Revisit tax sops to SEZs, dont use agriculture land: ARC tells govt

Written by Economy Bureau | New Delhi, Mar 28 | Updated: Mar 30 2008, 03:27am hrs
To avoid conflict and tensions due to land acquisition for industrialisation, the administrative reforms commission (ARC) has recommended setting up limited numbers of special economic zones (SEZs) for creating infrastructure in backward regions. It has also suggested setting up SEZs promoted by farmers.

The ARC, in its seventh report, titled, Capacity Building for Conflict Resolution submitted to Prime Minister Manmohan Singh, has urged against using agricultural land for establishment of SEZs.

The commission chaired by M Veerappa Moily has also taken a position against extremely liberal tax holidays provided to exports units and developers and has asked for reconsidering the sops.

Comparing the SEZ policy of China with India, the ARC has said that while China had permitted limited number of large-sized SEZs, in India, hundred of SEZs have been approved including some with 10 hectare in size.

The commission also criticised the 25% cap on processing activity in multi-product SEZs saying that it may lead to revenue loss as well as diversion or displacement of units particularly of IT companies, which will move to SEZs because their existing tax breaks would expire in 2009.

All the elements of the Chinese SEZ policy that led to negative consequences are also present in the Indian SEZ policy. It is necessary to be vigilant about the social costs and consequences of the SEZ policy since it may lead to conflict, the ARC said.

The group of ministers (GoM) constituted by the government to look into the SEZ policy has already recommended that state governments should not normally acquire the bulk of the lands for the SEZ. Establishing SEZs to allocate land to private companies cannot be termed as furtherance of a public purpose, the report said. On the issue of displacement and rehabilitation, the ARC said that for preventing conflict situation it may be desirable that industrial activities are taken up in the areas where they cause least displacement and dislocation.