The parliamentary stand off over the Indian government’s effort to ease
procedures to acquire land for “public purposes” continues, with the
government deciding to re-promulgate the ordinance amending the Right to
Fair Compensation and Transparency in Land Acquisition, Rehabilitation
and Resettlement Act, 2013. Besides concern about the impact that this
would have on the farming community and those dependent on it, another
cause for the controversy is the apprehension that the relaxed
procedures can be exploited by profit-seeking players interested in the
diverting land acquired to uses other than the public purpose.
Evidence from the experience with the creation of Special Economic
Zones, governed by a different law, suggests that the apprehension of
the opposition is indeed warranted. Replying to a question in the Rajya
Sabha on 18 March 2015, the Minister of State in the Ministry of
Commerce and Industry revealed that across 20 states only 43 per cent of
the land acquired (with or without the assistance of the state
governments) for the purpose of creating SEZs had been utilised. The
utilisation rate varied hugely from zero in the case of Goa, Jharkhand,
Manipur and Nagaland to 96 per cent in the regions now constituting the
state of Telangana and 81 per cent in West Bengal.
But the utilisation rate relative to the area notified for the purpose
tells only a part of the story. What is striking is that the more
industrialised states that warmed to the scheme formalised through the
Special Economic Zones Act 2005 and put in a large number of proposals,
leading to large areas in those states being notified as SEZs, have also
shown a poor utilisation record. In terms of area notified as special
zones, Gujarat, Andhra Pradesh, Maharashtra and Tamil Nadu were way
ahead of the rest. But even in these states the area utilised out of
that notified varied from just 27 per cent to a maximum of 55 per cent
(Chart 1).
It can be argued that these figures say nothing about the land
acquisition issue per se. What the figures seem to point to is the
failure of the SEZ scheme, not in terms of the willingness of developers
to establish such zones, but in terms of their ability to attract units
interested in exploiting the features of the scheme and the
infrastructure of the zone for profitable activity. That is, the low
level of land utilisation can be attributed to the misplaced
expectations and wrong investment decisions of developers who
overestimated the demand for facilities that helped take advantage of
the special concessions being provided to dominantly exporting firms by
the government.
There is reason to believe that the facilities created were indeed far
in excess of the demand for them. As Chart 2 shows, in the states where
the scheme received the best responses, the extent of area lying vacant
within the processing area, where export production actually takes
place, was large. A performance audit of the SEZs conducted by the
Comptroller and Auditor General during April 2013 to January 2014 and
tabled in Parliament in December last year, sought to assess the degree
to which the scheme had delivered in terms of its three objectives —
generating employment, stimulating domestic and foreign investment and
raising India’s share in global exports. It concluded that relative to
targets set in the proposals, the degree of non-performance varied
between 66 and 97 per cent in the case of employment, 24 and 75 per cent
in the case of investment recorded and 46 to 94 per cent in the case of
exports. If the performance of the units was as bad as that, it is not
surprising that investor interest was limited.
But approaching the issue from this angle may result in some
exaggeration of the imprudence of the developers. A benefit that
developers willing to promote SEZs derived was the support provided by
state governments in acquiring the large and contiguous land areas
needed to obtain Board approval for the creation of an SEZ. State
governments justified their pro-active role in land acquisition for the
SEZs as being necessary to attract investment away from other states to
their own.
Access to such land is an obvious asset. While 50 per cent of the area
notified as an SEZ had to be designated as the processing area in which
only specified activities can be undertaken, the non-processing areas
could be used to create business, residential and recreational
facilities either by the developer himself or through a joint venture in
which the developer had 26 per cent equity holding. Such social
infrastructure could be used to earn additional revenues. The attraction
of SEZ projects was to a substantial degree driven by the benefits that
could be derived from such township areas.
In fact, on this issue, the CAG audit referred to earlier concluded as
follows: “Land appeared to be the most crucial and attractive component
of the scheme. Out of 45635.63 ha of land notified in the country for
SEZ purposes, operations commenced in only 28488.49 ha (62.42 per cent)
of land. In addition, we noted a trend wherein developers approached the
government for allotment/purchase of vast areas of land in the name of
SEZ. However, only a fraction of the land so acquired was notified for
SEZ and later de-notification was also resorted to within a few years to
benefit from price appreciation. In terms of area of land, out of
39245.56 ha of land notified in the six States, 5402.22 ha (14 per cent)
of land was de-notified and diverted for commercial purposes in several
cases. Many tracts of these lands were acquired invoking the ‘public
purpose’ clause. Thus land acquired was not serving the objectives of
the SEZ Act.”
The CAG’s conclusion was based on evidence from the six states of Andhra
Pradesh, Gujarat, Karnataka, Maharashtra, Odisha and West Bengal. Some
of these are among the more industrialised states in which land
acquisition for SEZ creation was the highest. This does suggest that
speculation in land was an important motive for the interest shown in
the SEZ scheme. Perhaps under pressure from these interests and in an
effort to revive the flagging SEZs project, the government seems to have
succumbed to pressure from the land interests.
On January 2, 2015, the Modi government issued a notification amending
the SEZ Rules 2006, allowing dual use of social and institutional
infrastructure including schools, colleges, hospitals, socio-cultural
centres, training institutes and banks within the non-processing area.
These can be set up by both Special Economic Zone and Domestic Tariff
Area entities, or those who were not part of and had no interest in the
original SEZ project. The non-processing area will be divided into two
separate zones — one where the social or commercial infrastructure and
other facilities can be used by both the SEZ and the domestic tariff
area entities, and the other that will be exclusively used by the SEZ
units. According to reports, while 45 per cent of the non-processing
area has to be kept open, housing and commercial facilities for dual use
can occupy 25 per cent and 10 per cent respectively of that area and
social and institutional infrastructure can be built in the remaining 20
per cent.
This offers a huge opportunity for profit, especially since as the CAG
had noted, “the growth curve of SEZs had indicated preference for urban
agglomeration.” Through a complex process, what began as a scheme to
promote exports and earn foreign exchange (which was its “public
purpose”), is being transformed into one where profits are being derived
from exploiting the commercial potential of urban property. That could
happen with projects facilitated by the new ordinance and the Bill that
may substitute it as well.
Source- The Hindu
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