Real estate SEZs flourish courtesy MoEF

By Kanchi Kohli
13 May 2010

The ministry of environment and forests has diluted and ignored its own rules and regulations to favour real estate developers in the SEZs.

The Ministry of Commerce and Industry claims that the existence of Special Economic Zones (SEZs) is not new to India, which, they say, has the history of setting up its first Export Processing Zone (EPZ) in Kandla, Gujarat way back in 1965. But, from April 2000 with the announcement of the SEZ policy, the Government of India set into motion a new trade promotion model to attract larger foreign investments in India. Subsequently, the SEZ Act came into being in 2005 and its Rules in 2006.

In practice this new age SEZ model is critically different from the erstwhile EPZs. SEZs of today are integrated zones which allow for construction of educational, residential and leisure facilities along with trade development areas. These areas are also open to private developers who through single window clearance, enhanced tax benefits and fewer procedural "hurdles" have set themselves to work their way towards an institutionalised land grab.

The SEZ Act is in operation with five critical objectives, generation of additional economic activity; promotion of exports of both goods and services; promotion of investment from domestic and foreign sources; creation of employment opportunities in the trade realm; and development of infrastructure support to facilitate all of the above.

Since its enactment, both Indian and foreign investors have sought to benefit by bringing contiguous tracts of land up to 5000 hectares under various kinds of SEZs, be it petrochemical, information technology, or multi-product. As of 1st May 2010, 580 SEZs have received formal approval and another 150 have in-principle approvals. But all this has not been without a backlash from affected communities and people's movements. Their struggle has been for continuing of access, rights and land use that has been sought to be compromised by the pushing through of SEZs in India.

Despite widespread criticism and people's struggles around SEZs, this lucrative option for 'global trade wallahs' is continued to be pushed around in India. While the promotion of exports of goods and services, employment generation and infrastructure remain important, the most enticing aspect of an SEZ for investors is the availability of numerous tax benefits. Any project once accorded an SEZ status gets tax exemptions related to import procurement, income tax, central and service tax and so on. This has made the SEZ model attractive not only for goods and services sector, but also for construction companies and real estate giants.

For most urban Indians, signposts, advertisements and propaganda for new and upcoming constructions promoted by real estate companies have become routine. Vast amounts of cultivated or wild land uses have been 'converted' through huge financial transactions. Big investors, after having bought the land, convert it into commercial or residential areas. It would not be an exaggeration to say that this urban built up mindset continues to spread its extent.

While we digest this overaching reality, it is also important to note how SEZ and real estate projects have come to play themselves out within India's environment regulation. The Environment Impact Assessment (EIA) notification, 2006 deals with SEZ and construction projects separately. SEZs are listed as Item 7(c) requiring environmental clearance only after following the full procedure of public hearing and preparation of EIA reports. While this is true for the entire SEZ, the individual units within the SEZs are exempted if they are for the same purpose for which the SEZ was first granted approval.

Real Estate and construction projects are listed as Items 8 (a) and 8 (b) in Appendix I of the EIA notification. Item 8 (a) is for building and construction project > 20,000 sq. mtrs and < 1,50,000 sq. mtrs built up area. 8 (b) is township and area development projects covering an area of > 50 ha and/or a built up area of > 1,50,000 sq.mtrs.

The EIA notification also distinguishes between Category A and Category B projects, with the first requiring approval from the central government and the second at the state level. These have their own screening, scoping and public consultation requirements which have to be followed before appraisal for approval. Building and township related projects enjoy a special status under the EIA notification. Termed as B1 they don't require to carry out an EIA or a public consultation, and only need to submit a specially designed form.

This privilege was a result of substantial push and lobbying by real estate developers at the time the EIA notification was being revamped. In their response to the Ministry of Environment and Forests (MoEF), many large and small developers had argued that their operations were not as polluting or environmentally degrading as other industrial units. In fact it has been argued in a comment to the MoEF that the real estate industry does not cause any damage to the environment since the "occupants emit only human breath and human solid waste is treated."

Even though the promoters of these projects had sought a complete exemption, the amendments had led to a partial reprieve, but one that makes the process of building and construction project clearances miniscule as compared to others projects. Once the ball was set rolling, the MoEF put in to place other intriguing exemptions not in word of law but through practice.

Today there is a unique understanding within the MoEF for the clearances to real estate or construction projects which also enjoy an SEZ status. Information on this was revealed through a response to a Right to Information (RTI) Application. The applicant had asked as to how many SEZs had been granted approval by the MoEF and how many of them were exempt from the requirement of the mandatory public consultation. The background to this was a reading into the minutes of the meetings of the Expert Appraisal Committee (EAC) dealing with SEZ projects where it was said that a particular project was considered by the committee and exempted from public hearing.

The response from the MoEF dated 24th December 2009 is intriguing. The total number of SEZs granted environmental clearance by the MoEF as of December 2009 was 28. Quite interestingly half of these (14 projects) were from the state of Tamil Nadu. Karnataka state is second with having granted approval to 6 SEZs.

The response further adds that while no proposal covered under Item 7(c) has been granted exemption, there are some SEZs which have been considered under Item 8 (a) and 8 (b). What this implies is that building, construction and township projects have managed to circumvent the EIA notification in such a way that despite being SEZs, they are treated differently by the environmental regulation. Ironically, the procedural requirement for SEZs as per the EIA notification is much more lengthy and stringent than for construction and township projects.

So, before we even begin to fathom this, the real estate giants and construction companies have figured this one out in their favour. Of course, with a little help from our Ministry of Environment and Forests.