HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR (C.G)

Land Laws
Special Economic Zones: Public Purpose and Corporate
Purpose
Submitted To-
Ms. Aparajita Das Maam
Faculty, Land Laws
Submitted by-
Muktesh Swamy
Sem VIII Sec C
Roll no 94

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 ACKNOWLEDGEMENTS

I feel highly elated to work on the topic Special Economic Zones: Public Purpose and Private
Purpose

The practical realization of this project has obligated the assistance of many persons. I express
my deepest regard and gratitude for Ms. Aparajita Das Maam, Faculty of Land Laws, Her
consistent supervision, inspiration and invaluable guidance have been of immense help in
understanding and carrying out the nuances of the project.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the library and through the internet.

Some printing errors might have crept in, which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve the project.

Muktesh Swamy

Sem VIII

R.No. 94

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CONTENTS
1. Objective and Research Methodology..(4)

2. Introduction..(5)

3. India and SEZ................................(6)

4. Corporate Purpose.........(8)

5. SEZ: Public Issues................................(10)

6. SEZ and Land Issues............................(12)

7. The New Act.. .....(14)

8. Drawbacks............................................................................................(16)

9. Conclusion.(18)

9. Bibliography......(19)

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 OBJECTIVE

To study the challenges in implementation of the SEZ Policy

Deeply examine the working of the SEZ
To observe the effects of establishing of SEZs

RESEARCH METHODOLOGY

The research work is Doctrinal in nature. It is of analytical descriptive type. No empirical

approach has been used. Secondary sources such as books, articles/ journals are referred while
making this project.

INTRODUCTION

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A Special Economic Zone (SEZ) is a specified, delineated and duty-free geographical region
that has different economic laws from those of the country in which it is situated. In some
countries, such a region is even treated as a deemed foreign territory. A SEZ is a trade capacity
development tool, with the goal to promote rapid economic growth by using tax and business
incentives to attract foreign investment and technology.

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more
liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more
specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free
Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Special
Economic Zone (SEZ) is a duty-free area which is meant for the purposes of trade operations,
duties and tariffs for investors.

With a view to overcoming the shortcomings experienced on account of the multiplicity of

controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and
with a view to attracting larger foreign investments in India, the Special Economic Zones (SEZs)
Policy was announced in April 2000.

The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received
Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and
put on the website of the Department of Commerce offering suggestions/comments. Around 800
suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005,
supported by SEZ Rules, came into effect on 10th February, 2006.

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INDIA AND SEZ:

The SEZ policy was first introduced in India in April 2000, as a part of the Export-Import
(EXIM) policy of India. Considering the need to enhance foreign investment and promote
exports from the country and realizing the need that level playing field must be made available to
the domestic enterprises and manufacturers to be competitive globally, the Government of India
in April 2000 announced the introduction of Special Economic Zones policy in the country
deemed to be foreign territory for the purposes of trade operations, duties and tariffs. To provide
an internationally competitive and hassle free environment for exports, units were allowed be set
up in SEZ for the manufacture of goods and rendering of services. All the import/export
operations of the SEZ units are on self-certification basis. The units in the Zone are required to
be a net foreign exchange earner but they would not be subjected to any pre-determined value
addition or minimum export performance requirements. Sales in the Domestic Tariff Area by
SEZ units are subject to payment of full Custom Duty and as per import policy in force. Further
Offshore banking units are being allowed to be set up in the SEZs.

India is one of the first countries in Asia to recognize the effectiveness of the Export Processing
Zone (EPZ) model in promoting exports. Asias first EPZ was set up in Kandla in 1965. With a
view to creating an environment for achieving rapid growth in exports, a Special Economic Zone
policy was announced in the Export and Import (EXIM) Policy 2000. Under this policy, one of
the main features is that the designated duty-free enclave to be treated as foreign territory only
for trade operations and duties and tariffs. No license required for import. The manufacturing,
trading or service activities are allowed. While EPZs are industrial estates, SEZs are virtually
industrial townships that provide supportive infrastructures such as housing, roads, ports and
telecommunication. The scope of activities that can be undertaken in the SEZs is much wider and
their linkages with the domestic economy are stronger. Resultantly they have a diversified
industrial base. Their role is not transient like the EPZs, as they are intended to be instruments of
regional development as well as export promotion. As such, SEZs can have a tremendous impact
on exports, inflow of foreign investment and employment generation.

To provide a stable economic environment for the promotion of Export-import of goods in a

quick, efficient and hassle-free manner, Government of India enacted the SEZ Act, which
received the assent of the President of India on June 23, 2005. The SEZ Act and the SEZ Rules,

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2006 (SEZ Rules) were notified on February 10, 2006. The SEZ Act is expected to give a big
thrust to exports and consequently to the foreign direct investment (FDI) inflows into India and
is considered to be one of the finest pieces of legislation that may well represent the future of the
industrial development strategy in India. The new law is aimed at encouraging public-private
partnership to develop world-class infrastructure and attract private investment (domestic and
foreign), boosting economic growth, exports, and employment.

The SEZs Rules, inter-alia, provide for drastic simplification of procedures and for single
window clearance on matters relating to central as well as state governments. Investment of the
order of Rs.100,000 crores over the next 3 years with an employment potential of over 5 lakh is
expected from the new SEZs apart from indirect employment during the construction period of
the SEZs. Heavy investments are expected in sectors like IT, Pharma, Biotechnology, Textiles,
Petrochemicals, Auto-components, etc. The SEZ Rules provides the simplification of procedures
for development, operation, and maintenance of the Special Economic Zones and for setting up
and conducting business in SEZs. This includes simplified compliance procedures and
documentation with an emphasis on self-certification; single window clearance for setting up of
an SEZ, setting up a unit in SEZs and clearance on matters relating to Central as well as State
Governments; no requirement for providing bank guarantees; contract manufacturing for foreign
principals with option to obtain sub-contracting permission at the initial approval stage; and
Import-Export of all items through personal baggage.

With a view to augmenting infrastructure facilities for export production it has been decided to
permit the setting up of Special Economic Zones (SEZs) in the public, private, joint sector or by
the State Governments. The minimum size of the Special Economic Zone shall not be less than
1000 hectares. Minimum area requirement shall, however, not be applicable to product specific
and port/airport based SEZ. This measure is expected to promote self-contained areas supported
by world-class infrastructure oriented towards export production. Any private/public/joint sector
or State Government or its agencies can set up Special Economic Zone (SEZ).

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 CORPORATE PURPOSE

The main Advantages of SEZ Units in India can be summarized as the promotion of
industrialization and economic growth through sustainable development. The main policy
statement of the first Special Economic Zone policy statement states that these SEZ units of
India shall be offered tax rebates, fiscal incentives and lands at subsidized rates and these are the
primary Advantages of SEZ Units in India. The implementation of the first drafted Special
Economic Zone policy took place from the end of the year 2000.

The Finance Minister in his Budget speech in February 2015 had mentioned that the basic rate of
corporate tax in India at 30 per cent is high and thus makes our domestic industry uncompetitive.
As such, he proposed to reduce the corporate tax rate over the next four years to 25 per cent,
coupled with a removal of various kinds of tax exemptions and incentives for taxpayers.

FACILITIES AND INCENTIVES AVAILABLE TO AN SEZ / SEZ UNIT:

1. Duty-free import/domestic procurement of goods for development, operation and
maintenance of SEZ units
2. 100% Income Tax exemption on export income for SEZ units under Section 10AA of the
Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed
back export profit for next 5 years.
3. Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
4. External commercial borrowing by SEZ units upto US $ 500 million in a year without
any maturity restriction through recognized banking channels.
5. Exemption from Central Sales Tax.
6. Exemption from Service Tax.
7. Single window clearance for Central and State level approvals.
8. Exemption from State sales tax and other levies as extended by the respective State
Governments.

BENEFITS TO SEZ DEVELOPERS:

1. Exemption from customs/excise duties for development of SEZs for authorized

operations approved by the BOA.

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 2. Income Tax exemption on income derived from the business of development of the SEZ
in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

3. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.

4. Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

5. Exemption from Central Sales Tax (CST).

6. Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

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SEZ: PUBLIC ISSUES

The most important issue is of the Impact Assessment Procedures i.e. the procedure to be
followed for looking into the impact of the development of SEZs on the environment. Some of
the projects come under the purview of the Schedule 1 of the Notification. These projects will
have to comply with the conditions of organizing a public hearing and allowing local people to
voice their objections and suggestions about the project. Projects not falling in this schedule are
assessed by the State government, and the clearance process does not mandate a public hearing.
The units which are classified as non-polluting industries do not need an NOC from the
pollution control board. Although the development commissioner has the powers to have a
random check, the industries are free to follow their own methods of maintaining environmental
standards.

The socio-legal issues such as land acquisition, displacement, rehabilitation, and compensation
have been the complex subject to deal with. Same time real estate development and land
speculation have been the threat. As companies from other parts of the country are also looking
to take advantage of SEZ incentives, re-locating of various companies leads to consequent loss
of income and rise in regional inequality. It has been extensively reported that the farmers are
protesting against the forced acquisition of agricultural land, with obsolete Land Acquisition Act
of 1894 in the name of public purposes.

Land is the principal source of livelihood in an agrarian economy. Over the period the issue of
land acquisition has become the most obvious medium of acquisition and then transfer of
resources from average and poor people to private business corporations, leads to the loss of
livelihood and large scale displacement of local population. In this kind of developmental
process, always the beneficiaries are the big corporations and losers are the ordinary people and
farmer community dependent to land in several ways, the peasants and tenants, agricultural
laborers, tribals and fishing community.

Apprehensions from various corners have been stated regarding acquisition of agricultural land
for setting up new SEZs. Even though, there are guidelines by the Central Government to the
state governments for peaceful land acquisition process, the first targeted land for acquisition
should be of waste and barren and, if necessary, single-crop agricultural land could be acquired

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for the SEZs through lawful acquisition machinery. Further, it has been said that only if essential
than a portion of double-cropped agricultural land can to be taken to fulfil the minimum land
requirements, especially for the setting up of multi-product SEZ, and acquired land area should
not be more than 10 per cent of the total land required for the establishment of SEZ (Department
of Commerce, GoI, 2015). The Supreme Court of India recently ruled, If the project taken as a
whole is an attempt in the direction of bringing in foreign exchange, generating employment 154
opportunities and securing economic benefits to the state and public at large, it will serve public
purpose. However, in a recent judgment (May 2010), the Supreme Court of India sternly
criticised the abuse of Land Acquisition Act and proposed for development of pro-people land
acquisition policy. It has clearly stated that the state must act as a benevolent trustee of people s
land. It directed the government to develop laws supporting those whose land is being taken. The
displacement by the land acquisition for notified SEZs is approximately 1.14 million, which is 18
times higher than the number of people officially claimed to get direct employment in these
notified zones. The Department of Commerce (2010) estimates suggest that 10 lacs new direct
jobs and while 14 lacs persons get indirect employment by creation of an SEZ. This estimate lead
us to the conclusive numbers as total employment created from SEZs to be just about one-eighth
of the loss signified by displacement for land acquisition. This estimate raises many questions on
objective and process of establishment of SEZs.

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SEZ and LAND ACQUISITION

Since inception SEZs has been versed with various kind of controversies which has put a
question mark on SEZ Act and government policy. Land seems to the most important element of
SEZs policy as it is evident by the ambiguous use of Land Acquisition Act 1894, diversion of
land for other purposes and impact on stockholders.

The aspect of land acquisition has been core to the controversies on SEZs. Though, SEZs were
not the first instances which became the base of land acquisitions by central and state
governments for the establishment of industries. Indias public sector enterprise has been
acquiring land for expansion of production since independence. The expansion venture of several
central and state public units, as well as the development of new townships (for example,
Chandigarh, Bhubaneswar, Bokaro, Bhilai, and Durgapur) based on large-scale land acquisitions
and rehabilitation of local populations. Several past and present land acquisitions have been
conducted under the umbrage of public purpose clause of the LAA of 1894.

The Land Acquisition Act (LAA) 1894 has been criticized for a long time, being an archaic
legislation. This is, nevertheless, a relatively recent criticism emerging in response to the
establishment of SEZs. There is no clear explanation why the LAA 1894 was not controversial
topic when Indias public sector enterprise was on an acquiring splurge. One clarification could
be that public purpose, the apparent basis of land acquisition for government agencies is
sanctified by the LAA, was never controversial as long as the land remained with the public
sector firms. The same public purpose became a point of contention when land being allocated
to private firms for development of SEZs. As state agencies acquired a large tract of contiguous
land under the clause of public purpose, then allocating it to private developers, the debate
created a critical question that can states acquire land in public purpose for use of private
firms. The SEZ policy of the government of India has two apparently irreconcilable facets. It
depends largely on the active involvement of private enterprises for development zones. The
SEZ policy empowers state governments to be facilitators in land acquisitions on behalf of
developers. The implication of such expectation is based on realisation that land markets suffer
from inefficient market-based transactions due to information asymmetry. Thus, state
governments are expected to play role of mediator between landowners and developers.

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The LAA defines public purpose as an extensive modus. An amendment made in 1984 (68th
amendment of 1984) prolonged the original definition to accommodate the requirements of
industrial projects of private firms. While Central and State governments have been traditionally
employing public purpose clause of LAA to acquire land for social welfare and public sector
purposes. But the utilisation of state machinery to acquire land for SEZs has provoked the
criticism that public purpose is being misused for the benefit of private developers at the
expense of actual owner of land

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THE NEW ACT

The new land acquisition law came into force on 1stJanuary, 2014.The Right to Fair
Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,
2013, (LARR Act) replaces the Land Acquisition Act, 1894, which existed from colonial times.
The new LARR Act is an attempt to revamp and make the land acquisition process more
effective by addressing the major lacunae in the old Land Acquisition Act. The Land Acquisition
Act, 1894 was under serve criticism for various reasons which inter alia include: (1) the lack of
comprehensive definition of public purpose, which determines the need for land acquisition and
(2) lack of proper legal framework to determine adequate compensation for acquired land. Lack
of the legal stipulation to take care of rehabilitation and resettlement, discounts the human rights
regarding housing, livelihood and other allied rights of the affected people. The Land Acquisition
Act, 1894 was seen as a legislation that uses the eminent domain principle, to allow the state to
gain access of land by subverting the right to property.

Given the inaccurate nature of circle rates, the Act proposes the payment of compensations that
are up to four times the market value in rural areas and twice the market value in urban areas.

The Act aims to establish the law on land acquisition, as well as the rehabilitation and
resettlement of those directly affected by the land acquisition in India. The scope of the Act
includes all land acquisition whether it is done by the Central Government of India, or any State
Government of India, except the state of Jammu & Kashmir.

The Act is applicable when:

1. Government acquires land for its own use, hold and control, including land for Public
sector undertakings.
2. Government acquires land with the ultimate purpose to transfer it for the use of private
companies for stated public purpose. The purpose of LARR 2011 includes public-private-
partnership projects, but excludes land acquired for state or national highway projects.
3. Government acquires land for immediate and declared use by private companies for
public purpose.

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The 2013 Act is expected to affect rural families in India whose primary livelihood is derived
from farms. The Act will also affect urban households in India whose land or property is
acquired. Per an April 2010 report, over 50% of Indian population (about 60 crore people)
derived its livelihood from farm lands. With an average rural household size of 5.5, LARR Bill
2011 R&R entitlement benefits may apply to about 10.9 crore rural households in India.

According to Government of India, the contribution of agriculture to Indian economy's gross

domestic product has been steadily dropping with every decade since its independence. As of
2009, about 15.7% of India's GDP is derived from agriculture. Act will mandate higher payments
for land as well as guaranteed entitlements from India's non-agriculture-derived GDP to the
people supported by agriculture-derived GDP. It is expected that the Act will directly affect 13.2
crore hectares (32.6 crore acres) of rural land in India, over 10 crore land owners, with an
average land holding of about 3 acres per land owner. Families whose livelihood depends on
farming land, the number of livelihood-dependent families per acre varies widely from season to
season, demands of the land, and the nature of crop.

Act provides to compensate rural households both land owners and livelihood losers. The Act
goes beyond compensation; it mandates guaranteed series of entitlements to rural households
affected.

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DRAWBACKS

The biggest challenges faced by SEZs in todays scenario are the taking away of agricultural
land from the farmers. The farmers are being paid disproportionate money which is not in lieu of
the current land prices. The best example could be seen in the case of farmers from Kalinganagar
in Orissa where the money given was disproportionate to as high as 1:10 with respect to the
market rates. Moreover SEZs are leading to decrease in crop production (arable Land
Grabbing!) thus slowing down of agricultural activity in the country. (Though it may help boost
it in other ways by increased export of local goods, both processed and non-processed). More
and more farmers are moving towards the lucrative manufacturing side in search of greater
economic security. Moreover the greatest problem that seems to be emerging out is that arable
land is being used for non-agricultural purpose which could lead to food crisis and loss of self-
sustenance in future.

For example Nadigram district of West Bengal. But FDI could also help in providing our farmers
to gain access to technological better farming methods.

SEZs in China were initially exempted from national Labor Laws (despite being a communist
country!). This model sustained initially because the foreign investors were given the leverage to
train the workers and even fire them if incompetent. This Hire or Fire policy initially helped in
sustaining foreign investors confidence in the Chinese domestic labor competence, but in the
long run such laws must be made more stringent once the confidence is reposed so as to hedge
the workers from hostile company policies.

The SEZs if not properly located could lead to Supply Chain Management problems as well.
Moreover improper planning could lead to unbalanced growth in the region giving an impression
of pseudo-development. For example most of the SEZs in China are in proximity to the ports
and also close to each other, while these have been at the helm of economic development most of
the interior hinterland is vastly underdeveloped. SEZs could also lead to income disparities with
divide between the rich and poor increasing if not properly planned.

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SEZs mostly if setup for the manufacturing sector should be carefully planned to carry out
proper pollution monitoring and control mechanism. Stringent measures may prove to be
expensive but are also extremely important. Shenzhen in china has been the worst affected
among SEZs in China where the sky is grey for most part of the day courtesy the polluting
industries. The measures should be taken to make surroundings livable for multitude of people
living in the SEZs. Moreover care should be taken to properly treat effluents from industries not
to affect surrounding rivers. Also the SEZs should be carefully planned not to affect the natural
habitat around (Gurgaon SEZ affecting the Bharatpur bird sanctuary).

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CONCLUSION

The government is touting SEZs as the future islands of excellence. But at what cost will it be
achieved? That is the moot question. As thousands of acres of agricultural land are converted into
concrete jungles, how will it affect food security? Will the farmers who are ready to give off their
land get a fair deal? Most of them fear they will get peanuts compared to what the developers
will make. Will this attitude of the government and the companies continue when environmental
degradation starts in the race to make a fast buck?

The enthusiasm that the government has in setting up the SEZs underline an ugly fact that even
after five long decades of independence, we still do not have the kind of decent infrastructure in
the country that should have normally been the case. Services should have been available to all,
but it could not be created and so now, there will be special areas demarcated for special people.
The others will continue to live without power, water, roads and green areas. Islands of
prosperity where the rich are ecologically subsidized are okay, while the lesser mortals live on
the fringes.

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REFERENCES

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