New Delhi: The government has rolled back one of the key provisions governing special economic zones (SEZs) to allow enforcement agencies to enter these zones without prior permission.
Under existing rules, such agencies need permission from the development commissioner of SEZs before conducting out any search, inspection, seizure or investigation.
Though the latest amendment relating to the functioning of economic enclaves is dated 30 November, it was publicized only late last week.
While the government sought to play down the amendment, the response of analysts was mixed—some welcomed it, while others argued that it diluted the concept of SEZs and made them potentially vulnerable to red tape.
The SEZ policy was envisaged as a solution to the bureaucratic tangle of a multiplicity of controls and clearances required for companies to function, the absence of world-class infrastructure and an unstable tax regime. With a view to attract larger foreign investments into India and promoting export-led growth, the SEZs policy was launched in April 2000.
Section 22 of the SEZ Act originally provided that any designated government authority could carry out investigation or search or seizure in the zone, or in a unit, with “prior intimation” to the development commissioner, the apex administrative authority in an SEZ.
The government further diluted the rights of the enforcement agencies by inserting a fresh provision on 31 August, whereby “prior approval” from the development commissioner was made mandatory.
Three months later, the ministry of commerce and industry seems to have effected another flip flop, albeit one that empowers enforcement agencies.
“This is a technical issue. Section 21 and 22 have first to be notified, then only any instruction can be issued. We are in the process of notifying these sections,” said D.K. Mittal, additional secretary in the commerce ministry who handles SEZ affairs.
Normally each section of an Act has to be notified before it is ready for implementation and the government is arguing that since the section had not been notified, it was not effecting a change in policy and instead only holding the earlier order in “abeyance”.
However, representatives of SEZs disagreed.
“Since SEZs are under administrative control of development commissioners, non-implementation of earlier instruction would mean dilution of administrative control of development commissioners. Ongoing interactions between SEZ units and development commissioners for a single window mechanism as promised under the SEZ policy will also get compromised,” said Pankaj Modi, head (SEZ and planning) at the Mundra Port and Special Economic Zone Ltd, India’s largest private port and SEZ.
Analysts agree. “This may dilute the spirit of SEZ scheme which foresaw no interference from any other government agencies under the SEZ Act,” said Hitendra Mehta, head of law firm Vaish Associates, based in Gurgaon.
Under scrutiny: A file photo of the Mundra port. While some analysts welcomed the amendment, others argued that it diluted the concept of SEZs and made them potentially vulnerable to red tape. Ashesh Shah/Mint
“This instruction has been issued in the backdrop of lack of any notification under SEZ Act for operationalization of Section 22 and lack of any single enforcement agency for notified offences. This may allow income- and service-tax officials as well as labour authorities to carry out search and other activities without prior permission from development commissioners,” Mehta added.
L.B. Singhal, director general of Export Promotion Council for Export-oriented Units refused to comment on the development.
Welcoming the development Jayati Ghosh, professor at the Centre for Economic Studies and planning, School of Social Sciences at the Jawaharlal Nehru University said: “It is a necessary step. It is evident that SEZs have been misused. These have been built with massive infrastructure and huge fiscal incentives from the government. The public have a right to know what is happening within these SEZs.”
SEZs have become unattractive following the slump in global demand caused by the economic crisis. Several SEZs by developers such as DLF Ltd, Maytas Infra Ltd and Essar Group have approached the commerce ministry seeking denotification of their tax-free enclaves. Land acquisition has also become a major hurdle in the progress of SEZs due to resistance at the ground level.
So far, 570 formal approvals have been granted for setting up of SEZs out of which 346 have been notified while only around 100 are in operation. Rs1.30 trillion have been invested in such zones during this short span of time and direct employment of the order of 418,129 persons has been generated. During the first half of current fiscal year, total export of Rs89,750.75 crore has been made from SEZs.