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Of SEZs, land acquisition and development

Of SEZs, land acquisition and development
Highlights

There is strong evidence that past acquisitions of land for development have gone awry. That should serve as a warning, as the Prime Minister Narendra...

There is strong evidence that past acquisitions of land for development have gone awry. That should serve as a warning, as the Prime Minister Narendra Modi's government enters the second year in office and proposes to continue its battle for a new, controversial land acquisition law.


A 2012-13 report of the Comptroller and Audit General of India, the official auditor of the central government, revealed these key findings:

- No more than 62 percent of land -- much of it acquired from farmers -- for special economic zones (SEZs) has been used for its intended purpose: to boost manufacturing, exports and jobs.

-- Most SEZs are populated with information technology (IT) and IT-related companies, while manufacturing accounts for only 9 percent of all SEZ projects.

-- SEZs fell short of their job, investment and exports targets by wide margins. For instance, they generated less than 8 percent of the jobs expected.

The auditor analysed a representative sample of 187 developers and 574 SEZ units spread across 13 states (Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal) and the union territory of Chandigarh for the period 2012-13.

The new land acquisition bill piloted by the government of Prime Minister Modi has been sent to a parliamentary committee for re-consideration after facing opposition and accused of being against farm interests.

The government’s argument is that India needs to fast track the bill, so that land can be made available for industries-to generate employment and power economic growth.

What about SEZs? They were created, with motives similar to those expressed by the government, under the Special Economic Zone Act, 2000. This was enacted in 2005 to make SEZs growth-engines of the economy. An SEZ is a specifically delineated duty-free enclave, deemed foreign territory for the purpose of trade operations, duties and tariffs.

The previous United Progressive Alliance (UPA) government cleared 576 SEZs covering 60,375 hectares, of which 392 SEZs covering 45,636 hectares were notified (approved land) till March 2014. But on the use of land, of the 392 notified zones, only 152 are operational, accounting ro4 28,489 hectares.

The land allotted to the remaining 424 SEZs (31,886 hectares) has not been put to use (52.8% of total approved SEZs), although approvals and notifications in 54 cases date back to 2006. A look at some states and the percentage of idle land, based on the audit report:

- Odisha 96.6 percent
- West Bengal 96.3 percent
- Maharashtra 70.1 percent
- Karnataka 56.7 percent
- Tamil Nadu 49 percent
- Andhra Pradesh 48.3 percent
- Gujarat 47.5 percent

In 30 SEZs (1,858 hectares) in Andhra Pradesh, Maharashtra, Odisha and Gujarat, developers made no investments; the land is idle and has been in their custody for between two and seven years.

This apart, jobs, investment and exports also fell short of targets by a wide margin, the audit report found.

- Employment fell short by 93 percent: SEZs generated 0.2 million jobs instead of 3.9 million.

- Investments fell short by 59 percent: SEZs were to attract investments of Rs.194,662.5 crore ($36 billion) and no more than Rs.80,176.3 crore ($14.8 billion) was invested.

- Exports fell short by 74 percent SEZs exported goods valued at Rs 100,579.7 crore ($18.6 billion) instead of the projected Rs.395,547.4 crore ($73. 2 billion).

Manufacturing was supposed to be a key focus of SEZs, but that did not happen. Of the 625 approved projects, only 152 -- or 24 percent -- of the approved projects were operational. In IT/ITES, out of 354 notified projects, 91 were operational, in multi-product zones, out of 60 approved, 13 percent operations. It was 31 and a mere one for biotech, 26 and nine for pharma and 153 and 38 for others.

Almost 56 percent of the approved projects are from the IT sector, while only 9 percent are in the multi-sector, manufacturing business. While 59 percent of of the operational SEZs are in the IT sector, only 8.5 percent are from the manufacturing sector.

“The large number of IT/ITES SEZs coincides with the expiry of the 10-year income-tax break period allowed to IT sector under Software Technology Park Scheme which gave a fillip to the sector. Several units closed and shifted to SEZs to avail of the benefits offered in SEZ area,” the report said.

Aongthe states, out of the 392 notified SEZs in India, 301 (77 percent) are located in states regarded to be developed. Andhra Pradesh (now bifurcated into Telangana and Andhra Pradesh) has 78 units, followed by Maharashtra (65), Tamil Nadu (53), Karnataka (40), Haryana (35) and Gujarat (30).

A key reason for the uneven spread of the SEZs across the states, according to the audit report, was the absence of single-window clearance in many states. This led to approval delays.

SEZs are mainly located close to urban areas. For example, in undivided Andhra Pradesh, of 36 operational SEZs, 20 were close to the capital city, Hyderabad.

The report, in conclusion, said: “The SEZ policy and procedures need to be integrated with the sectoral and state policies with the involvement of the unique advantageous points therein.”
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