That is why the denotification is not allowed,” says an expert.

Some experts, however, feel that very few of the 150 SEZs approved so far will fail. “Most projects will be viable, as the developer can make money out of the social infrastructure he builds in the non-processing area, which in most cases is 65%. But in unforeseen circumstances, like an IT bust or some sector doing badly globally, the government should consider allowing either the relocation of the SEZ or changing the type of SEZ,” says Ernst & Young partner Ajit Krishnan.

RBI’s bad news for SEZs: Bank loans could now be dearer

MUMBAI, NEW DELHI, SEPT 20: The Reserve Bank of India has dealt a body blow to Corporate India’s rush for setting up special economic zones by treating lending to SEZs or acquisition of units in SEZs as exposure to commercial real estate. This will not only raise the cost of funds for SEZ developers, but also reduce the availability of funds. Given the sharp rise in credit to the real estate sector, the RBI had in April increased the general provisioning requirement on standard advances to 1% from 0.4% and also hiked the risk weightage to such exposures to 150% from 125%. Many banks and housing finance institutions increased lending rates after the move. The banking regulator’s latest decision, in one way, also reflects the simmering discontent within the government. The finance ministry and the Planning Commission have been opposing SEZs — tooth and nail — because of the estimated revenue loss of a whopping Rs 1.70 lakh crore. The commerce ministry, on the other hand, expects investments in SEZs to top Rs 1 lakh crore by December next and create employment opportunities for over 5 lakh. The apex bank had in its annual report for 2005-06 too said the growth of SEZs led to uneven development of regions within the country. It felt the tax breaks could be justified only if the units in SEZs established backward and forward linkages with the domestic economy. Bankers said it was a clear signal by the RBI to ensure banks did their homework well before lending to SEZ projects. At present, SEZs are accorded priority status and are categorized as infrastructure projects. Accordingly, they carry a risk weightage of only 100%. A higher provisioning would force banks to allocate more capital towards advances to SEZs, which eventually may compel them to hike the lending rates. No easy money • Since banks have a ceiling on real estate exposure and SEZs too will be treated as real estate for lending purposes, both will compete for the limited resources • A higher provisioning and risk weightage will require banks to allocate more capital towards advances to SEZs and compel them to increase lending rates A banker said, every bank board has a ceiling on exposure to the commercial real estate sector. Now that SEZs have been clubbed along with real estate, both SEZs and the real estate sector would have to compete for the limited resources. The commerce ministry is obviously not amused. Officials in the ministry said there was no need for the RBI to categorise SEZs in this manner. “It could have left it to individual banks to decide on the exposure they want to take. Now, Indian banks will find it difficult to participate in good projects,” said an official. According to the ministry, banks should still not have a problem lending to developers with expertise in the real estate sector. However, a majority of the SEZs are not looking at Indian banks for funding since they do not have the capability to fund such large projects, an official said. “SEZ developers are looking more at FDI. Also, an overseas partner can help in bring in investment and marketing the projects to FIIs,” he added. Realty advisor DTZ’S MD Ankur Srivastava said, “The RBI move differentiates between IT SEZs and IT Parks. The equity participation in SEZs will go up rather than debt.”

Growth-Link proposes to set up SEZ for shoes

enfCHENNAI: Growth-Link, subsidiary of Taiwanese shoe manufacturer Feng-Tay, has proposed to set up a Special Economic Zone and a manufacturing unit at Cheyyar in Thiruvanamalai district at an investment of Rs. 300 crore.

A MoU to this effect was signed between representatives of the company and the government. Feng-Tay produces over 50 million pairs of shoes annually, particularly sports shoes, and in 2005 the company recorded sales to the tune of US$ 770 million.

The SEZ would be set up in an area of 275 acres and initially provide employment to 5,000 people, which would later be increased to about 15,000. Meanwhile, Peter Nickerson, director of Growth-Link told reporters that production would commence by 2007-end or beginning of 2008.

Nearly two lakh footwear is expected to be produced in a month and this would be increased gradually to 8-10 lakh in the next five years, he said.

Geographical location and port facilities in the state made it a viable option for the company to set up the unit here, he added.

SEZ status offered to foreign firms producing non-conventional energy

SEZ status offered to foreign firms producing non-conventional energy

Staff Reporter

They can set up units near Chennai or at Nanguneri: Veerasamy


Government has acquired 2, 500 acres at Nanguneri
State doing well on energy front: Minister


Chennai: Foreign industries dealing in non-conventional energy can avail
themselves of the Special Economic (SEZ) Zone status for setting up
industrial units near Chennai, said Minister for Electricity and Rural
Industries Arcot N. Veerasamy on Saturday.

"Firms from U.S., Germany and Korea can purchase land and then seek the
SEZ status. We will grant it to them," said Mr. Veerasamy at an event to
celebrate the completion of 22 years of Solkar Solar Industry Limited.
Foreign firms looked to Tamil Nadu for setting up industrials units, as
land prices in the State were reasonable compared to Karnataka and
Andhra Pradesh. Alternatively, industries dealing in non-conventional
energy, could set up units in the Nanguneri taluk of Tirunelveli
district, Mr. Veerasamy said. A proposal for setting up a cluster of
units in the Nanguneri SEZ would soon be finalised. "We have acquired
more than 2,500 acres in Nanguneri. Industries wanting to set up units
will be supported by the Government," he added.

Solar energy in hospitals

Mr. Veerasamy said he planned to introduce solar energy in hospitals
shortly. "I have spoken to Chief Minister [M. Karunanidhi] about it. We
are discussing on how we can implement it." Tamil Nadu was doing well on
the energy front. The State generated excess electricity, which was sold
to other States. The total generation was 10,011 mega watts while the
consumption was only 8,500 mega watts. Almost 60 per cent of wind energy
being produced in the country was generated in Tamil Nadu. The State
produced 2,946 mega watts of wind energy.

A. Elangovan, Chairman and Managing Director of Tamil Nadu Energy
Development Agency, urged non-conventional energy industries to make
their products affordable to the public.

Solkar Solar Industries Limited entered into a joint venture agreement
with the Singapore-based Eco Solar Technology Private Limited for
manufacture of solar panels in Singapore. The cost of the project was $4
billion (in Singapore currency).

Solkar Solar Industry launched five solar products — mobile phone
charger, lantern, torch, fan and cap — on eBay.

K.E. Ragunaathan, managing director of Solkar Solar Industry, gifted
four wind generators to select households in the tsunami-affected area
of Nagapattinam.

AP plans SEZ for pharma formulations

Aurobindo, Hetero Drugs have agreed to acquire 240 acres in the SEZ

Hyderabad , Sept 18

In a bid to effectively address the issue of migration of State-based pharma units to Himachal Pradesh, Uttaranchal and Jammu & Kashmir due to heavy tax incentives, the Andhra Pradesh Government has decided to develop a special economic zone (SEZ) exclusively for pharma formulations.

According to the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) Vice-Chairman and Managing Director, Mr B.P. Acharya, the SEZ would come up on 300 acres and be a part of the Green Industrial Park proposed over 960 acres at Jedcherla, about 70 km from Hyderabad and about 40 km from the new International Air Port at Shamshabad.

Addressing a national seminar organised by the Bulk Drug Manufacturers Association (BDMA) on Monday, he said that the corporation has already acquired the land and that the conceptual master planning is currently under way.

"Aurobindo Pharma and Hetero Drugs have expressed their willingness to be the anchor clients in the proposed pharma formulations SEZ," Mr Acharya said.

Speaking to newspersons on the sidelines of the seminar, the BDMA President, Dr B. Parthasaradhi Reddy, who is also the Chairman and Managing Director of Hetero Drugs, said that Aurobindo Pharma and Hetero Drugs have agreed to acquire 240 acres in the SEZ to set up their formulation units and invest over Rs 200 crore.

Worried over 150 pharma companies in the State showing interest to set up units in Northern States, the AP Government had earlier urged the Centre either to discontinue the tax exemptions in the three Northern States or allow AP to set up similar zones with tax exemptions.

With no favourable response from the Centre on the issue so far, the AP Government has now decided to set up exclusive SEZs for pharma formulations, Dr Reddy said.

"Both Aurobindo Pharma and Hetero Drugs will enter into an agreement with the APIIC for setting up of formulation units in the proposed pharma SEZ shortly"

He added: "We expect the formalities pertaining to the SEZ to be completed within the next six months so as to enable us take up construction activity from early next fiscal."

Earlier, speaking at the seminar, the Chairman of the Supreme Court Monitoring Committee, Dr G. Thyagarajan, advised Indian pharma companies to ensure environment protection and avoid the threat of becoming the victim of non-tariff barriers in the global market.

Referring to the recently introduced New Environment Policy-2006, Dr Reddy urged the Government to address the industry's apprehensions that the issuance of environmental clearances would take more time in the new regime. "Such delays will definitely slow down the growth of the pharmaceutical industry."

Land for SEZs — Government as real-estate broker


Even granting, as the Commerce Ministry claims, that new Special
Economic Zones will draw investment of Rs 1,00,000 crore over the next
three years, with huge employment potential, there are several grey
areas in the way land is acquired for these Zones. Moreover, the
tax-break policy for export-led growth could accelerate inter-regional
differences and create islands of fiscal extravagance, points out R.

Special Economic Zones (SEZ) being created by the SEZ Act 2005 is an
intriguing economic decision that has been castigated by the Left,
criticised by the Finance Ministry, cautioned about by the RBI and
frowned upon by the IMF. These SEZs are supposed to replicate the
success of such zones in China and also carry forward the thrust of
export-led growth.

The SEZ Act 2005 came into force with effect from February 10, 2006 with
the rules vetted and approved for notification. The Commerce Ministry
says that investment of the order of Rs 1,00,000 crore over the next
three years, with an employment potential of over five lakh, is expected
from the new SEZs. Table 1 highlights some of the salient aspects of
these Zones.

Any proposal for an SEZ in the private/joint/state sector is routed
through the State government concerned, which in turn forwards the same
to the Department of Commerce with its recommendations for consideration
of the Board of Approvals. However, proposals for setting up units
within an SEZ are approved at the zonal level by the Approval Committee,
consisting of the Development Commissioner, Customs Authorities and
representatives of the State government.

Originally, there was an idea of having a cap on the number of SEZs but
recently that has been given up. The empowered Group of Ministers has
recommended lifting the cap of 150 SEZs but has suggested reviewing the
position after 75 have become operational, against the extant 25 fully
operational ones (/Business Line/, August 24, 2006).

Table 2 lists the formal and in-principle approvals given by the Board
of Approvals after the SEZ rules for different States came into force.

In all, 1,12,908 hectares — 2.80 lakh acres of land — have been
allocated for this so far. The units can be IT companies existing in
other locations which can relocate to the SEZ, as it is advantageous
since the tax exemption era for them is coming to an end and they can
continue to get the full tax-exempt benefit.

Actually, the real estate needs of the IT companies should be much lower
than for manufacturing activities. But the President of Nasscom, Mr
Kiran Karnik, has complained that SEZ schemes favour large companies and
not small start-ups, since the minimum land to be taken is 25 acres
(/Business Line/, July 15, 2006).

The Government has also permitted up to 75 per cent of the area of SEZs
to be used for non-export purposes, such as housing, schools,
entertainment and banks. There are also reports which suggest that
duty-free shops will be allowed in SEZ zones, with the current duty-free
shops in airports rushing to set up facilities in these SEZs. Actually,
it seems that exports are a mere afterthought.

The Finance Ministry estimates that at least Rs 70,000 crore will be the
tax loss and the RBI feels it could affect meeting the fiscal targets
set out in the Fiscal Responsibilty and Budget Management (FRBM) Act. A
State such as Haryana, which is far away from all ports, has got
approval for nearly one lakh acres of SEZ. Substantial exports do not
take place by air and, hence, it is intriguing that Haryana has evinced
so much interest in these Zones.

IMF note of caution

The IMF cautions on the "perverse economic incentives" underlying these
SEZs. Dr Raghuram Rajan, the Chief Economist of IMF, feels that tax
holidays will only "encourage companies to shift existing production to
new zones"(/Financial Times/, September 2). The Left parties in India
also want a re-think by the Government.

There is a need to look at this tax-break policy for export-led growth
since it will accelerate inter-regional differences and create islands
of fiscal extravagance.

When the domestic market is very large and efforts need to be taken to
augment the fulfilment of domestic needs, the slogan of the 1960s —
export or perish — is outdated and anachronistic. It could end up as
`export and perish'.

The rates vary for different locations and it is the State government
which acquires the land from agricultural owners, consolidates it and
assigns it. This task is done by the Industrial Development Boards in
many States. At an average price of Rs 50 lakh per acre, this totals
nearly Rs 1.4 lakh crore of rupees worth of real estate made available
for export purposes.

More insidious is the land-grab taking place in an opaque fashion under
this scheme. Sooner or later, the affected farmers are going to demand a
share in the " prosperity" enjoyed by these units and it would be
appropriate that a portion of the compensation is provided in the form
of cash and another portion is in the form annuity benefits till the
lifetime of the farmer and/or his spouse. This can be a pension scheme
for the farmers.

A Special Purpose Vehicle (SPV) can be created for all SEZs taken
together, which can act as a nodal investment vehicle for the farmers.
This would go a long way in making farmers real partners in the progress
of the IT companies and also bring in more transparency in land

Governments at the State level should publish the rates at which lands
are taken over from farmers and the nature of consolidation.
Unfortunately, in India, real-estate has become the major issue of
contention between different political parties and leaders, and it is
associated with substantial misdemeanour among the political class.

Unless and until the entire real-estate business is made transparent and
legitimate, wherein law-abiding individuals can participate without the
fear of the "land mafia", SEZ schemes may not really facilitate earning
foreign exchange or attracting FDI. It is indeed sad that many of the
State governments have become real-estate brokers.

Perhaps to become a global power we can declare the entire country to be
an SEZ so that the commission for agents is not limited to current
approvals and the so-called benefits of SEZs can be shared by all citizens.

(The author is Professor of Finance and Control, Indian Institute of
Management-Bangalore, and can be contacted at
<> The views are personal and do not reflect
that of his organisation.)

What do SEZs really mean for India?

We need to look beyond mere economic benefits and open a debate on their governance


A few weeks ago, the Haryana government signed a memorandum of understanding (MoU) with the Reliance Group for a special economic zone (SEZ). The numbers are staggering: 25,000 acre, Rs 40,000-crore investment, anticipated annual returns of Rs 10,000 crore, with a 24% minority stake for the state. A week later, the Mahindra Group signed a similar MoU with the Rajasthan government. Over 100 such proposals have been cleared by the government of India. The future tenants of these SEZs are multinationals—Indian and foreign. Mukesh Ambani said: “We will get the best of the Fortune 500 companies here.” Clearly, SEZs are the latest buzzword in India’s charge onto the world economic stage.
What do SEZs prom-ise? There are fiscal goodies—customs duty exemption, income tax and service tax benefits— that are intended to generate economic and employment benefits. However, these are being questioned, with talk of job cannibalisation and fiscal distortions. I want to focus on a less discussed aspect: the land cannibalisation and, more importantly, governance distortions that they create.

The fiscal benefits are really a red herring to draw attention away from the real estate benefits that developers are getting from these SEZs: access to precious land at throwaway prices, cleansed of all land title and litigation issues. Some of these land arguments are already being made. In Haryana, for example, a Congress MLA, Kuldeep Bishnoi, has raised questions about the Reliance deal, but has been issued a show-cause notice by his party; an independent MLA, Naresh Yadav, has threatened a farmer protest on August 1, raising issues of water equity and loss of land to farmers.

Cynics might dismiss these as opportunistic politics, but there is no denying that there is more to SEZs than just economic incentives. These are not necessarily tiny plots of land: the Reliance SEZ is 25,000 acre. All of Bangalore is 50,000 acre. In Superman Returns, ace villain Lex Luthor says: “It’s all about land.

You could manufacture anything else, but you can never make land.”

The governance issue has attracted less attention. The reality is that SEZs are like a governance virus in the areas where they are located. Read the SEZ Act, it is full of unilateralism. Section 31 says that the Development Authority of the SEZ shall have ‘the Development Commissioner, three officers of the Central Government, (and) not more than two nominees of entrepreneurs.’ This is centralised and privatised governance, a throwback to the feudal state, with traces of the Raj — a potent and dangerous mix of public and private interest.

There is more. The SEZ has the mandate to develop infrastructure within it, provide water and sanitation services, levy user charges and collect property ‘fees’. This means that it will essentially function like a sanitised local government, without the politics. This is a complete violation of the 73rd and 74th Constitutional Amendments, which mandated that rural and urban local governments would be responsible for these functions. This is sad, given how tortuous the political process of decentralisation has been, with activists and advocates having devoted their entire lives to the cause. Despite the Amendments, it has taken 15 years for panchayats and municipalities to get their share of finances and responsibilities—and the battle is still being fought. This is how due process ought to work.

Against this background, the SEZs are a businessman’s dream response, the creation of a kind of political ‘cleanroom’. And so, while some parts of government are engaged in the legitimate political battle of decentralisation, other parts of the very same government sanction thousands of acres of SEZ projects, slicing up our our villages and towns and auctioning them off to the highest bidder. I don’t believe these things begin with a group of conspirators sitting down to figure out how to carve up the country. I think that the process begins with the genuine desire to improve the responsiveness of government to economic demands; but in a globalised world that is moving at warp speed—with everyday comparisons being made to China— there is little time to follow due process. Pretty soon, we have the end justifying the means. Unfortunately, most businessmen and bankers are constrained to think only of their interests, which is exactly why they are successful at what they do; and which is why we need the government to act as the check-and-balance here, not become an IPO-partner with a conflict-of-interest.

Are we making too much of these developments? After all, every successful country has made compromises between development and equity on its way to prosperity. The SEZ issue is symptomatic of complex intertwined issues, of how globalisation is reaching into countries and shredding their political identities; how a new localised phenomenon of interlinked cities across the world is setting the development agenda. Saskia Sassen, professor of sociology at Chicago, writes of how the political process— which is meant to slow the pace and allow for deliberation—is now getting tainted by economic forces. She talks of a ‘geography of globalisation’ and says, ‘national urban systems are being partly unbundled as major cities become part of a new or strengthened transnational urban system.’

Business leaders know that great institutions are distinguished by their governance processes. We all know that India needs to strengthen its democratic institutions even as it responds to its economic impulses. This tension between progress and process is similar to that between liberty and equality in a democracy.

Unfortunately, SEZs are the wrong kind of solutions—even as they provide sops to the business community, they severely debilitate our public institutions and our democratic processes. It’s not too late, the mania has just begun. We need to hit the pause button, and nurture debate about what SEZs really mean for India, and the price we will have to pay for them in the long run.

—The writer is founder, Janaagraha. Email:

Decks cleared for SEZ paper mill


Production to be launched by 2008; job opportunity for over 1,000 locals

Rajahmundry: The first-ever sector specific Special Economic Zone paper mill is expected to begin its fine quality production by the end of 2008.

Announcing this at a press conference here on Monday, T. Srinivasa Rao, Chairman of White Field Paper Mills Limited said that the Ministry of Commerce, Government of India, cleared their plant as specific Special Economic Zone (SEZ) mill for writing and printing paper at Bayyaram, a hamlet of Tadipudi village in Tallapudi mandal of West Godavari district.

He said the company would import pulp from Elof Hansson Group, Sweden, one of the leading pulp and paper suppliers in the world.

He also said that MoU was signed with the group recently for supply of raw material (wood pulp) and buy back of finished product like quality writing and printing paper, special grade bond paper, zerox paper and superfine coated paper.

Project cost
Replying to a question, Mr. Rao said that the project cost was Rs. 1,200 crores and Rs. 800 crores of it would be foreign loan.

The mill would draw water from the Godavari river within 5 km radius and power through Grid.

The company had an arrangement for gas pipeline with GAIL and Reliance, he added.

"Our mill will provide direct employment to 1,000 locals and another 10,000 persons indirectly. Number of ancillary units will come up along with the mill," said Mr. Srinivasa Rao.

M. Venugopal, cost accountant, and R. Sambasiva Rao, general manager (project coordinator), were also present at the press conference.

RBI criticism on SEZ positive’

NEW DELHI, AUG 31: Denying allegations that a large portion of agriculture land was being converted into special economic zones, the commerce ministry on Thursday said the total proposed area for the 225 pending applications for setting up SEZs was about 75,000 hectares–a miniscule 0.000625% of India’s total area under cultivation.
The country’s total agriculture land area was 120 million hectares, the ministry said, adding the 150 formal approvals given for establishing SEZs involved a total of 26,800 hectares.

Interestingly, since an empowered group of ministers decided to take the cap off the number of SEZs, the ministry has not received any SEZ proposal. The two SEZs notified today took the total number notified to 22.

Terming the Reserve Bank of India’s note of caution that SEZs could cause huge revenue drain as positive criticism, commerce ministry special secretary GK Pillai told reporters here the SEZ experience so far showed that the SEZ units developed strong linkages with the domestic tariff area (DTA). SEZs had been sourcing raw material largely from the DTA, he said.

He said the RBI, in its annual report, had lauded the efforts of SEZs in attracting huge foreign and domestic investment, and generating both direct and indirect employment.

Pointing out that the SEZs proposed by State Industrial Development Corporations would be set up over a total area of 9,140 hectares, he said, the land was already in possession of these corporations and was acquired for industrial purposes by state governments much before the introduction of SEZ policy.

Even in other cases, applicants were holding land at the time of making proposals and there were no cases involving fresh land acquisition, he claimed. Besides, Pillai said, even the finance ministry had said, so far there were no instances of abuse of the SEZ Act.

Pillai said SEZs were foreign territory only because they were exempted from the customs rules. But, he said, all the other laws of the land like the IPC and the CrPC would be applicable for SEZs.

Countering allegations on reduced processing area, the official said, according to the norms of the urban development ministry, industrial parks had to have a manufacturing area of only 12-15%.

Compared with this, SEZs should have a minimum processing area of 35%, he said.

IMF’s Rajan slams SEZ scheme

NEW DELHI, AUG 31: International Monetary Funds’ chief economist Raghuram Rajan has blasted the government for extending tax holidays to developers of special economic zones. Such “perverse economic incentives”, he has said, will bring little additional investment, and definitely a lot less revenue.
In a piece in the September issue of Finance & Development, IMF’s quarterly magazine, Rajan has said such tax holidays not only made the government forgo revenue it could ill afford to lose, but also offered firms an incentive to shift existing production to SEZs at a substantial cost to society.

While the Centre has said that only new investments in SEZs will qualify for tax sops, Rajan doubts if the government can judge what new investment is, given the corrupt tax administration. Moreover, according to him, firms will shift all investment that would have taken place outside the zones to the new zones, depriving the government of revenue.

Rajan seems to be pretty much aware that the government is divided over the concept of SEZs with some of its segments supporting tax holidays being pushed by interest groups.

The commerce and industry ministry has been one of the most vocal proponents of SEZs, stating they will bring in foreign direct investments of $5 billion before 2007-end and create 1.5 million jobs. The finance ministry and the Planning Commission oppose tax holidays, with estimates that the move will result in a whopping revenue loss of Rs 1,70,000 crore between now and 2009-10.

A recent study by the National Institute of Public Finance and Policy had projected the total revenue loss at Rs 97,000 crore between 2005 and 2010. The RBI, too, said SEZs would lead to an uneven pattern of development. In its annual report released on Wednesday, the RBI said the tax breaks could be justified only if SEZ units established backward and forward linkages with the domestic economy.

Coming down heavily on the government, Rajan said, “It will be increasingly important for India to exchange its paternalistic, directive government, which seeks to remedy every wrong through a subsidy, a quota, or a scheme.” The government must focus instead on getting the environment right to increase opportunities.