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The Special Economic Zone (SEZ) policy, launched by the Indian Government in 2005, may soon be a thing of the past as the government is mulling over scraping the SEZ policy.
The land acquisition process under the SEZ policy led to increased controversies across the country. As a result, most of the approved SEZs never came into reality. It was also alleged that some of the SEZ allottees acquired more land than required while some tried to divert the acquired land to some other uses. All these unwanted development forced the Commerce Ministry to commission a study to Indian Council for Research on International Economic Relations (Icrier) to find if SEZs have met the economic objectives for which the programme was rolled out. The future of the SEZ policy depends on the Committee report which is expected to come in the next six months.
The above decision is also an outcome of the ongoing feud between the Commerce Ministry and the Finance Ministry over the success of the SEZs in India. The Finance Ministry feels that the SEZs have not met the economic goals for which the programme was created.
The Commerce Ministry, as reported, is also not keen to continue the policy as it wants to promote the National Manufacturing and Investment Zones (NMIZ), under the National Manufacturing Policy. The Parliamentary standing committees on both commerce and finance have been opposing the new SEZ policy as it has led to several scams, like the Goa SEZ scam where land was illegally allotted to seven SEZs in 2005.
The Indian embodiment of the Chinese SEZ model led to the SEZ Act of 2005 which was launched for generation of additional economic activity; promotion of exports of goods and services; promotion of investment from domestic and foreign sources; creation of employment opportunities; and development of infrastructure facilities.
As of date, the government has given formal approvals for 588 SEZs. Out of this 386 have been notified and 170 SEZs are operational. The most sought out sectors in the SEZ programme have been IT/ITES, Bio-tech, Multi-Product, Pharma and Textile. State wise, highest number of SEZs are in Andhra Pradesh, Maharashtra, Tamil Nadu, Karnataka and Gujarat.
Exports from SEZs grew by 30 per cent at Rs 4,76,159 crore in 2012-13 and accounted for 29 per cent of the total exports of India. However, the overall exports of the country declined by 2 per cent during the same period.
Even though the existing SEZs like the Kandla SEZ in Gujarat or the Nokia SEZ in Tamil Nadu have met the expectations, as a whole the new SEZ policy failed to give the expected boost to the Manufacturing sector and lift the country’s exports. The partial success seen in the policy is limited to selected sectors like IT/ITES. Of the 588 formally approved SEZs, 353 SEZs are in the IT/ITES sector.
The general interest of the promoters further diminished following the imposition of the Minimum Alternate Tax (MAT) on both developers and units in the 2011-12 Budget.
In its Foreign Trade Policy 2009-14, unveiled in April 2013, the government announced a number of reform measures to strengthen the SEZ policy. Availability of land being the main issue of the failure of the SEZ projects, the government reduced the land requirement norms for both multi-products and sector specific SEZs by half. These measures have not changed the fortunes of hundreds of SEZ projects which are currently in the nascent stage.
The million dollar question is what will happen to the lands acquired by the state governments, SEZ promoters, if the government decides to scrap the SEZ policy. Will the land be returned to its original owners or will the government allow the SEZ promoters to use it to some other purpose?
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