Financial Inclusion

1. Introduction

The banking industry has shown tremendous growth in volume and complexity during the last few decades. Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness, there are concerns that banks have not been able to include vast segment of the population, especially the underprivileged sections of the society, into the fold of basic banking services. Internationally also efforts are being made to study the causes of financial exclusion and designing strategies to ensure financial inclusion of the poor and disadvantaged. The reasons may vary from country to country and hence the strategy could also vary but all out efforts are being made as financial inclusion can truly lift the financial condition and standards of life of the poor and the disadvantaged.

2. What is Financial Inclusion?

Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.

3. The scope of financial inclusion 

The scope of financial inclusion can be expanded in two ways.

(a)   through state-driven intervention by way of statutory enactments ( for instance the US example, the Community Reinvestment Act and making it a statutory right to have bank account in France).

(b)   through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society.

When bankers do not give the desired attention to certain areas, the regulators have to step in to remedy the situation. This is the reason why the Reserve Bank of India is placing a lot of emphasis on financial inclusion.

In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills, to all. Internationally, the financial exclusion has been viewed in a much wider perspective. Having a current account / savings account on its own, is not regarded as an accurate indicator of financial inclusion. There could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to identify the ‘super-included’, i.e., those customers who are actively and persistently courted by the financial services industry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not enjoy the flexibility of access offered to more affluent customers.

4. Consequences of Financial Exclusion

Consequences of financial exclusion will vary depending on the nature and extent of services denied. It may lead to increased travel requirements, higher incidence of crime, general decline in investment, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, and increased unemployment, etc.  The small business may suffer due to loss of access to middle class and higher-income consumers, higher cash handling costs, delays in remittances of money.  According to certain researches, financial exclusion can lead to social exclusion.

5. Indian Scenario

Bank nationalization in India marked a paradigm shift in the focus of banking as it was intended to shift the focus from class banking to mass banking. The rationale for creating Regional Rural Banks was also to take the banking services to poor people. 

The branches of commercial banks and the RRBs have increased from 8321 in the year 1969 to 68,282 branches as at the end of March 2005. The average population per branch office has decreased from 64,000 to 16,000 during the same period.

However, there are certain under-banked states such as Bihar, Orissa, Rajasthan, Uttar Pradesh, Chattisgarh, Jharkhand, West Bengal and a large number of North-Eastern states, where the average population per branch office continues to be quite high compared to the national average. As you would be aware, the new branch authorization policy of Reserve Bank encourages banks to open branches in these under banked states and the under banked areas in other states. The new policy also places a lot of emphasis on the efforts made by the Bank to achieve, inter alia, financial inclusion and other policy objectives.  

One of the benchmarks employed to assess the degree of reach of financial services to the population of the country, is the quantum of deposit accounts (current and savings) held as a ratio to the adult population. In the Indian context, taking into account the Census of 2001 (ignoring the incremental growth of population thereafter), the ratio of deposit accounts (data available as on March 31, 2004) to the total adult population was only 59% (details furnished in the table). Within the country, there is a wide variation  across states. For instance, the ratio for the state of Kerala is as high as 89% while Bihar is marked by a low coverage of 33%. In the North Eastern States like Nagaland and Manipur, the coverage was a meager 21% and 27%, respectively.  The Northern Region, comprising the states of Haryana, Chandigarh and Delhi, has a high coverage ratio of 84%. Compared to the developed world, the coverage of our financial services is quite low. For instance, as per a recent survey commissioned by British Bankers' Association, 92 to 94% of the population of UK has either current or savings bank account.

6. Steps towards financial inclusion

In the context of initiatives taken for extending banking services to the small man, the mode of financial sector development until 1980’s was characterized by

·         a hugely expanded bank branch and cooperative network and new organizational forms like RRBs;

·         a greater focus on credit rather than other financial services like savings and insurance, although the banks and cooperatives did provide deposit facilities;

·         lending targets directed at a range of ‘priority sectors’ such as agriculture, weaker sections of the population, etc;

·         interest rate ceilings;

·         significant government subsidies channeled through the banks and cooperatives, as well as through related government programmes;

·         a dominant perspective that finance for rural and poor people was a social obligation and not a potential business opportunity.

It is absolutely beyond any doubt that the financial access to masses has significantly improved in the last three and a half decades. But the basic question is, has that been good enough. As I mentioned earlier, the quantum of deposit accounts (current and savings) held as a ratio to the adult population has not been uniformly encouraging. There is a tremendous scope for financial coverage if we have to improve the standards of life of those deprived people.

With a view to enhancing the financial inclusion, as a proactive measure, the  RBI in its Annual Policy Statement for the year 2005-06, while recognizing the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices to align them with the objective of financial inclusion. In the Mid Term Review of the Policy (2005-06),  RBI exhorted the banks, with a view to achieving greater financial inclusion, to make available a basic banking  ‘no frills’ account either with nil or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population. The nature and number of transactions in such accounts would be restricted and made known to customers in advance in a transparent manner. All banks are urged to give wide publicity to the facility of such no frills account so as to ensure greater financial inclusion.

Further, in order to ensure that persons belonging to low income group both in urban and rural areas do not face difficulty in opening the bank accounts due to the procedural hassles, the KYC procedure for opening accounts has been simplified for those persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed rupees one lakh (Rs.1,00,000/-) in a year. 

7. The Way Forward

The banks should come out of inhibited feeling that very aggressive competition policy and social inclusion are mutually exclusive. As demonstrated elsewhere, the mass banking with no-frills etc. can become a win-win situation for both. Basically banking services need to be “marketed” to connect with large population segments and these may be justifiable promotional costs. The opportunities are plenty.

·               In the context of India becoming one of the largest micro finance markets in the world especially in the growth of women’s savings and credit groups (SHGs) and the sustaining success of such institutions which has been demonstrated by the success of SEWA bank in Gujarat, low cost banking is not necessarily an unviable venture/proposition. 

·               The IBA may explore the possibility of a survey about the coverage in respect of financial inclusion keeping in view the geographical spread of the banks and extent of financial services available to the population so as to assess the constraints in extension of financial services to hitherto unbanked sections and for initiating appropriate policy measures.

·               It may be useful for banks to consider franchising with other segments of financial sector such as cooperatives, RRBs etc. so as to extend the scope of financial inclusion with minimal intermediation cost.

·               Since large sections of low income groups transactions are related to deposits and withdrawals, with a view to containing transaction costs, 'simple to use' cash dispensing and collecting machines akin to ATMs, with operating instructions and commands in vernacular would greatly facilitate financial inclusion of the semi urban and rural populace.

In this regard, it is worthwhile to emulate the example of ‘e-Choupal’ project brought forth through private sector initiative.

8. Conclusion 

It is becoming increasingly apparent that addressing financial exclusion will require a holistic approach on the part of the banks in creating awareness about financial products, education, and advice on money management, debt counseling, savings and affordable credit. The banks would have to evolve specific strategies to expand the outreach of their services in order to promote financial inclusion. One of the ways in which this can be achieved in a cost-effective manner is through forging linkages with microfinance institutions and local communities. Banks should give wide publicity to the facility of no frills account. Technology can be a very valuable tool in providing access to banking products in remote areas. ATMs cash dispensing machines can be modified suitably to make them user friendly for people who are illiterate, less educated or do not know English.

To sum up, banks need to redesign their business strategies to incorporate specific plans to promote financial inclusion of low income group treating it both a business opportunity as well as a corporate social responsibility. They have to make use of all available resources including technology and expertise available with them as well as the MFIs and NGOs.

It may appear in the first instance that  taking banking to the sections constituting “the bottom of the pyramid”, may not be profitable but it should always be remembered that even the relatively low margins on high volumes can be a very profitable proposition. Financial inclusion can emerge as commercial profitable business. Only the banks should be prepared to think outside the box!

Contributed by :- Bharadwaj M - MBA(A) 

Some Important Financial Terms

Time Value of Money 

The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. For example, assuming a 5% interest rate, Rs.100 invested today will be worth Rs.105 in one year (Rs.100 multiplied by 1.05). Conversely, Rs.100 received one year from now is only worth Rs.95.24 today (Rs.100 divided by 1.05), assuming a 5% interest rate.

Discounting

The act of determining the present value of future cash flows. Because money is subject to inflation and has the ability to earn interest, one dollar today is worth more than one dollar tomorrow. Discounting, then, is the act of determining how much less tomorrow dollar is is worth.

Compounding

A process whereby the value of an investment increases exponentially over time due to compound interest.

Retained earnings

The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under Shareholders equity on the balance sheet. The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Retained Earnings (RE) = Beginning RE + Net Income - Dividends

Also known as the "retention ratio" or "retained surplus".

In most cases, companies retain their earnings in order to invest them into areas where 

the company can create growth opportunities, such as buying new machinery or spending the money on more research and development. Should a net loss be greater than beginning retained earnings, retained earnings can become negative, creating a deficit. The retained earnings general ledger account is adjusted every time a journal entry is made to an income or expense account.

Cost of capital

The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity. The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested in a different vehicle with similar risk.

BASIC TERMS RELATING TO PRIMARY ISSUE OF SHARES

IPOs are seen as one of the most lucrative options of investing in the current market scenario. Few of the recent IPOs have given good listing gains to the investors.   But before you share your hard earned money with the promoters of the company, it is very important to get a basic understanding about the various technical terms, abbreviations and jargons used in the primary market ( call it the IPO market). This is an attempt to explain in brief some of the key terms, without making any reference to the various sections and clauses governing the primary market.

 1.     IPO : IPO stands for Initial Public Offer. An IPO is the first sale of shares of a company to the general public. The promoters of the company, after complying with the various guidelines of SEBI (Securities and Exchange Board of India) and of The Companies Act, ask the public at large to subscribe to their shares so that they can generate capital and utilize the same for expanding their business. A successful IPO can raise a substantially huge amount of capital.

 2.       FPO : FPO stands for Follow-on Public Offer. Once a company comes with an IPO , it gets listed on the stock exchanges. After a certain period of time, if the company again intends to raise capital from the general public, then it again comes with a public issue which is called an FPO (Follow-on Public Offer ). It is a supplementary issue made by a company once it is listed and established on the stock exchange. In short, the first public issue of a company is an IPO, and any further  public issue of the same company is called an FPO. For example, Shipping Corporaton of India (SCI), a listed company, is again coming up with a public issue which will be its FPO ( i.e. a second public issue)

 3.       Listing : Once the issue gets subscribed and the shares are allotted, they are listed on a recognized stock exchange e.g. BSE, NSE etc. Listing means that company has adhered to the terms and conditions of the stock exchange and its shares are now a part of the list of shares which can be traded on the stock exchange. Post listing, any investor can sell the shares, allotted at the time of the issue, in the secondary market.

 4.       Bid-cum-Application Form : For applying in any public issue, each investor must fill a standard form providing all the relevant details like Name, PAN, Demat ID, Bank account details, Bid price, Number of shares applied etc. Such a form is called a Bid-cum-Application form. It can be submitted through the offline or online mode. An investor must ensure that all the relevant details are filled correctly to avoid rejection of application and to ensure smooth allotment of securities.

 5.       Price Band : A price band is the range of price within which an investor can place his bid for the securities. The price mentioned by the investor in the bid-cum-application form can neither be less than the lower limit of the price band nor can it exceed the upper limit of the price band. For example, In the recent IPO of Coal India, the price band was Rs. 225-245 per share, which means that an investor can bid only within the range of Rs. 225 to Rs. 245

 6.       Floor Price : In a price band, the lowest price is called the floor price, below which a bid cannot be placed. In the above example Rs. 225 is the floor price of the Coal India IPO

 7.       Cap Price : Cap price is the upper ceiling limit in a price band beyond which a bid cannot be placed. Again, taking the same example of Coal India, Rs. 245 is the Cap price, beyond which you cannot place the bid.

 8.       Minimum order quantity : Minimum Order Quantity is the minimum number of shares which the investor has to apply for in a public issue. For example, in the case of Coal India’s IPO, the minimum order quantity was 25, i.e. an investor has to bid for atleast 25 shares.

 9.       Market Lot : If an investor wants to bid for shares which are more than the minimum order quantity, then he can do so by bidding in multiples of a certain number of shares which is known as the Market Lot. By continuing the above example, if an investor wants to apply for more than 25 shares of Coal India, then bids can be made in multiples of 25 shares, which is the market lot size in case of the Coal India issue. Thus, applications can be made for 25, 50, 75 …….number of shares until the maximum subscription limit is reached. In case of Coal India, the minimum order quantity and market lot size, both were 25 shares.

 10.   Maximum Subscription Limit for Retail Investors : Maximum Subscription Limit for Retail Investors is the maximum amount of investment which can be made though a single bid-cum-application form, or simply speaking, by a single individual, in a public issue. Previously, retail investors were allowed to make an application of a maximum of Rs. 1,00,000, but now SEBI has increased this limit to Rs. 2,00,000. Any application by an retail investor which exceeds Rs. 2,00,000 becomes an application by a High Net Worth Individual (HNI), thus disabling the investor to enjoy the benefits of discount which are offered in some big ticket IPOs to the retail investors.

 11.   Cut Off Price : In book building issues, the issuer company specifies a price band within which the bids are made. The actual issue price can be any price above the floor price and within the price band. This issue price is called the Cut Off Price. This price is determined after considering the demand for the stock by the investors. Investors, in order to get allotments in big ticket public issues, bid at the cut off price, conveying their intention that they are willing to pay any price for the stock within the price band, at the end of the book building process.

 12.   ASBA (Application Supported by Blocked Amounts) : ASBA is an alternative mode of making payments in public issues whereby the application money stays in the bank account of the investor until the allotment is made. Only that much amount of funds are debited to the investor’s bank account for which the allotment is made and the rest of the blocked amount is released. In case the application is made using the ASBA facility, the need for refunds is completely obviated. For example : if an investor makes an application for Rs. 2,00,000 , then in the earlier system, he was required to pay the entire sum of Rs. 2,00,000 upfront, either through a cheque or net-banking and then if shares worth Rs. 1,50,000 are only allotted, then Rs. 50,000 used to get refunded. Under the ASBA mechanism, the investor just need to keep Rs. 2,00,000 in his bank account and at the time of allotment only Rs. 1,50,000 would be debited to his account thus releasing the left over blocked amount of Rs. 50,000 and also doing away with the cumbersome task of issuing refunds.

 13.   Book Building Process : Book Building is one of the methods of carrying out a public issue, the other being the Fixed Price method. Under the Book Building method, the price at which securities will be offered is not known to the investor. The investor is allowed to bid in a given price range called the price band, and then, after the bids are closed & looking at the demand for the shares at various price levels within the price band, the final issue price is decided by the Merchant Bankers or BRLMs. This process leads to a better price and demand discovery. It is called the “Book Building Process” because during the entire issue period, the book for the offer remains open and keeps building up with the bids collected from investors.

 14.   BRLM (Book Running Lead Manager) : BRLM are those financial intermediaries which are involved in the IPO process right from the very first stage and play a vital role in preparation & submission of prospectus, price fixation, application processing, allotment and listing. Names of such BRLMs are printed at the bottom of the bid-cum-application form

e.g. Karvy Securities, Kotak Mahindra, SBI Capital, Enam Securities etc. are some of the well known BRLMs

Posted By
CA Rachana Phadke                                                              

Special Economic Zones (SEZ)

Special Economic Zones (SEZ) in India.

Introduction

A Special Economic Zone in short SEZ is a geographically bound zones where the economic laws in matters related to export and import are more broadminded and liberal as compared to rest parts of the country. SEZs are projected as duty free area for the purpose of trade, operations, duty and tariffs. SEZ units are self-contained and integrated having their own infrastructure and support services. 

Within SEZs, a units may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/silver, platinum jewellery etc. 

As per law, SEZ units are deemed to be outside the customs territory of India. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India.

Benefits of SEZ

Apart from providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the SEZ also provides enterprises and developers with a favourable and attractive framework of incentives which include 100% income tax exemption for a period of five years and an additional 50% tax exemption for two years thereafter. Similarly, 100% FDI is also provided in the manufacturing sector. Exemption from industrial licensing requirements and no import license requirements is also given to the SEZ units. 

The area under 'SEZ' covers a wide range of zones, including Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Trade Zones (FTZ), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment in the country.

At present there are fourteen functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta and Salt Lake (West Bengal), Noida (Uttar Pradesh), Indore (Madhya Pradesh), Jaipur (Rajasthan), etc. 

Attractive incentive and great investment opportunities have attractive many business tycoons to step into the SEZ all over the country. The first step was taken by the Mahindra World City at Chennai. The SEZ was promoted by Mahindra & Mahindra Ltd and later on by the Tamil Nadu Industrial Development Corporation. Mahindra & Mahindra Ltd holds 89% equity in the same. Later on, Reliance Industries also signed a pact with the Haryana government for setting up of the Rs. 25,000 crore multi products SEZ near Gurgaon in 2006.

Obligations under SEZ Unit

It is compulsory for every SEZ units in India to achieve positive net foreign exchange earning as per the formula given in paragraph Appendix 14-II (para 12.1) of Handbook of Procedures, Vol.1. For this particular purpose, a legal undertaking is required which has to be executed by a separate unit of the Development Commissioner. The is responsible for providing periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1

Role of State Government in Establishment of SEZ Units

State Governments play a very active role to play in the establishment of SEZ unit. Any proposal for setting up of SEZ unit in the Private / Joint / State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce), the States Government properly checks all the necessary inputs such as water, electricity, etc required for the establishment of SEZ units. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval. Representative of the State Government, who is a member of the Inter-Ministerial Committee on private SEZ, is also consulted while considering the proposal.

History of SEZ’s

The world first known instance of SEZ have been found in an industrial park set up in Puerto Rico in 1947. In the 1960s, Ireland and Taiwan followed suit, but in the 1980s China made the SEZs gain global currency with its largest SEZ being the metropolis of Shenzhen.

From 1965 onwards, India experimented with the concept of such units in the form of Export Processing Zones (EPZ). But a revolution came in 2000, when MurlisoneMaran, then Commerce Minister, made a tour to the southern provinces of China. After returning from the visit, he incorporated the SEZs into the Exim Policy of India. Five year later, SEZ Act (2005) was also introduced and in 2006 SEZ Rules were formulated.

Terms and Conditions

Only units approved under SEZ scheme would be permitted to be located in SEZ.

1. The SEZ units shall abide by local laws, rules, regulations or laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labour laws as may be locally applicable.
2. Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZ.
3. The SEZ should have a minimum area of 1000 hectares and at least 35 % of the area is to be earmarked for developing industrial area for setting up of processing units.
4. Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.
5. Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
6. Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-II.N of Handbook of Procedures Volume I.

Advantages & Disadvantages of SEZ

A SEZ unit which has been set up for carrying on manufacturing, trading or service activity has both advantages as well as disadvantages. SEZ advantages are quite far more as compared to its disadvantages which are almost negligible.

Advantages

·         15 year corporate tax holiday on export profit – 100% for initial 5 years, 50% for the next 5 years        and up to 50% for the balance 5 years equivalent to profits ploughed back for investment.

·         Allowed to carry forward losses.

·         No licence required for import made under SEZ units.

·         Duty free import  or domestic procurement of goods for setting up of the SEZ units.

·         Goods imported/procured locally are duty free and could be utilized over the approval period of 5 years.

·         Exemption from customs duty on import of capital goods, raw materials, consumables, spares, etc.

·         Exemption from Central Excise duty on the procurement of capital goods, raw materials, and consumable spares, etc. from the domestic market.

·         Exemption from payment of Central Sales Tax on the sale or purchase of goods, provided that, the goods are meant for undertaking authorized operations.

·         Exemption from payment of Service Tax.

·         The sale of goods or merchandise that is manufactured outside the SEZ (i.e, in DTA) and which is purchased by the Unit (situated in the SEZ) is eligible for deduction and such sale would be deemed to be exports.

·         The SEZ unit is permitted to realize and repatriate to India the full export value of goods or software within a period of twelve months from the date of export.

·         “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average annual realization.

·         No routine examination by Customs officials of export and import cargo.

·         Setting up Off-shore Banking Units (OBU) allowed in SEZs.

·         OBU's allowed 100% income tax exemption on profit earned for three years and 50 % for next two years.

·         Exemption from requirement of domicile in India for 12 months prior to appointment as Director.

·         Since SEZ units are considered as ‘public utility services’, no strikes would be allowed in such companies without giving the employer 6 weeks prior notice in addition to the other conditions mentioned in the Industrial Disputes Act, 1947.

·         The Government has exempted SEZ Units from the payment of stamp duty and registration fees on the lease/license of plots.

·         External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions.

·         Enhanced limit of Rs. 2.40 crores per annum allowed for managerial remuneration.

Disadvantages

·         Revenue losses because of the various tax exemptions and incentives.

·         Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves.

·         The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations

Administrative Setup of SEZ’s

The functioning of SEZs is governed by a three-tier administrative set-up. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The Approval Committee at the Zone level deals with approval of units in the SEZs and other related issues.

Board of Members - SEZ units

1.	Secretary, Department of Commerce	Chairman
2.	Member, CBEC	Member
3.	Member, IT, CBDT	Member
4.	Joint Secretary (SEZ), Department of Commerce	Member
5.	Joint Secretary, DIPP	Member
6.	Joint Secretary, Ministry of Science and Technology	Member
7.	Joint Secretary, Ministry of Small Scale Industries and Agro and Rural Industries	Member
8.	Joint Secretary, Ministry of Home Affairs	Member
9.	Joint Secretary, Ministry of Defence	Member
10.	Joint Secretary, Ministry of Environment and Forests	Member
11.	Joint Secretary, Ministry of Law and Justice	Member
12.	Joint Secretary, Ministry of Overseas Indian Affairs	Member
13.	Joint Secretary, Ministry of Urban Development	Member
14.	A nominee of the State Government concerned	Member
15.	Director General of Foreign Trade or his nominee	Member
16.	Development Commissioner concerned	Member
17.	A professor in the IIM’s or the Indian Institute of Foreign Trade	Member
18.	Director or Deputy Sectary, Ministry of Commerce and Industry, Department of Commerce	Member Secretary

Board of Approval

The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the major decisions are taken by the Board of Approval. The Board of Approval has 19 Members which are as follows: 

Unit Approval Committee

All the requests for setting up of units in the SEZ are approved at the Zone level by the Approval Committee consisting of Development Commissioner after a discussion with the Customs Authorities and representatives of State Government. All post approval clearances in matters related to importer-exporter code number, change in the name of the company or implementing agency; broad banding diversification, etc. are given at the zonal level by the Development Commissioner. A separate unit is also there who monitor the performance of the SEZ units on a periodic basis and is governed by the Approval Committee. SEZ units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of any violation in the rules formulated by the Approval Committee.

Development Commissioner

SEZs / EOUs, each zone are headed by a Development Commissioner, who is also heading the Unit Approval Committee. Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units or developer. In all SEZ’s, the statutory functions are controlled by the Government while the rest of the operations are privatized.

Controversies Related to SEZ’s

Land, especially agricultural land is a very sensitive issue in India. There are millions of people whose livelihood depends on agricultural land. But the introduction of SEZ in India has resulted in the dispossession of agricultural land and has affected the livelihood of farmer at large. In against of this, farmers first protested to safeguard their interests through litigation and court cases challenging the establishment of SEZs. But later on, the resistance against SEZ in India became massive when political parties also joined the farmers. 

Jamnagar Incidence

In November 2006, farmers from the Jamnagar District in Gujarat moved the High Court of Gujarat and later to the Supreme Court in order to challenge the setting-up of a 10,000-acre (approx. 4,000-ha) SEZ by Reliance Infrastructure. They claimed that the acquisition of large tracts of agricultural land in the villages of the district not only violated the Land Acquisition Act of 1894, but was also in breach of the public interest. This led the Government to “consider” putting a ceiling on the maximum land area that can be acquired for multi-product zones and decide to “go slow” in approving SEZs. 

Nandigram Violence

The Nandigram violence is another famous incidence related to SEZ controversy. Nandigram is a rural area in Purba Medinipur district of the Indian state of West Bengal. It is located about 70 km south-west of Kolkata, on the south bank of the Haldi River, opposite the industrial city of Haldia. 

In 2007 the West Bengal government decided to allow Salim Group to set up a chemical hub at Nandigram under the SEZ policy. Farmers of that village were against it. So, on the order of the Left Front government on 14 March, 2007, more than 3,000 heavily armed police stormed the Nandigram area. The main objective was to remove the protestors in order to expropriate 10,000 acres of land for a Special Economic Zone (SEZ) to be developed by the Indonesian-based Salim Group. During this incidence, police shot dead at least 14 villagers and wounded 70 more including children and women. 

The above given examples show the controversies associated with SEZs. No doubts that these commercial hubs started with a lot of premature praise and have now became a bone of contention which is readily exploited by the political forces to the detriment of the peasants, who fear losing their means of livelihood.