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Published : February 24, 2012 | Author : amit
Category : Company Law | Total Views : 7733 | Rating :

Amitabh Tewari 3rd year GLC MUMBAI

Land Acquisition For Sez’s-Are Engines Of Growth Losing Steam

What Is An Sez?
A Special Economic Zone (SEZ) is an especially demarcated area of land, owned and operated by a company, which is deemed to be foreign territory for the purpose of trade, duties and tariffs. They are regions designed for economic development oriented towards FDI and exports fostered by social policy incentives Mooted in March 2000, the main idea to set up a Special Economic Zone was to boost exports and to help the industries respond to the changing market scenario in a flexible manner.

The SEZ’s are a new and a modified version of an EPZ .The first EPZ, developed in Kandala in 1965 aimed at giving a boost to industries and exports. This led to creation of surplus jobs and enhancement of exports. Further in 2000, the government replaced the old EPZ’s with SEZ’s. The main difference between the two is that the former is an industrial enclave while the latter is an integrated township with developed infrastructure.

One of the main reasons for the development of a SEZ was to emulate China, where there were numerous SEZ’s doing extremely well. To start with, The SEZ at Shenzhen attracted $30 Billion. Another successful one was at Pudong, near Shanghai .As China used SEZ’s to boost it’s economy, it attracted $45 billion every year in FDI as compared to India which attracted only $2 billion prior to the setting up of SEZ’s. This favorable position of China, was one of the factors which induced India to set up a SEZ in its own territory.

History Of Sez’s:
The New Economic Spaces or Special Economic Zones in India came into effect with the passing of the Special Economic Zones (SEZ) Act 2005. The history of such zones in India predates to the setting up of Export Promoting Zones. India set up its first Export Processing Zone (EPZ) in 1965 in Kandla followed by Santacruz EPZ in 1973. These EPZs did not enjoy fiscal and custom incentives like the SEZs and FDI rules and regulations were also strict. The Tandon Committee Report in 1981 argued that Free Trade Zones would generate export if they are exempted from various controls and regulations in place. Following this recommendation, four EPZs came up in 1984 at Noida (Uttar Pradesh), Falta (West Bengal), Cochin (Kerala) and Chennai (Tamil Nadu). Another EPZ was set up in Vishakhapatnam in 1989(Shalti Research Group 2008). Post liberalization in 1991, the EXIM Policy (1997-2002) introduced a new scheme from 1 April 2000 to revamp and restructure the “production” sites for export oriented services in the form of Special Economic Zones. After five years, on May 2005 the Parliament passed the SEZ Act, which received Presidential assent on the 23rd of June, 2005. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of The SEZ Act are:

(a) Generation of additional economic activity
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities;
(e) Development of infrastructure facilities;

Classification Of Special Economic Zones:
Special Economic Zones are classified into the following types:

a) “Special Economic Zone for multi-product”: It is a special economic zone where units may be set up for manufacture of two or more goods in a sector; goods falling in two or more sectors ; for trading and warehousing; rendering of two or more services in a sector; rendering of services falling in two or more sectors.

b) “Special economic Zone for specific sector”: It is a special economic zone meant exclusively for one or more products in a sector or one or more services in a sector.

c) “Special Economic Zone in a port or airport”: It is a special economic zone in an existing port or airport for manufacturing of goods in two or more goods in a sector ; goods falling in two or more sectors; for trading and warehousing; rendering of services.

Therefore classification of special economic zones helps to regulate the production and it leads to differentiation among the goods produced from different SEZ’s

Advantages Of A Sez:
The main purpose of developing a SEZ is to create an environment for the promotion of exports. The SEZ policy offers various fiscal and regulatory incentives to the developers in the zone. According to experts, it is believed that the exports will ultimately grow five times and more than 30 lakh jobs will be generated by SEZ’s across India. The government also claims that the SEZ’s will attract global manufacturing through FDI, enable transfer of modern technology and will also create incentives for infrastructure.
Among its innumerous advantages, one of the main is that:

· Every developer and entrepreneur shall be exempted from the following under The SEZ Act 2005-

a) Exemption from excise duty on the goods.
b) Income tax exemption for a period of ten years in the first 15 years of operation.
c) Exemption from service tax under chapter V of the finance Act 1994.
d) Exemption from central sales tax for the goods used for development of the SEZ.
e) Exemption from the Securities Transaction Tax

· Apart from the developers it also preserves certain incentives for the enterprises also-

a) 100% FDI permitted to the manufacturing sector.
b) Requirements of no import license.
c) External maturity borrowings through recognized banks.
d) Exemption from licensing regulations

Therefore, SEZ’s through its various advantages help boost the economy through creation of jobs and development of infrastructure.

The Present Scenario:
The SEZ policy has become one of the most vehemently debated issues in the recent years. In many areas of the country, it has lead to protests by politicians, scholars ,media and civil society. Despite all the advantages the SEZ policy has bestowed upon, it has still not been accepted, leading to public pressure on the government to modify the Act.
For instance, In Karnataka, SEZs are planned at Tadri in Uttara Kannada, Padubidri in Udupi, and Baikampady in Dakshina Kannada. Padubidri was where Cogentrix was to set up its power plant. The Barge Mounted Power Plant (BMPP) and the expansion of Tadri port have been, and continue to be, severely criticised by the local people for the negative social, economic and environmental impacts they can have.

Tadri is situated on the banks of the fertile and productive Aghanashini estuary and the villagers fear the fallout of such `development' on their rice-fields, salt-pans, fisheries and mangrove diversity will be disastrous . Tadri, in fact, had a ship-breaking unit in the early 1990s. This was shut down under public pressure, on grounds of ecological damage, and is reflective of what the people of this area considered more important.

The share of SEZ’s was a mere 5% in the year 2004-05. Furthermore, they accounted for only 1% of the factory sector employment and 0.32 % of the factory investment that year. It is also said that the SEZ policy would cause a revenue loss of Rs 9,39,000 million over the next four years which comes to about 6.7% of the central government’s receipts of 2005-06.

There will be loss of agricultural land which can have serious implication on food security. The companies will simply relocate to SEZ’s to use the tax benefits being offered and little net activity will be generated.

Land Acquisition –A Grey Area:
SEZ’s and Land Acquisition are interconnected: Large amount of land is required for developing the SEZ’s. It is estimated that the total land which will be acquired from the farmers is 1,50,000 hectares, capable of producing about 1 million tones of agricultural produce. It is also estimated that more than 10 lakh people who are dependent upon agricultural lands will be evicted from their lands. The farming families will have to face loss of around Rs.212 crores each year in total income, which will also lead to putting the food security of India at risk. SEZs and Land Acquisition in India have now resulted in dissent, uproar, and opposition from the farmers, for their livelihood has been put at stake. For industrial development, use of agricultural land is not permissible. History shows that most of the land acquired by the government has been sold for commercial purposes at market rate. The entire policy is a scandal, leading to suicides among farmers on a regular basis. The growing issue of the Special Economic Zones has led to a lot of resistance from the rural people which the government has termed ‘unreasonable and unnecessary’. In some areas as in the outskirts of Mumbai, people have been handed with land acquisition notices by the government. In short, allowing SEZ’s to function means land acquisition and conversion of land use with no benefits to the affected population and a loss of their livelihoods.

· Citing an example, Recently due to land acquisition in Atchutapuram in Vishakapatnam, the farmers have declared war against the setting up of SEZ’s on their land. They accuse that the land compensation money given by the state government is very less as compared to the cost of the land.

· Another example, is the agitation in Nandigram, West Bengal ,where the farmers protested against setting up of SEZ on their land.

· The Baikampady SEZ has also been disputed as a result of the statement made by the Union Minister of Commerce and Industry saying that 10% of the lands can be double-cropped

Therefore, The SEZ policy has become a ‘land grab’ policy. People have already expressed negative views about the policy through agitations and protests and it is high time the government looks and rethinks the entire policy.

Environmental Issue-
Whenever there is development, environment is usually one of the most important concerns. Industries use up a lot of natural resources for production, which subsequently leads to air, water and noise pollution. All this has a negative impact on the environment as there is deforestation, destruction of habitat of animals and the flora and fauna of the region is adversely affected. Therefore to protect the ecology from the whims and fancies of the ‘profit’ seeking industries, rigid laws have to be made and effective implementation of these laws is required.

The most important issue is of the Impact Assessment Procedures i.e. the “procedure to be followed for looking into the impact of the development of SEZ’s on the environment”. Some of the projects come under the purview of the “Schedule 1 of the Notification”. These projects will have to comply with the conditions of organizing a public hearing and allowing local people to voice their objections and suggestions about the project. Projects not falling in this schedule are assessed by the State government, and the clearance process does not mandate a public hearing. The units which are classified as “non polluting industries” do not need a NOC from the pollution control board. Although the development commissioner has the powers to have a random check, the industries are free to follow their own methods of maintaining environmental standards.

It is expected from the government that the conflict between environment and development be resolved properly and the environmental regulations be proactive in nature and not to be a barrier on the path of country’s economic development.

Legal Developments Regarding Sez’s:
To counter the adverse affects of the SEZ’s people apart from protesting, have, knocked the doors of the judiciary to strike down the policy as well as the Act by filing writ petitions and Public interest litigations in the various high courts and The Supreme Court of India.

· Advocate Manohar Lal Sharma filed a PIL in the Supreme Court contending that vast tracks of fertile land have been taken by the government. He Prayed to the courts to grant an interim order and to direct the lands to be given back to the farmers.

· In another writ petition filed, the petitioner sought to quash the MOU filed between Reliance Industries and the Government of Punjab for setting up an SEZ on the grounds of violating the land allotment policy.

· Another example was a writ petition regarding the compensation given to the farmers being questioned and the Supreme court granting liberty to the farmers to challenge the adequacy of the compensation provided.

· In another writ petition filed, The entire SEZ policy of the Government was challenged on the grounds that it will cause financial losses and it may lead to the collapse of the economy. But the court rejected it on the ground that it is a policy matter but also left a remark that the court can interfere in the policy matters in individual cases when the party concerned is personally affected.

All these cases prove the fact that the people have not accepted the SEZ policy of the government and it is imperative on the government’s part to rethink and relook into the entire policy so that there is development without compromising the interests of the farmers and without causing any damage the environment.

Sustainable Development:
The term ‘Sustainable Development’ stresses the balance between the interests of economic growth and environmental protection; emphasizing the importance of inter-generational transfers.

While putting in the context of Indian SEZ’s, three aspects of sustainable development is taken into consideration: Economy, Society and Environment. A summation of these three aspects shows that there should be development which does not result in inequalities and over exploitation of natural resources. If these aspects are taken care of, then the SEZ’s can generate sustainable value. In other words, they should be able to benefit the society in tremendous quantum.

Another factor which can be used to obtain the goal of Sustainable development is:

Corporate Social Responsibility:
The concept of corporate social responsibility arises from the fact that all corporate companies have a duty towards all their stakeholders in all aspects of their business operations. The motive and interests of companies engaging in social responsibilities is to enhance their image both domestically and internationally. It must be taken into consideration to respect the environment and not to deprive the indigenous people of their land and their right to livelihood.

The government is touting SEZ’s as the future islands of excellence. But at what cost will it be achieved? That is the moot question. As thousands of acres of agricultural land are converted into concrete jungles, how will it affect food security? Will the farmers who are ready to give off their land get a fair deal? Most of them fear they will get peanuts compared to what the developers will make. Will this attitude of the government and the companies continue when environmental degradation starts in the race to make a fast buck?

The enthusiasm that the government has in setting up the SEZ’s underline an ugly fact that even after five long decades of independence, we still do not have the kind of decent infrastructure in the country that should have normally been the case. Services should have been available to all, but it could not be created and so now, there will be special areas demarcated for special people. The others will continue to live without power, water, roads and green areas. Islands of prosperity where the rich are ecologically subsidized are okay, while the lesser mortals live on the fringes.
# Deardoff’s glossary of international economics
# EXIM Policy 2000 of the government
# Export Processing Zones
# ‘Special Economic Zones’ Lawyers Collective Vol 21.Page 8
# Aradhna Aggarwal-‘Special economic zones’ revisiting the policy debate
# Special economic zone-A boon or disaster. By Ramesh Menon
# Shalti Research Group. 2009. SEZ in West Bengal : Growth, Trajectory Impact. Camp: Kolkata
# Section 5 of the Special Economic Zone 2005
# Section 2 of the Special Economic Zone Rules. Clause (t) sub clause (za,zb,zc)
# Ministry of trade and commerce-Government of India
# Section 26 of the Special economic zone Act,2005
# Special Economic Zones- Ministry of External Affairs,India
# ‘EPZ’s/SEZ’s and product diversification’ a case study of india, ongoing study funded by the world bank
# Special Economic Zones-revisiting the policy debate by Aradhna Aggarwal
# Special Economic Zone or land grab- http://psdblog.worldbank.org/psdblog/2006/10/special_economi.html
# THE HINDU-Atchutapuram ryots feel let down, October 26 2006
# Dionne Bunsha-Rural frontline, October 20-2006
# Environmental impact assessment notification 1994
# Schedule IV of the environmental impact assessment notification,1994
# PIL filed in SC regarding land acquisition for SEZ’s, retrieved from www.indlawnews.com, published on 6th November 2006
# Writ petitions challenging reliance SEZ’s, retrieved from www.indlawnews.com, published on 26th September 2006
# SC grants farmers liberty to challenge state on SEZ’s, retrieved from www.indlawnews.com , published on 13th Novemeber 2006.
# SC refuses to entertain PIL challenging Govt policy on SEZ’s, retrieved from www.indlawnews.com, published on 6th November 2006.
# Definition of Sustainable Development- The concise oxford dictionary of politics

Authors contact info - articles The  author can be reached at: tewariamitabh@legalserviceindia.com

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