Strict background checks for new SEZs likely

Move aimed at weeding out those using tax-free enclaves for commercial purposes

The government is planning to make background checks on new special economic zone (SEZ) proposals mandatory and strict to weed out those who use the tax-free enclaves for other commercial purposes.

The department of commerce has received such a directive from the Prime Minister’s Office (PMO) in an effort to push the ‘Make In India’ campaign.

The department of commerce was working out a policy that would make it mandatory for the board of approval chaired by the commerce secretary to conduct due-diligence on developers applying to set up SEZs, a senior commerce department official who did not wish to be named told Business Standard.

“Only deserving cases will be approved. Just because somebody comes equipped with land and applies for a SEZ an approval cannot be handed out. Proposals will now undergo various checks,” the official said.

According to the official, developers with no expertise in a particular industry have applied for and obtained approvals for SEZs in the past. For instance, a textile exporting company has permission to set up an information technology SEZ.  The government has taken cognisance of recent reports by the Comptroller and Auditor General and the Indian Council for Research on International Economic Relations that highlight this issue. “The focus should be on quality and not on number. It is not wise to hand over large tracts of land without a proper background check of a developer’s intent. We have suggested the government, instead, target a select few and focus on them,” said Arpita Mukherjee, professor at ICRIER.

State government officials are often unaware of the performance of SEZs in their own states. The Centre has thus decided not to approve proposals unless developers have a record of developing operational SEZs.

The department of commerce is also considering a proposal to set up a technical team for performance audits of SEZs. Generally, this is done by the development commissioners in charge of individual SEZs. Due to frequent transfer of officials, however, data is not maintained consistently.

The CAG in a report last month had said a large number of developers had diverted land for other commercial purposes after acquiring approvals to set up SEZs. Since rules were framed in 2006, approvals have been granted to 524 SEZs, of which 352 have been notified. However, only 196 are functioning and involved in exports.

THE ROAD AHEAD

• Proper due-diligence to be followed to ensure only serious players are granted approval for setting up SEZs
• PMO directs commerce dept to not chase numbers but performance
• Only acquiring land will not be sufficient to get SEZ approval
• Presently, formal approvals have been granted to 524 SEZs, of which 352 have been notified
• India has 192 operational SEZs engaged in exporting