Faced with the concerted attack on SEZs by the Left, the Commerce Ministry shifted into damage control mode. Commerce Minister Kamal Nath announced that an SEZ will come up only on barren land. The Board of Approvals meeting on 21 September has further said that a multi product SEZ must envisage a minimum investment of Rs 1,000 crores or show net worth of Rs 250 crores. The minimum size is specified at 1,000 hectares or 2471 acres. The smaller single product zone for which there is no area specified as such are now required to bring in Rs 250 crore of investment or establish net worth of Rs 50 crore.

The Board of Approvals has now listed some 32 infrastructure services in the non processing area which alone will be allowed in the SEZs. As it is, there is a ceiling of 75 percent in the area share which can be devoted to services. The approved infrastructure activities range from the normal transport, communication to power, medical, entertainment and hospitality sector. However, hotels and schools will not be allowed in IT and gem and jewellery parks. Golf courses are only for multi product zones, the single product zones and IT parks must make do with play grounds and gymnasiums. Cargo complexes, airports, sea ports, banks are only for multi product zones.

The SEZ rules require that minimum 25 percent of the area should be set aside for industrial activities. The remaining 75 percent can be used for services and other infrastructure facilities. The services and infrastructure facilities should support the main industrial activity.

SEZs are under fire, it is alleged that the main object of promoting industrial activities and export is now incidental to the real object of real estate promotion. The fire is said to originate from the finance ministry battalions, the Reserve Bank circular on tight financial norms for real estate in SEZ is identified as the source of attack on the scheme.

It is unfortunate that the widening of the SEZ concept to include services and supporting services on the basis of some 40 years experience of running seven Government sponsored SEZs and nearly 3,000 EOUs should face so much fire. After a lot of hard work, the first SEZ, then known as Free Trade Zone took off in the backward region of Kandla in Gujarat. The customs at that time took years to clear the wastage norms. As a result, the factories were full with waste and fire incidents were common. It took some 25 years of battling with customs and excise regulations before SEZs were accepted and full duty free and control free regime with reasonable access to the DTA became the norm in the early 1990s.

Now that foreign, domestic and personal investment is moving towards the SEZs under the driving power of private sector developers, the forces of reaction are rearing their head once again. Zero duty environment for investment promotion is the accepted form of development the world over. The zero duty in the IT sector under pressure from WTO and zero excise on textiles in the domestic sector in the post MFA era have done wonders for the industry. The market should allowed to allocate investment, as of now the real estate sector is the entry point for growth of the services sector in SEZs. The mandarins in the Reserve Bank or North Block should leave the business of running the SEZs to the Commerce Ministry and should not try to do better than the market. Under the allocation of business rules, all laws such as the SEZ Act 2005 are under the control of the Commerce Ministry and the guidelines of that ministry should be allowed to prevail over others.

The micro management involved in fine tuning the size and investment in the SEZs and deciding which infrastructure activity will be allowed where will only reduce scope of the welfare benefits inherent in a zero duty scheme. The government machinery should only ensure that the liberal and control free environment to the SEZ activities are protected from all forms of encroachment. China pulled out all stops to make Shenzhen Special Economic Zone a success following the opening up of the economy to foreign investment after Deng took over from Mao. The Zone rode on the back of Hong Kong to create some 4,000 zones all over China and turn it into global giant. India has tremendous opportunities in the services sector and FDI, artificial restrictions on SEZs to curtail the zero duty environment should be nipped in the bud.