Damning findings

Print edition : March 16, 2018

A COMPREHENSIVE report by the Comptroller and Auditor General of India (CAG) in 2014 on the performance of special economic zones (SEZs) since the enactment of the SEZ Act in 2005 quoted a Finance Ministry study pegging the loss to the exchequer at Rs.1,74,487 crore between 2004 and 2010.

Explaining the reasons for this, the CAG observed that it was the Information Technology and IT-Enabled Services (IT-ES) sectors that had benefited the most from the SEZ policy. It said nearly 60 per cent of SEZs nationwide were IT/IT-ES SEZs (56.64 per cent approvals, 60 per cent “notified” and 60 per cent “operational”). The report said: “Multi-product SEZs, which are more labour- and capital-intensive, are few (9.60 per cent approvals, 6.37 per cent notified and 8.55 per cent operational). The large number of IT/IT-ES SEZs coincides with the expiry of the 10-year income tax break period allowed to the sector under the Software Technology Park Scheme (STPS). Several units closed and shifted to SEZs to avail themselves of the benefits offered in the SEZ areas.” In other words, IT companies have not contributed to taxes for almost the entire time they have existed.

Giving the nationwide situation of lands lying idle with SEZs, the CAG reported that since the enactment of the Act, “576 formal approvals of SEZs covering 60,374.76 hectares was granted in the country out of which 392 SEZs covering 45,635.63 hectares have been notified till date (March 2014). We observed that out of 392 notified zones only 152 have become operational (28,488.49 hectares). The land allotted to the remaining 424 SEZs (31,886.27 hectares) was not put to use (52.81 per cent of total approved SEZs) although the approvals and notifications in 54 cases date back to 2006.” This means about 320 square kilometres, nearly half the size of the city of Hyderabad, are lying vacant in the hands of 424 companies that have been allotted these lands. The number of notified SEZs came down to 329 by the end of January 2017, as States such as Maharashtra sought to cancel several of them with idle lands. But within 10 months another 27 were notified nationwide, taking the number up again to 356 as on December 1, 2017. Maharashtra had the third highest number of notified SEZs: 50 as of December 1 last year. Karnataka had 51, while Telangana topped the list with 57. All of them are States with big concentrations of IT/IT-ES SEZs, in Hyderabad, Bengaluru and Mumbai respectively.

Of the nine instances the CAG mentioned when “restricted” lands were transferred to SEZs, seven were in undivided Andhra Pradesh. Of them, in four 100 per cent of the lands transferred were categorised as forests. Two instances were transfer of agricultural lands. This included Sricity SEZ in Chittoor, which acquired 3,800 acres (1,520 hectares) of canal-irrigated lands.

Kunal Shankar

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