ONE of the laws passed by the Haryana government was the Haryana Special Economic Zones Act, patterned on the lines of The Special Economic Zones Act, 2005, a Central law that received presidential assent on . The SEZ was in tune with the State's new industrial policy that placed a premium on public-private partnership in projects to build infrastructure and industrial townships.

Within a year of the Central Act and less than six months of the enactment of the State legislation, Haryana seemed poised to set up the country's largest multi-product SEZ. The government has not yet specified the exact location, but there is talk of the SEZ stretching over 25,000 acres between Gurgaon and Jhajjar off the Delhi-Jaipur highway. It is being set up jointly by Reliance Ventures, a wholly owned subsidiary of Reliance Industries Limited and the Haryana State Industrial and Infrastructure Development Corporation (HSIIDC). RIL alone will invest Rs.25,000 crores, while Rs.15,000 crores will be put in by companies interested in investing in the SEZ.

Reliance Industries chairman Mukesh D. Ambani said at a press conference in on June 19 that the SEZ would be built on a scale and standard equivalent to the international SEZs in and . The project has provisions for a cargo airport and a 2,000 megawatt power plant, all subject to approvals. The deal was inked in the presence of the Chief Minister, the managing director of HSIIDC, and Mukesh Ambani. At the same press conference, the Chief Minister jubilantly announced that the SEZ would generate 500,000 jobs and that the State government would earn revenues up to Rs.10,000 crores. Reliance is the major stakeholder with 90 per cent stake in the joint venture company while the remaining 10 per cent rests with HSIIDC.

According to the RIL chairman, the SEZ would come up near National Highway No. 8 in Gurgaon and extend up to Jhajjar district, adjacent to the proposed Kondli-Manesar-Palwal Express highway. The government had previously acquired 1,395 acres of land near Garhi-Harsaru in Gurgaon district and the June 19 agreement had cleared the way for the transfer of this land to the joint venture company.

The Chief Minister is enthusiastic because HSIIDC is expected to earn an initial Rs.60 crores by way of interest on the total cost of acquisition and administrative costs after transferring the land to Reliance. But there is a caveat in the financial memorandum of the Haryana SEZ Act, 2005, that states: "The Haryana Special Economic Zone Bill, 2005, shall exempt from payment of any tax, duty, fees, cess or any other levies under any existing State law to the Developer and exporting units set up under Special Economic Zones in the State of . It is, however, not possible to assess the losses likely to accrue to the state exchequer at this stage." Informed sources told Frontline there had been hardly any debate on the Bill in the Haryana Assembly.

Exemptions galore

The exemptions granted are not time-bound; they appear to be in perpetuity. In fact, they may be in consonance with the Central legislation itself. The Statement of Objects and Reasons of the Haryana SEZ Bill, 2005, is self-explanatory. It states: "Haryana Special Economic Zone Bill, 2005 is being introduced to provide world class infrastructure, competitive duty free enclave and hassle free environment to the exporters of Haryana for promotion of exports, promotion of investment from domestic and foreign sources, creation of new employment opportunities. As per the provisions under Section 50 of the Special Economic Zone Act, 2005 of Govt. of India, State Government have to formulate an Act/Policy for granting exemptions from State taxes, levies and duties to the Developer/Entrepreneurs of Special Economic Zone and delegation of powers to the Development Commissioner of Special Economic Zone. Hence the Bill."

The State SEZ Act appears to exempt units in the SEZ from State duties, taxes, fees, cess and levies in perpetuity. In Chapter Five, Section 11 of the Act exempts from all these charges goods exported out of, or imported into, the SEZ; inter-unit transaction of goods within the Special Economic Zone; goods from the SEZ sent for value addition to the domestic tariff area and returned to the SEZ thereafter and services that provide value addition to a product within the Special Economic Zone.

Sub-section 2 stipulates that all transactions and transfers of immovable property or related documents within the SEZ shall be exempted from stamp duty. As no time period has been suggested, it may be surmised that these exemptions are for perpetuity. Similarly, Chapter 1V, Section 10 (5), stipulates that no electricity duty or cess shall be levied on the businesses of generation, transmission and distribution of electricity and on consumption of electricity within the SEZ.

In addition, Rule 12 on the import and procurement of goods by the developer allows the developer to import or procure goods from the Domestic Tariff Area without payment of duty, taxes and cess for the authorised operations. According to the SEZ Rules, 2006, a multi-product SEZ should have a contiguous area of 1,000 hectares or more and the identified area should be contiguous and vacant and it should have no public thoroughfare cutting through it. Now, the stretch where the SEZ is expected to come up, between Garhi Harsaru in Gurgaon and Jhajjar, cuts through the highway, the Gurgaon-Rewari railway line and the highway.

The planned Kondli-Manesar Palwal highway would be adjacent to the area. Moreover, the SEZ would be located around the well-known Sultanpur bird sanctuary. It is not that much of the land between Gurgaon and Jhajjar is not suitable for agriculture. The State government could acquire the land only because high input costs had made agriculture an unviable option for the farmers. The government has completely ignored the issue of the landless, who comprise at least 50 per cent of the village population and depend on agriculture.It is they who will take the hardest blow and it is doubtful that the SEZ would absorb them.

Mukesh Ambani said at the June 19 press conference that 5 per cent of the area was being earmarked for leisure and recreation and that there were plans for a tie-up with Disney, Time Warner or Universal and a golf course as per the standards prescribed by the Professional Golfers' Association. This is the kind of activity likely to be exempted from taxes by the Board of Approval in the Ministry of Commerce and Industry.

There is need for more clarity on the revenues that the State will earn from the venture and on the extent to which the people of Haryana will benefit. It is not clear how much revenue the government will earn with so many exemptions in place and with the State not even a major stakeholder in profit sharing.

At the press conference it was promised that at least one member of each family that gives up its land for the project will be given employment. The question is what kind of employment that would be. The Central SEZ Rules 2006 also allow liberal exemptions. In fact, Rule 5 states: "Even before recommending any proposal for setting up of a Special Economic Zone, the State government shall endeavour that the following are made available in the State to the proposed SEZ units and Developer."

The "following" includes exemption from the State and local taxes, levies and duties, including stamp duty and taxes levied by local bodies on goods required for authorised operations by a unit or developer and the goods sold by a unit in the Domestic Tariff Area except the goods procured from domestic tariff area and sold as it is. There is also exemption from electricity duty or taxes on sale, of self-generated or purchased electric power for use in the processing area of a SEZ.

The State is required to allow generation, transmission and distribution of power within a SEZ, provide water, electricity and such other services as may be required by the developer and delegation of power to the Development Commissioner under the Industrial Disputes Act, 1947, and other related Acts.

Reliance sources say that at least 200,000 people are expected to get jobs in the RIL-HSIIDC project. The Chief Minister promised 500,000 jobs. According to information given on the government web site on SEZs, till, the 11 SEZs in the country had managed to employ only 100,650 people, including 32,185 women. These zones also include what were formerly called the Export Processing Zones.

As for revenue generation, the 1998 Comptroller and Auditor-General Report on EPZs, stated that "customs duty amounting to Rs.7,500 crores was forgone for achieving net foreign exchange earnings of Rs. 4,700 crores and the government does not seem to have made any cost benefit analysis." The Development Commissioner, appointed by the Central government to supervise, oversee and coordinate the activities of agencies in the development of the SEZ, has the powers to grant approvals/sanctions to the entrepreneur. This amounts to a single window clearance system in the SEZ relating to several features, including the powers of the Labour Commissioner and Chief Inspector of Factories in respect of labour laws.