Peeling Back the Veil on SEZs

Since the passage of the SEZ Act, 2005, critics of the new policy have complained that the implementation modalities lend themselves to abuse. Among the concerns has been the role of the Development Commissioners (DCs), appointed to oversee the enforcement of rules pertaining to the operation of SEZs. DCs are vested with a variety of powers -- some central subjects, others state subjects. Not only did critics of the SEZ policy fear that the DCs would implement rulings detrimental to the interests of labour and the environment, but also that the concentration of state power in the hands of a single official (working with a small group of subordinates) would lead to corruption. There would also be strong incentives for private sector actors to abuse the provisions of the Act -- by, for instance, smuggling tax-free goods to the Domestic Tarrif Area or using SEZs primarily as a way of evading zoning restrictions on housing development.

It did not help matters that the Union Ministry of Commerce and Industry did not take urgent steps to reassure these critics. The nature of the DCs' powers were left vague, allowing fevered speculation as to the scope of their authority. Transparency in the operation of the zones, moreover, has been uneven at best, and usually much worse than that -- leaving civil society watchdog groups little option but to bark from the sidelines when they were denied access to pertinent information. To top it all off, efforts to ensure that the state's own oversight institutions could effectively keep tabs on the functioning of the zones -- and the performance of the DCs -- had been thwarted since last summer by the infamous Instruction No. 34, issued by the Ministry. This required DCs to authorize investigative action by various auditing and enforcement agencies. Anecdotal evidence indicates that permissions were often denied, further fueling speculation about what it is that the SEZ developers and their bureaucratic accomplices might be hiding.

The latest Ministry-issued instruction has reversed this precedent, however -- allowing audit and enforcement agencies to investigate activities with and pertaining to SEZs without obtaining prior permission from the DC or Zonal Development Commissioner. This is an important, but still limited, boon to the cause of transparency and accountability. Why ''limited"? Mainly because it opens up SEZs only to state agencies with a mandate to investigate issues that fall within their organization's core mandate; there are many non-governmental groups who could contribute substantially to such inquiries, as the People's Audits of SEZs held in many states have shown. Even more important, many issues (such as land alientation in the process of establishing an SEZ) are not adequately covered by the new Instruction (No. 43).

The Ministry of Commerce has in one respect gone 'beyond transparency': when revoking the legal force of Rule No. 34, it also wiped the relevant provision off of its website entirely, rather than simply ensuring that a subsequent Instruction superseded it.

Another interesting feature of this climbdown is that it was prompted, apparently, by India's desire to demonstrate to the international community that it was serious about combating terrorist financing, which in turn required bold action that indicated that no entity was beyond the reach of India's investigative agencies. India hopes to join the Financial Action Task Force before long, and without unleashing its significantly hemmed in enforcement agencies, it stands little chance of being accepted into the club. International norms may be less meaningless than is often thought.