Sh. Kamal Nath, Minister of Commerce & Industry, Government of India, clears the air about SEZs in an exclusive interview Q. The SEZs have run into huge controversy. You've tried to ensure that cultivable land is not acquired for SEZs but most land that is being bought right now is farmland. What do you now propose to do, to mate the industrial development being targeted through SEZs directly beneficial to farmers as welt? A. No, this is not correct at all. Nobody has ever questioned the merits of Special Economic Zones or its economic potential. Let me also clarify that SEZs are simply industrial clusters with a good infrastructure meant for economic activity/exports. Parliament cleared the SEZ Bill in 2005 and SEZ Act & Rules were notified in February 2006. In other words, the SEZ policy has been.operationalised with the approval of our Parliament and of the Cabinet. Of course, in cases where the issue of land is involved, I have repeatedly said that it must be equitable, it must be fair and it must be at the right price so as to be fair to the farmers and inclusive of the people. This is what the'Prime Minister and Ms. Sonia Gandhi have said and I fully agree with this. We must not confuse SEZs with land acquisition. These are two distinct things. We have been aware of the need to look at land acquisition and simultaneously, look at rehabilitation. Hence, suitable directions have been given by the Empowered Group of Ministers (EGOM) to the Board of Approvals so that applications for SEZs are processed, subject to the condition that the State Governments would not undertake any compulsory acquisition of land for such SEZs. Ministry of Rural Development has been requested to reformulate a Land Acquisition Act. to address all relevant issues. Moreover, a comprehensive Resettlement and Rehabilitation Policy is being worked out to ensure that a job is given in the SEZs to at least one person from each displaced family. These measures are intended to address the concerns of the kind that you are mentioning and would take care of the interests of stakeholders, including the farmers. Q. The companies who have already kicked off their investments are understandably apprehensive about the rising costs of the political risk they now face. What are you doingforthem? A. Well, let me emphasise once again that there is absolutely no ground for any apprehensions about what you call "the rising cost of political risks" to investments in SEZs. The government remains committed to SEZs which is an Act of Parliament. As I had mentioned, the Empowered Group of Ministers has given directions to the Board of Approvals on various issues, signalling clearly that investors should not have any apprehension about the SEZ policy. We are encouraging entrepreneurs and all other stakeholders to give their suggestions for smooth implementation of the SEZ Policy. And it is always possible to amend the SEZ Rules, wherever necessary, as we move along in order to ensure that there are no hitches in implementation of the policy. Q. How do you propose to make SEZs scam proof? They make it very easy for the evil minded to grab land, save on taxes and then make money on the real estate developed. A. Anything can be imagined and there is no limit to such unfounded criticisms or imagined ills. There has not been any case of a land grab so far - not in the Zones that are under construction nor in the ones that are already functional, either fully or partially. I would like people to visit the Zones and only then give their comments. Let me state that adequate safeguards have been built in the SEZ Act and the SEZ Rules to prevent any violation and misuse of tax exemptions. Monitoring mechanism by the Approval Committee, which is headed by the Development Commissioner of each Zone and consist of representatives of the State Government as well as the Department of Revenue is in place to see that the authorized activities are carried out strictly in accordance with the rules. SEZs have to be developed in terms of the master plan approved by the competent authority. It has also been provided in the SEZ Act and Rules that the land in the SEZs cannot be sold by the Developer. Further, vacant land in SEZs cannot be leased to any person other than a co-developer. I am sure you will agree that these are adequate safeguards against any possible misuse. Q. Take Nokia for instance, they would have set shop in India irrespective of the tax exemptions gifted by the SEZs. Why should they and other companies like them get the incentive? A. This is not correct. Without the SEZ Act, Nokia and the other electronic hardware manufacturers like Motorola, Flextronics and Foxconn would not have set up manufacturing facilities in India. You must understand that we are in a very competitive situation. If we don't offer incentives, the investor will simply go to another country, which offers them a better climate for investment. There is investment competitiveness from Thailand, Vietnam, Philippines and Indonesia, to name only a few. If FDI inflows are coming into our Special Economic Zones, they can jolly well also go to Thailand or Philippines or Indonesia. Investments have to be attracted - it cannot be demanded. At the end of the day, investors are here because they look at India as a credible country with a stable, credible policy framework for investment. Please remember also that developers of SEZs are given tax incentives since the Zones have a long gestation period before they become viable. It should also be noted that tax incentives are already available for infrastructure development in India under section 801A of the Income Tax Act even outside the SEZs. Tax concessions, insofar as the manufacturing and service units are concerned, aresimilartothe onesalready in existence for units in existing SEZs (which were set up prior to the SEZ Act coming into force), 100% Export Oriented Units (EOUs) and Software Technology Parks of India (STPIs). Corporate tax concessions are available to units only on export income. Further, for sale in Domestic Tariff Area (DTA), 100% customs duty and direct taxes have to be paid by the SEZ unit and there are no exemptions for such DTAsale undertheSEZ regime. Q. The FM is very apprehensive about the loss of revenue from SEZs. You say he'll get extra revenue. Indirecttaxes are still understandable. But why should earnings be free? Why should tax on profits be exempt? A. Let me make il/ clear that firstly, economic activity generates more ravenue. One can't be more basic than that and it does not take rocket science to understand this basic fact. Secondly, when exports are there, you refund your customs and excise duties, because taxes are never exported. So, the projections of loss of revenue are only notional and depend on how creative you can be in your calculation. The truth is that but for the SEZ policy, these investments would not have come to India at all. The basic concept all over the world is that no taxes are exported. While units outside SEZ get duty drawback benefits on exports, those in the SEZs are exempted from payment of various duties. For sale in DTA, the units in SEZs are required to pay the full taxes. I believe there is a very major substantial revenue gain from SEZs. Any increase in economic activity is going to create jobs, and those who get jobs in turn become consumers who will pay taxes. So, obviously there is an increase in revenue, which will more than offset any notional loss of revenue. Q. Would it not have been a better idea to make the incentives conditional on developing socially and economically backward areas? What's the sense in giving incentives to people for setting up real estate SEZs at a stone's throw from Delhi? A. There are no real estate SEZs! This question is redundant as many of the SEZs are indeed coming up in backward areas of the country and these would ensure an overall development of these areas. Q. Why didn't you link the tax benefits to say the creation of a minimum number of jobs? A. How can you have SEZs without employment? How can you manufacture without employment? Creation of job opportunities is implicit in SEZs as the main objectives of the SEZs are generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities and development of infrastructure facilities. It has correctly been projected that if all the proposed 341 SEZs were to go ahead, there would be a Rs. 3,00,000 crore of investment and 4 million additional jobs in the next three years. These projections are not fanciful at all. It is a fact because India is emerging as a major manufacturing hub and manufacturingfor exports will play the most critical role. Q. What would you do if a SEZ developer sells it three years later with huge gains and then goes on to set up a fresh one at another location availing of all the sops? A. As I have already indicated, safeguards have been built in the SEZ Act and the SEZ Rules to prevent any misuse. The land in the SEZ cannot be sold by the Developer. Vacant land in SEZ cannot be leased to any person other than a co-developer. The SEZ developer gets a 10-year tax holiday on the profits of the investments made by him in developing the SEZ. As most of these investments take years to provide the profits, there is no gain if he sells his rights as a developer. This is also subject to the approval of Government. The moment he sells his rights as a developer, he is liable to pay all taxes. His tax holiday is only on the profits made as a developer and not on the sale of his developer rights. Raghuvansh Prasad .Singh's Resettlement and Rehabilitation proposal includes a point where the company floating an SEZ may have to issue its shares to those it displaces from the location of the SEZ. The corporate sector is against this proposal. Doesn't that expose the claims of the SEZ policy of wanting to give farmers a share in the benefits of economic growth? Alt has already decided that a comprehensive Resettlement and Rehabilitation Policy would be worked out ensuring livelihood from the project to at least one person from each displaced family. The Rural Development Ministry is already looking into all these things and whichever way it happens - whether it happens by giving a stake or by giving a job - the fact is that the person displaced must necessarily be a part and parcel of SEZ. The process must be all-inclusive and transparent. Q. His proposal also makes it mandatory for the RR package to be fully implemented before a project can be kicked off which the Tatas have (on record to India Today) also objected to. What's your stand? A. The new Relief & Rehabilitation Policy when implemented will be applicable to all cases of land acquisitions, including those for SEZs. And I am sure that it will be a good Relief & Rehabilitation Policy.