SEZ : The avoidable
Goa tangle
V K Srinivasan
13 January 2008
The Special Economic Zone scheme launched by the Government,
initially as part of Exim Policy 2000 and later given a legal
framework by the Special Economic Zone Act 2005, has run into
a piquant situation in Goa where, on the New Year’s eve,
the State government’s Cabinet Committee on Infrastructure
decided to withdraw its recommendations in respect of 15 SEZ
projects.
The State’s Chief Minister, Mr Digambar Kamat, announced:
“We have decided to write to the Union Ministry of Commerce
not to process the eight SEZ proposals which are presently
put on hold… not to process four of those which have
been approval but not notified. As regards the three notified
SEZs, since we do not have power to denotify them we are taking
up the issue with the Union Commerce Ministry.”
On January 2, 2008, the Union Commerce Secretary, who is
also the Chairman of Board of Approval for SEZs, an inter-Ministerial
group constituted under Section 8, of SEZ Act 2005, clarified
that “of the 15, three have been notified. The remaining
have formal and in-principle approvals and their cancellation
would not pose problems. There is no provision under the law
to recommend denotifications. State governments have no locus
standi to withdraw the notification… Those notified have
become legal entities and cannot be denotified.”
The three notified SEZs that will be affected are:
Pharmaceuticals: Meditab Specialties, promoted by Cipla on
a site of 123.2 acres and notified on April 10, 2007
Biotechnology: Peninsula Pharma Research Centre on 20.365
acres in Mormugoa, notified on July 10, 2007, and
IT/ITES SEZ: promoted by K. Raheja Corporation on a site
of 105.91 acres in Verma Industrial Area Goa notified on November
6, 2007.
Curiously enough, the Union Commerce Minister, Mr Kamal Nath,
had on a visit to Goa stated on October 28, 2007 that “the
Government can revoke permission and scrap any SEZ, if people
do not want it” and that “the government will not
hesitate to intervene even after work on SEZ has begun and
all necessary permissions granted.”
Legal implications
Did the Minister’s statement encourage the Goa government
to move ahead on the recommendations of a task force to scrap
SEZs in Goa? The Commerce Secretary has thrown the rule-book
at the State government now, stating that “investment
exceeding Rs 500 crore has been made only by Meditab in its
SEZ. Duty-free equipment has also started coming in. How will
the State government compensate the developers?” The
legal implication is more than evident, and has been raised
by Commerce Secretary himself.
However, after the Goa Chief Minister met him on January
3, the Union Minister of Commerce has reiterated his view,
declaring that “there are provisions in the SEZ Act for
review of the notified SEZs” and added that “we
do not want to thrust SEZs on the States. After receiving
requests from the Goa government, we will take appropriate
action.” Perhaps the Minister has in his mind, Section
9(f) of SEZ Act, granting the Board of Approval the power
to suspend letter of approval granted to a developer, and
Section 10 of the Act, which details the circumstances governing,
and the procedures to be followed for, the suspension of letter
of approval to developers. It is a moot question whether the
circumstances of the Goa Tangle can be handled within Section
10 of the Act.
What does the Act say?
It is also worth examining the role of State governments
under SEZ Act. A quick examination of the SEZ Act 2005 and
SEZ Rules 2006, both of which have been notified as effective
from February 10 2006, reveals that Section 3 of the Act and
Rules 3 and 5 indicate the role of the State government in
recommending approval for SEZs.
Section 50 of the Act covers grant of tax and other concessions
to SEZ developers and units by state governments. The Act
says any person intending to set up an SEZ, may, after identifying
the area, make a proposal to the State government or directly
to the Board of Approval.
As per Rule 3 of the SEZ Rules, proposals received by the
State government should be forwarded to the Board of Approval
within 45 days of ensuring that the requirements under Rule
5 of the SEZ Rules have been complied with by the developer.
Rule 5(5) also casts some obligations on the State government
regarding infrastructure facilities and concession of State
taxes and levies.
The SEZ Act and Rules were not without infirmities; the Government
had to come up with two amendments, the first notified in
August 2006 concerned minimum processing areas, prohibition
of lease etc. The second Amendment, notified in March 2007,
covered, among other things, provisions for grant of ‘in-principle’
approval for new SEZs, and certification by State government
regarding the type of land, as also the title and rights of
the developer over land identified for SEZ. An examination
of the various controversies that have erupted over SEZs in
different parts of the country, including Goa, reveals that
most of them centre on land, its acquisition and utilisation,
apart from relief to persons displaced from their land.
After an Empowered Group of Union Ministers considered the
various issues, raised by political parties and media, and
decided on a more circumspect approach to approvals for new
SEZs, the Ministry of Commerce appeared to gradually shift
responsibility to the State governments for land-related issues.
On June 15, 2007, it wrote to the State governments specifying
their responsibilities in recommending SEZ proposals to the
Board of Approval. It also persuaded the Ministry of Rural
Development to come up with amendments to the Land Acquisition
Act, and a Revision of the Resettlement and Rehabilitation
policy. These have been approved by the Union cabinet and
should make a difference to the ground situation in different
States.
Goa has its own compelling circumstances. A former Portuguese
Enclave, with its distinct beach-side culture, its people
do not want to house commercial enclaves like SEZ, viewing
as they do industrial and export activity as a disruption
of their lifestyle and culture. It was Goa’s eco-sensitivity
that prompted the then Prime Minister, Indira Gandhi, to direct
officials, in the 1970s, to move towards the Coastal Regulation
Act.
There appears to be justification for the residents and governments
to preserve the ecology of the area. Economically, if SEZs
are designed and permitted mainly to augment foreign exchange
earnings, Goa can perhaps claim that its beaches as a tourist
attraction are already drawing considerable foreign exchange.
There are arguments on both sides to balance each other. If
an environmental impact assessment study had been carried
out before the grant of approval to SEZs, the present tangle
could have been avoided. The only question is, who should
have woken up early, the Goa government or the Government
of India?
Courtesy: Business Line
(The writer, an economist and civil servant, is the author
of a forthcoming book “Special Economic Zones:- International
Experience and Indian Scenario”)
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