Special Economic Zones A.

Introduction India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations B. SEZ Act 2005 After extensive debates, 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 Central Government has also issued a set of instructions and various States have issued policy documents to further facilitate the setting up and regulation of SEZs. 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 C. Acquisition of Land for SEZ There are two different problems relating to acquisition of land for SEZs. 1. Procedure Procedural provisions in the SEZ Act only extend to the stage at which the land is identified and the Board approves the project. The procedure for actual acquisition of the land is still carried out through the Land Acquisition Act. Section 3 to section 8 of the SEZ Act only deal with identification, notification and setting up without ever providing for a specific process of land acquisition. 2. Type of land to be acquired Secondly there is no bar on the type of land that can be acquired for the purpose of setting up an

SEZ in the Act. However the States in their policies have specified that acquisition of agricultural land should be kept to a minimum. For example the Karnataka Policy Document on SEZ contains the following: III (2). Land for SEZs Proponents of SEZs can utilize their own land including joint development/lease land or following procedures: (v) Acquisition / purchase of land are subject to the following: a. SEZs can preferably be established in waste, karab, dry and single crop land. Use of agricultural land to be kept to the minimum . Utilization of agricultural land is subject to the Government of India guidelines issued from time to time. Public Purpose? In the case of Shah Kantilal Depar and others v. Reliance Infrastructure Limited through Manager and others it was held that setting up of a Special Economic Zone was public purpose. There are two fundamental problems with this decision. Firstly the term SEZ is too wide to be designated as a public purpose in its entirety. There are various types of SEZ and within those types there are several units, not all of them attuned to a single purpose. Hence classifying the whole category of SEZ as a public purpose is unsound. The second problem lies in not differentiating the different types of public purpose. There is a prima facie difference between acquiring land for building a road and for building an SEZ. This is because firstly the road is essential and in all probability has to be built in that area whereas the SEZ is neither essential nor does it have to be in a particular area and secondly the road is a State activity needed or the common good whereas the SEZ's benefits are questionable at best. This difference is the basis on which the SEZ Act can be heavily criticized. D. Compensation and RnR As there is no separate procedure for acquisition, there is also no set compensation mechanism. Similarly a rehabilitation plan may or may not be imposed under 3(8)(b). The form of the Letter of Approval as provided in the rules contains a condition regarding the rehabilitation of displaced persons. State policies however require a rehabilitation plan to be put into place. For example the Karnataka policy document has the following provision: III (2)(v)(b) : SEZ Applications for the State High Level Clearance Committee will essentially include a Resettlement and Rehabilitation plan in line with the guidelines issued by the Government of India from time to time. acquire the required land by one of the

Since the Act itself does not provide for a concrete compensation and rnr plan the same have to be carried out under the land acquisition act. Once again the problem lies in not differentiating between the road as a public purpose and the SEZ as a public purpose. Most SEZ are built and developed by private parties with extensive resources. Why cannot they be made to pay compensation which is in sync with their ability in terms of resources? E. Monitoring and Enforcement of Conditions The functioning of the SEZs is governed by a three tier administrative set up. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zone level deals with approval of units in the SEZs and other related issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of the Approval Committee. Once an SEZ has been approved by the Board of Approval and Central Government has notified the area of the SEZ, units are allowed to be set up in the SEZ. All the proposals for setting up of units in the SEZ are approved at the Zone level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government. All post approval clearances including grant of importer-exporter code number, change in the name of the company or implementing agency, broad banding diversification, etc. are given at the Zone level by the Development Commissioner. The performance of the SEZ units are periodically monitored by the Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval. Sections 3(7) and 3(8)(b) allow for the imposition of conditions on the developer of the SEZ by the Board and the Central Government. Once these conditions are satisfied a letter of approval is issued to the developer. As an enforcement measure this letter of approval is capable of being suspended or cancelled at any point of time at which the conditions specified at the time of approval are not met. However, it is to be noted that the sections clearly say 'may' impose. There is no obligation to impose these conditions, resulting in too much leeway and in the creation of potential to undermine the process. F. Environmental Concerns SEZ Rules 2006 contain provisions to ensure compliance with existing environmental standards. Section 18(2)(iii) states as follows:

18. Consideration of proposals for setting up of Unit in a Special Economic Zone. (2) The Approval Committee shall approve the proposal if it fulfills the following requirements, namely: (iii) the applicant undertakes to fulfill the environmental and pollution control norms, as may be applicable; Lack of detail seems to be the general trend of the SEZ Act and the SEZ Rules. By not specifying standards for different types of SEZ, any possible intention of protecting the environment is negated. Though each and every situation cannot be envisaged, at least an attempt at covering several probable situations must be undertaken. G. Questions and Recommendations 1) Questions On examining the SEZ Act certain questions arise. Can SEZ be actually brought under the ambit of public purpose? If not then why is the State acquiring land for SEZ? If it is a public purpose then considering that the development of SEZ is being handled by private players with extensive resources, should not the compensation and rnr package be higher? Is the SEZ Act adequate in terms of covering every aspect related to SEZ?

2) Recommendations Though the objective of achieving economic growth is laudable, the SEZ does not have enough of the element of public in it to be a public purpose. Almost all the benefits are derived by private parties who develop and operate from the SEZ. Thus the acquisition of land for SEZs by the State should be brought to an immediate end. This does not mean there should be no SEZs. SEZs are good but forced acquisition of land is not. Take SEZs out of the acquisition process and let the developers buy the land at prevailing market rates. This allows the developer to get the required land and the farmer to exercise is choice to sell or not. No negative impact will occur as the developers can make up the cost of the land in no time given the sops and concessions available to them. This way the element of compulsion involved in acquisition is taken away. In case SEZs continue to be classified as a public purpose then the compensation and rnr packages must be made much more lucrative considering that the developers have boundless resources and can make up the costs quickly.

As far as the SEZ Act is concerned, it is woefully inadequate. It does not even contain an indirect reference to rights of the persons from whom the land is acquired. It is short on procedural aspects as well. Finally it is too reliant on the Land Acquisition Act and other statutes to be completely effective. To redress the situation the Act needs to be reworked from end to end in order to make it a comprehensive and independent legislation that is capable of dealing with all the challenges related to SEZs

Case Study I The Singur Experience Background The ruling party had gone all out for acquisition of 997 acres (4.03 km2) of multi-crop land required for the car factory, questions had been raised about the party forcible acquisition which was made under the colonial Land Acquisition Act of 1894. The Tata Motors site was the most fertile one in the whole of the Singur block, and the Singur block, in turn, is among the most highly fertile in West Bengal. Consequently, almost the entire local population depends on agriculture with approximately 15000 making their livelihood directly from it. With the number of direct jobs to be created no more than about 1,000, many of which are expected to go to outsiders, the local populace felt threatened for their livelihood. Environmental degradation was also feared. Reaction of Farmers While landless peasants and share-croppers feared losing out entirely, sections of the locals, particularly those owing allegiance to the CPI(M) welcomed the factory. These count chiefly among the owners of bigger portions of the land even as discrimination in the compensation has been alleged. A section of those promised jobs at the factory boycotted classes while training in protest against the alleged going back on the promise. Protests Preliminary surveys by officials of the state and Tata Motors faced protests, and manhandling on one occasion, from the villagers organized under the Save Singur Farmland Committee with Trinamool Congress forming its chief component. Chief protesters included the opposition parties spearheaded by the Trinamool Congress under

Mamata Banerjee and Socialist Unity Centre of India. The movement received widespread support from civil rights and human rights groups, legal bodies, social activists like Medha Patkar and Anuradha Talwar, Booker prize-winning author Arundhati Roy and Magsaysay and Jnanpith Awardwinning author Mahasweta Devi. Other intellectuals, writers like the poet Ruchit Shah, artists like Suvaprasanna, theatre and film personalities like Saonli Mitra, Aparna Sen etc. pitched in. The state police force was used to restrict their access to the area. The Nobel Laureate Amartya Sen supported the idea of factory but he however opposed forcible acquisition of land. Response to Protests The protesters were attacked verbally by the Communist Party of India (Marxist) (CPI(M)) leaders and physically by the party's supporters. Benoy Konar, member of the party's state committee, famously declared that protesting intellectuals would be greeted by women supporters of the party by showing their behinds. The state government imposed the prohibitory Section 144 of the Indian Penal Code for initially a month and then extended it indefinitely. The imposition was declared illegal by the Kolkata High Court. Lack of Transparency Other aspects of the process of setting up the factory that had come under severe criticism were the government's secrecy on the details of the deal and the chief minister's furnishing of false information, including in the legislative assembly Vidhan Sabha. In particular, the concessions being given to Tata Motors were not publicly revealed. High Court Verdict The Kolkata High Court declared the acquisition prima facie legal. The air seemed to have cleared somewhat when the High Court ordered the state government to submit correct figures following which an affidavit but was not satisfied with the result. In a fresh affidavit filed later in June 2007, the government admitted to 30 per cent of the land was acquired from farmers without consent. The affidavit remains unclear on whether the lack of consent is based on insufficiency of the compensation or refusal to sell altogether. Business Houses' Role The critics of the government's industrialization policy have argued on the other hand that while India is moving towards a free market economy, government has been acting as a broker for the private sector by forcing private citizens to give up their property at throw away prices.

Pullout On 23 September 2008, Tatas decided to leave Singur in West Bengal, the decision is reported to have been made by the Tata management and the Bengal government had been informed. On 3 October it became official that TATA will leave Singur when Ratan Tata announced it in a press conference in Kolkata.

Case Study II Falta SEZ Background The Falta SEZ is located in the southernmost part of the South 24 Parganas district, near Diamond Harbour. It is located on the bank of the river Ganga, not far from where it joins the Bay of Bengal. The deltaic alluvial land in the area is one of the most fertile in the world, and fishing is also a major source of livelihood of most people in the area. The rationale of setting up the EPZ, and later the SEZ in this locale, was supposedly that the proximity of the river and the sea would allow the export of the goods manufactured in the SEZ at low cost, earning foreign exchange in the process. Therefore the SEZ was set up over 280 acres of land, 193 acres of which belonged to Calcutta Port trust and 87 acres was acquired land. Most of this land was river silt that had been deposited as land-fill during the widening of the river channel, which is the best land for agriculture, whereas the rest was agricultural land already in use. Four sectors (Sectors I-IV) have already been set up, whereas Sector V is in the process of establishment. Displacement of Locals People who had already been living in the area prior to river widening were displaced and resettled in the area now called Highlands. They are facing displacement for a second time because of the expansion of the SEZ. There a number of densely populated villages all around the SEZ such as Nainan, Neela and Karaghata from where people go to work in the industries located within the SEZ. Decline of Traditional Professions In Karaghata village, most people belong to the Ruidas (leatherworkers), Bauri (boatmen) and Muslim communities. The Ruidases traditionally work with leather but also play the ceremonial drum, the dhaak, and also make cane utensils and furniture. However, these professions are slowly dying out as people from nearly every family now go to work in the SEZ.

Effects of SEZ on Surrounding Villages The SEZ has had immense adverse effects on the life in the surrounding villages too. With the initial land acquisition for the SEZ, agriculture was adversely affected in the area. The process of expansion is taking over more agricultural land. Notices for further land acquisition were served to landowners in Sundarika mouja last year. The loss of agricultural land and the setting up of industries in the SEZ have put agriculture in permanent decline in the area. Many of the local inhabitants now also work as casual labourers, driving cycle vans, working in construction etc. Pollution from the industries located in the SEZ is also causing tremendous damage to the environment of the surrounding villages and the livelihoods of people. In Neela village, a black soot released from the Kohinoor paper mills is covering all plants and habitations, causing tremendous loss to agriculture. Also, the steam boiler of the hydraulic press of the Kohinoor factory creates such a terrible noise that children are developing nervous disorders. In Nainan, periodic release of a red acidic effluent in the canals going through the village is polluting the groundwater and killing off the fish in the river, which is a major source of income for this village mostly inhabited by fisherfolk. There is massive groundwater depletion too, and tubewells can only function if boosters are fitted. Lot of the waste generated in the factories is carried away by the inhabitants of the surrounding villages for recycling, and this garbage can be found to be littering the surrounding villages. The entire area is paying the price for being the locale of an SEZ set up without any environmental impact assessment and with the sole objective of generating profits.