INDIA BUSINESS WORLD - APRIL 2007
The Month that was ...

GOVT LIFTS BAN ON SEZS BUT CHANGES POLICY:

The government has overhauled its policy on special economic zones (SEZs), making large, multi-product SEZs virtually impossible to build. The empowered group of ministers (eGOM) headed by foreign minister Pranab Mukherjee, which met in the political shadow of the Nandigram violence, on Thursday lifted the freeze on approving new SEZs but changed several parameters to make the policy more acceptable.

As per the new norms, the size of an SEZ cannot exceed 5,000 hectares (12,500 acres). Earlier, there was only a lower limit of 1,000 hectares for multiproduct SEZs. Now, state governments can impose a lower ceiling, if they want to.

More importantly, state governments can no longer acquire land for a special economic zone on behalf of private developers; nor can state governments form joint ventures with private developers if they do not already have land in possession to offer the project. States can acquire land to develop SEZs on their own, provided they stick to the new relief and rehabilitation package to be announced soon.

Also, at least 50% of the total area in an SEZ has to be earmarked for processing units. Earlier, the norm was 35% for multi-product SEZs and 50% for sector-specific SEZs.

SEZs will also have tougher export obligations to meet-instead of being merely net foreign exchange earners; they will have to have export earnings at least equivalent to their purchases from the domestic tariff area.

While the ceiling of 5,000 hectares on SEZs will presently affect the plans of just a handful of SEZs, the biggest challenge for private developers lies in acquiring large tracts of land meeting all contiguity norms without government help. Developers of large projects were banking on state governments, who have the power to take over land for industrial projects, to acquire tricky bits of land.

The senior commerce ministry officials said the Centre has decided to give states the authority to cut down on the size of the SEZs further in response to representations from a number of parties, including the Left, on the need to fix lower limits. "If states deem fit, they can even fix the ceiling at 1,000 hectares. The Centre doesn't have any problems regarding that," an official said.