Mumbai: The centre has asked state governments to ensure that no prime agricultural land is acquired for setting up special economic zones. The union government has made it clear to states that the centre would not clear any SEZ proposal involving diversion of prime agricultural land.

"The Board of Approval for SEZs has made it mandatory that no proposal for setting up SEZs on prime agricultural land be cleared," commerce minister Kamal Nath told reporters on the sidelines of a conference here.

Nath said he totally agreed with Sonia Gandhi that no good farmland should be diverted for industrial purposes, adding that SEZs should come up only on wasteland or on not-so-good farmland, wherever possible. However, he said, land is a state subject and the commerce ministry has written to state governments not to get involved in land acquisition for private players.

Congress president Sonia Gandhi had, at a meeting with chief ministers of Congress-ruled states last week, warned against diversion of farmland for non-agricultural purposes. She also had sought "proper compensation" for land purchased from the farmers.

The government has so far approved 164 SEZs, which offer tax relief and other incentives to companies, to try and spur investment. Critics, however, say it could cost the exchequer Rs 10,000 crore ($20billion) in lost revenues. Concerns have also been raised that the zones are not large enough to generate sufficient returns on investment, and that the policy will do little to improve India's underlying competitiveness.

The finance ministry has raised doubts about the financial wisdom of the policy. But the initiative, modelled on China's successful approach to economic development, has attracted huge interest among would-be developers.