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Govt lifts SEZ freeze, caps size

Govt lifts SEZ freeze, caps size
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First Published: Fri, Apr 06 2007. 12 28 AM IST
Updated: Fri, Apr 06 2007. 12 28 AM IST
New Delhi/Mumbai: The government on 5 April revived the special economic zone process by approving 83 more SEZs, and sought to buy political consensus for the controversial policy by directing state governments not to compulsorily acquire any land, and by limiting the maximum size of the zones to 5,000 hectares (12,500 acres).
The decisions, taken by an empowered group of ministers (eGoM), will hurt the plans of three companies—Reliance Industries Ltd, Omaxe Ltd and DLF Universal Ltd—that have received in-principle approval to develop zones larger than 5,000 hectares (Reliance is developing two zones, and the other companies one each). Analysts who did not wish to be named said the developers had planned an investment of $20 billion (Rs86,000 crore) in the four zones and that the limit on size could see this reducing to around $14 billion.
The government has also said that the comprehensive rehabilitation policy for people displaced by these zones, being finalized by the rural development ministry, would include a clause guaranteeing employment to at least one person from each displaced family in the corresponding economic zone.
Approvals for the zones, part of India’s effort to boost exports and make the country a manufacturing hub for several products, have been on hold since 22 January. On 4 April, Mint had reported that the eGoM, which had stalled the process in response to rising opposition to the policy, would likely decide to place a limit of 5,000 hectares on large SEZs (also called multi-product SEZs) and ask state governments not to acquire land forcibly for these zones.
Of the four zones that break this limit, Reliance’s two are the largest: its Jhajjar, Haryana, zone is 10,000 hectares and its Mahamumbai zone in Maharashtra is as big. Omaxe’s Alwar zone is 6,070 hectares and DLF Universal’s Gurgaon one, 8,097 hectares.
All these zones have in-principle approval; had the government not placed a cap on size, these zones would have been approved after the companies acquired the land.
“We will think and see what to do about the planned SEZ,” said Arvind Parakh, CEO, Omaxe. “The entire strategy will have to be reworked.”
While a spokesperson for Reliance Industries declined to comment on the issue, a senior executive at DLF said the limit on size wouldn’t really affect the company.
“Normally, our customers do not need such a large space that the reduction in size to 5,000 hectares affects customer demand,” said Rajeev Talwar, group executive director, DLF. “We could still execute this SEZ (at 8,097 hectares) through two different companies but, of course, that means approvals for it have to be secured again,” he added.
The government also said that manufacturing facilities should occupy at least 50% of the zone. The current limit is 35% for multi-product zones (25% for special cases), and 50% for sector-specific ones.
Government officials said the board of approval, which approves SEZs, will review the list of activities that constitutes manufacturing.
A minister who attended the eGoM said on condition of anonymity that though the manufacturing norm would be applicable to all zones including existing ones, the government would be flexible when it came to the latter.
“The approved zones which have already set aside processing area less than 50% (of the total area of the zone) can approach the government and we will consider relaxing the norms,” he said.
The eGoM also directed states not to compulsory acquire land for setting up SEZs. This applies to all zones that had not completed land acquisition by 10 February 2006, the date when the government notified its rules for SEZs.
Officials pointed out that there was no instance of compulsory acquisition of land by state governments in the 234 zones that have been formally approved. They added that there were, however, two such instances involving zones that have an in-principle approval, the Nandigram SEZ in West Bengal and the Mahamumbai SEZ in Maharashtra.
The government’s decisions transfer the onus of land acquisition to the developers. And companies already in possession of land acquired privately can approach the government for setting up an SEZ.
The decisions of the eGoM have, however, failed to appease the Left parties, allies of the ruling United Progressive Alliance government.
Communist Party of India (Marxist) leader Nilotpal Basu said the party would discuss the matter on Friday and issue a formal statement. “The changes don’t reflect many of our concerns,” said Basu.
“They have taken the land acquisition issue into account, but there’s nothing on the unjustified tax sops being offered in SEZs. Again, the size has been capped at 5,000 hectares, while we had asked for 2,000 hectares. Besides that, there’s nothing concrete on amending the Land Acquisition Act,” he added.
Communist Party of India’s national secretary D. Raja said the eGOM had no business taking “ad hoc” decisions when a parliamentary committee was looking into the issue of SEZs. He added that there was still no sign of the rehabilitation policy for people ousted by acquisition of land for SEZs.
And former finance minister Yashwant Sinha, of the Bharatiya Janata Party, appreciated some of the government’s decisions but said there should have also been a limit on the number of SEZs in a state.
Meanwhile, most developers expect the government to relax the 5,000-hectare cap after a few years. In China, SEZs are often larger than 1,00,000 hectares, said S.J. Vijay, a consultant with Salmon Leap, a consulting firm that works with SEZ developers.
Ashish Sharma also contributed to this story.
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First Published: Fri, Apr 06 2007. 12 28 AM IST
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