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Not so Special Economic Zones: How the SEZ land was misused

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Now that we learnt everything about SEZs in our first article, why they were created, who should benefit from them, employment created etc, let’s turn our attention towards how the land allotted for SEZs was misused in certain cases.

According to Report number 21 of 2014 of the Comptroller and Auditor General of India (CAG) on Performance of Special Economic Zones (SEZs), below are some instances of how the land allotted for SEZs was misused and diverted. This is especially important in the light of the discussion happening around the Land Acquisition Ordinance of the NDA government.

Diversion of SEZ land for commercial purposes: 14% of land i.e., out of 39245.56 hectares of land notified in the six States10, 5402.22 hectares was diverted for commercial purposes after de-notification. Many tracts of these lands were acquired invoking the ‘public purpose’ clause.  Thus land acquired was not serving the objectives of the SEZ act. This is one of the fears with the new Land Acquisition Ordinance. How does the Government ensure that the land acquired is not misused by private parties?

Restricted land allotted for SEZ activity:  Nine (9) SEZs were allotted land which was restricted under various statutes (Defence, Forest, Irrigated land) in Andhra Pradesh, Maharashtra and West Bengal involving 2949.61 hectares of restricted land as detailed below.

Nature of LandStateArea of Land ( in hectares)% of restricted land notified as SEZ
Notified as SEZUnder restricted category
Defence landAndhra Pradesh80.9329.5436.5
Forest landAndhra Pradesh331.97331.97100
West Bengal36.4221.9360.19
Irrigated landAndhra Pradesh3587.382556.1471.25
Green zoneMaharashtra10.0310.03100
Total4046.732949.6172.89%

(1 hectare = 2.47 acres)

SEZ land Misuse - Percentage of restricted land notified as SEZ

Loans raised on SEZ Land used for non SEZ purposes: 11 Developers/Units in Andhra Pradesh, Karnataka, Maharashtra and West Bengal had raised loans of Rs 6,309.53 crore against mortgage of lease hold government land. Further, the CAG also noted that 3 out of the 11 developers/units had raised loans amounting to Rs 2,211.48 crore (35% of 6309.53 crore) against the notified SEZ land which are not put to use. The details of these 3 instances are given below.

StateDeveloper /UnitExtent of land mortgaged (in hectares)Amount of loan (In Rs Crore)
KarnatakaM/s Quest SEZ Development Pvt Ltd., Karnataka40.4721.48
KarnatakaRMZ Eco World Infrastructure, Karnataka5.6511135
MaharashtraM/s New Found
Properties Ltd,
Maharashtra
21.261055
Total2211.48

 

Non fulfillment of leasing conditions by developer: A developer in AP was given land Rs 1 Rupee per acre per annum on the condition it can provide employment for about 60,000 people within 5 years of the commitment fulfillment date of Government of AP. As of March, 2013, only 11,737 people were employed (19.6% of the committed number). The Government of AP on its part had not fixed and communicated the commitment fulfillment date for the developer in the absence of which no action could be initiated to surrender the land. According to the CAG, this should have resulted in recovering Rs 281.54 crore rupees or surrendering 80% of the land after June 2011, the end of the five year period.

Approval of SEZ without required land use permission: SEZ was approved without carrying out the due diligence of verifying the title and usage of the land proposed by the developer nor did it point out the lacunae while monitoring the progress of the SEZ.

Diversion of land for private industries: In M/s Sricity SEZ, Andhra Pradesh declared in its application that the land acquired and allotted by the Corporation shall be utilized for developing multi-product SEZ only. The Developer requested (February 2006) for 5442.5 hectares of land for establishment of SEZ out of which 3158.70 hectares was handed (May 2006 to December 2011) to Developer. The land was acquired at Rs 2.5 lakh per acre for dry land and Rs 3.0 lakh per acre for wet land. The Developer notified only 1538.12 hectares of land (September 2007 to April 2010) and further de-notified 449.54 hectares of land (October 2010 and November 2011). Thus land involving 2070.12 hectares of the total allotted land was not used for the intended purpose. In case of Essar Steel Hazira Ltd. and Reliance Industries Ltd, Jamnagar SEZs in Gujarat, the de-notified area stood at 247.522 hectares and 708.13 hectares respectively

Developers approached the government for allotment/purchase of vast areas of land in the name of SEZ. However, only a fraction of the land so acquired was notified for SEZ and later de-notification was also resorted to within a few years to benefit from price appreciation

Get a second approval despite failing to use the first SEZ land: M/s Kakinada SEZ (KSEZ) Andhra Pradesh was granted ‘formal approval’ for setting up of another multi-product SEZ adjacent to the already approved SEZ in Kakinada on 1013.60 hectares of land in February 2012 even though the first SEZ measuring 1035.66 hectares (In principle approval was given in 2002) was not put to use.

Underutilization of land in processing area: For e.g., in case of Adani Ports, out of the notified (May 2009) area of 6472.86 hectares, only 833.77 hectares was utilized leaving 5639.09 hectares (87.11 per cent) un-utilized so far.

SEZ Land lying idle in Various States: According to the CAG, out of the 392 notified zones, only 152 have become operational. In various states, the Developers had not commenced investments and the land had been lying idle in their custody for 2 to 7 years.

StatePercentage of SEZ land lying Idle
Andhra Pradesh48.29
Gujarat47.45
Karnataka56.72
Maharashtra70.05
Odisha96.58
Tamilnadu49.02
West Bengal96.34

 

SEZ land Misuse - Percentage of SEZ land lying idle

Data Source: Report no.- 21 of 2014-Union Government (Department of Revenue-Indirect Taxes, Customs) – Report of the Comptroller and Auditor General of India on Performance of Special Economic Zones (SEZs)

 

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2 Comments

  1. Aayush Tayal on

    Is there any provision laid down by the government under which SEZ land which is not used needs to be returned?

    • The respective governments have to notify a committment/fulfillment date. The SEZ developer is supposed to comply with all the conditions agreed by that date failing which the land can be taken back and penalty be imposed. Governments have largely not notified the committment date because of which nothing could be done.

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