Faced with growing opposition from its political opponents as well as civil society, the Indian government has drastically limited the size and use of special economic zones (SEZs) that are meant to attract foreign direct investments and promote exports.

On Thursday, the government imposed limits on the size of the SEZs, called for an end to compulsory acquisition of land from farmers by provincial governments and proposed a new scheme to provide livelihood to one member of each family that loses land for the setting up of an industrial or a commercial venture.

The changes were announced in the wake of widespread and sometimes violent protests in different parts of the country against the acquisition of agricultural land for establishing SEZs. The most violent of these protests occurred last month at Nandigram in West Bengal where police shot dead 15 peasants trying to defend their land.

While the policy changes are clearly a consequence of the controversy generated by the government’s decision to establish over 300 SEZs, independent analysts said popular discontentment over farm land being acquired for commercial ventures would not die down in a hurry.

The size of the SEZs, or designated areas where commercial activities attract generous tax concessions, now cannot exceed 5,000 hectares. More importantly, the limit on the size

of each SEZ would be applicable with retrospective effect on zones that have

already been approved for establishment, which includes at least two SEZs

that have been planned by one of India’s largest private corporate groups, Reliance Industries.

“The decision will be applicable to all SEZs including those which have already been notified,” Kamal Nath, India’s minister for commerce and industry, told journalists after coming out of a meeting of the ‘empowered group of ministers’ in New Delhi on Thursday.

Another significant decision of the group of ministers was to impose a limit of 50 per cent of the land area of a SEZ that could be could be converted for non-commercial activities. This was in response to criticism that the SEZs would be “misused” for real estate development by companies that set up ventures inside the designated areas.

Nath stated the rural development ministry had been asked to expedite the formulation of a new policy on resettlement and rehabilitation of families whose land would be acquired for commercial activity. In addition to the compensation being paid, one member of each displaced family would have to be employed in the project being set up.

Analysts are of the view that the controversy over the setting up of hundreds of SEZs would not be over quickly with the new policy changes. Interestingly, criticism of New Delhi’s policy on SEZs has cut across ideological lines and divided the government. The finance ministry has time and again expressed its apprehensions that there would be substantial loss of revenues on account of the tax concessions granted to corporate entities operating in SEZs.

A report by the Manila-based Asian Development Bank, released Mar. 27, sharply criticised the Indian government for offering “unnecessary” tax incentives to developers of SEZs. These incentives can open loopholes for tax evasion and undermine investments in firms outside the SEZs, the report said.— IPS