SEZ developers to beat land caps with subsidiaries

September 3, 2008	(1 votes, average: 4 out of 5)  Loading ...
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State’s efforts to set a ceiling on how much land a single entity can acquire has forced companies developing special economic zones (SEZs) and large industrial projects to form hundreds of subsidiaries to buy the required tracts. Corporate India prefers this multiple subsidiary route as it also helps keep costs down by masking the identity of the parent company. Direct entry by a large industrial group would invariably push up land prices dramatically in the area.

State land ceiling laws typically allow a single corporate entity to acquire at the most 25 acres, although some states have set a cap as low as 5 acres. So, in the case of a state with a 25-acre cap, a company developing an SEZ of 10,000 acre would need to form at least 400 subsidiaries. Consultants advising developers note that this is commonplace with most SEZs. Although some states like Maharashtra adopt a more liberal policy, providing land ceiling exemptions based on the Centre’s in-principle approval to an SEZ project, others like Karnataka, Haryana and Uttar Pradesh insist on formal consent from the board of approvals for SEZs at the Centre.

But formal approval is granted only after an SEZ developer manages to buy the entire land for the project without any legal encumbrances. This, in effect, means the developer has no option but to buy the land first, subject to state ceilings. This could be one of the reasons behind Karnataka being home to smaller SEZs in comparison with Maharashtra. The biggest in Karnataka so far is the 259-hectare engineering SEZ of Suzlon Infrastructure Ltd. In Maharashtra, the largest is the 1,224-hectare multi-product SEZ of Mukesh Ambani’s Navi Mumbai SEZ Pvt Ltd. Overall, Maharashtra has 95 formally approved SEZs while Karnataka has 48.

Some states like Punjab and Tamil Nadu have a single-window clearance system, by which a developer can sign an MoU with the state and obtain exemption from the land ceiling. Gujarat and Andhra Pradesh, on the other hand, exempt developers from such state land acquisition caps altogether. Gujarat has 45 formal approvals for SEZs, while Andhra has 94. Not surprisingly, the distribution of large SEZs reflects the relative stringency on land acquisition.

News Published Under:   Special Economic Zones |

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