CAG trashes SEZ Policy for diverting land to realty projects

The Comptroller and Auditor General of India (CAG) has trashed the Special Economic Zones (SEZs) Policy as it has ended up diverting huge tracts of land acquired for setting up manufacturing facilities and generating jobs to real estate projects for making a fast buck.

"We noted a trend wherein 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 denotification was also resorted to within a few years to benefit from price appreciation," a CAG report tabled in Parliament on Friday stated. Land appeared to be the most crucial and attractive component of the scheme, it added.

The audit report found that the figures for employment creation, exports and economic activity being projected by the commerce ministry to push the policy were not properly verified and have turned out to be highly exaggerated. In terms of area of land, out of 39,245.56 hectares notified in the six states (Andhra Pradesh, Gujarat, Karnataka, Maharashtra and West Bengal), 5,402.22 hectares (14 per cent) was denotified and diverted for commercial purposes in several cases, it said.

Many tracts of land acquired are not serving the objectives of the SEZ Act, the report said.

In Andhra Pradesh, Karnataka, Maharashtra and West Bengal, 11 developers had raised Rs 6,309.53 crore of loan through mortgaging SEZ lands. Out of which, three developers had utilised the loan amount (Rs 2,211.48 crore) i.e 35 per cent, for the purpose other than the development of SEZ as there was no economic activity in the SEZs concerned.

SEZs had availed tax concessions to the tune of Rs 83,104.76 crore between 2006-07 and 2012-13. "Our review of the tax assessments indicated several instances of extending ineligible exemptions to the tune of Rs 1,150.06 crore and systemic weaknesses in direct and indirect tax administration to the tune of Rs 27,130.98 crore," the report added.

Generation of employment opportunities, encouraging investment and increasing India's share in global exports are the three important objectives of the SEZ Act, 2005.

Performance of sampled SEZs (152) in the country indicated "non performance" in employment ranging from 65.95 per cent to 96.58 per cent in investment ranging from 23.98 per cent to 74.92 per cent and in the case of exports ranging from 46.16 per cent to 93.81 per cent.

Another significant trend in the SEZ growth has been the preponderance of IT/ITES industry, which accounted for 56.64 per cent of SEZs, while only 9.6 per cent were catering for the multi-product manufacturing sector.