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Special Economic Zones Boon or Disaster?
by Ramesh Menon Bookmark and Share

The sizzling controversy of whether setting up Special Economic Zones is good for India or would spell disaster is one that is not going to go away too soon. The media often forgets stories a couple of weeks old, but this one will be on the front pages for a long time to come. It is a controversy that is ironically pitting the Finance Ministry against the Commerce Ministry, the ruling coalition with its partners, farmers with their state governments and activists against what they call, “people unfriendly” projects that can spin out of control by marginalizing a huge section of poor people. In the last few weeks there has been a lot of political posturing, differences of opinion and stance on the SEZ, as it becomes a hot potato.

As Indian growth rates manage to keep its head high above stormy waters, the idea to many seem as one way of boosting the economy, setting up of new infrastructure, helping ancillary units sprout and creating millions of jobs. The idea of setting up Special Economic Zones was mooted in March 2000 as specially demarcated growth centers, to boost exports. It would have special laws protecting it, did not have to pay customs duties on machinery or goods it imported or bought locally. It would be treated as a foreign territory doing business with various partners abroad. It would have liberal laws as far as labor and foreign investment was concerned. Apart from attractive tax and duty exemptions, it would be allowed to distribute its own gas, power and water. It was touted to have its unique style of governance. In short, be economic drivers.

When it was spelt out, it seemed good as its advocates kept pointing to China that attracted $30 billion in Shenzen, just one of its SEZ’s. The investment here was more than what all the SEZ’s in India were projected to get. Another SEZ doing extremely well was Pudong, near Shanghai changing the entire skyline. Observers say China attracts nearly $45 billion per year in foreign direct investment compared to India's figures of $2 billion annually as it has used its huge SEZ's to boost its economy. India hoped to replicate it.

The SEZ’s sounded like an unique idea when it was described as being swank with its own malls, restaurants, flyovers, hospitals, golf courses, luxury apartments, recreation centers and even airports or jetties that would jostle to become among the best in the world. The Commerce Ministry says it is a great real estate opportunity for commercial complexes, offices, malls, golf courses and so on.

But SEZ’s need land to build such a massive infrastructure. All the contiguous land that is easily available and connected to the mainland is productive, fertile, agricultural land. Both the centre and the states are eager to acquire this land as they see it as the only way to put up what they think will soon be their economic drivers. The Union Ministry of Commerce and Industries are in a great hurry to see it happen as visualize the zones will revive growth and investment.

Commerce Ministry officials are trying to push it as fast as they can saying that it will stimulate investments of over Rs. 1,00,000 crore, create over five lakh jobs and also bring in net revenue of Rs. 44,000 crore. One government projection says that 94 SEZ’s dealing with IT will itself create as many as 12.5 lakh jobs.

A rough plan is that 40 per cent of the SEZ will be set aside for greenery, sewage and water treatment, 25 per cent for real estate development and the rest 35 per cent for developing the SEZ. But all this does not sound like good news for the Finance Ministry. It has real apprehensions: SEZ’s are estimated to end up with the Finance Ministry losing revenue to the tune of over Rs. 1,00,000 crore annually once the zones are up and running. With its huge fiscal deficit, India can hardly afford the loss.

The Reserve Bank of India has in fact told banks that they should not treat SEZ’s as infrastructure projects but as real estate development activity. The primary issue is the widespread apprehension that the SEZ’s will be hijacked by developers who will with government help, corner huge swathes of rich, agricultural land with a measly compensation handed over to farmers which will not have any resettlement and rehabilitation policy.

Many of them are IT related software parks and technology hubs. The argument put forward by critics is that there is no need for a SEZ for IT as they would have done well anyway as India has an edge and has solid human resource that is growing by the day. This has prompted the Commerce Secretary, Gopal Pillai, to say that the government will now go slow on approval for IT SEZ’s. As many as 148 IT SEZ’s has been granted approval and another 70 are likely to be okayed as they have been cleared in principle. This may not be music to IT ears. The SEZ was a perfect dream for them as the existing Income Tax Act allows them tax sops only for another four years. If they in that time got into a SEZ, they could again ride on a tax holiday for another decade or more.

What has been India’s experience with Export Processing Zones? Why did they not do as well as it was projected inspite of heavy financial incentives? Why has there been such an aggressive government overdrive to bring in SEZ’s into India in such a massive scale? India is looking at developing more than 350 SEZ’s with more than Rs. 1,00,000 crore investments. As many as 150 of them have got formal approval. Another 129 have been cleared in principle and nearly 200 others are awaiting clearance. Reliance plans to buy nearly 25,000 acres of land from the Haryana government to set up Rs. 25,000 crore (Rs 250 billion) multi-product SEZ that will have a cargo airport and a 2,000-mw power plant. Apart from this, Mukesh Ambani, the Reliance Industries Chairman, has bigger plans. He wants to set up one of the biggest SEZ’s in India. In association with the Maharashtra government, he wants to set up two of these zones in an area as large as 14,000 hectares in Navi Mumbai and Maha Mumbai. Both these would be impossible if irrigated land is not allowed to be acquired. Apart from Reliance, companies like Wipro, Infosys, Satyam, Bajaj, DLF and many others are firming plans to set up SEZ's. The SEZ rush is on. In the second week of November, Noida in Uttar Pradesh got the okay for eight SEZ’s.

As protests by farmers in various parts of India created a whirr with activists joining in, the government toned its enthusiasm and determination down a wee bit saying that agricultural land would not be taken over to build SEZ’s. United Progressive Alliance chairperson, Sonia Gandhi, categorically said that good agricultural land should not be converted into SEZ’s. Nationalist Congress Party leader Sharad Pawar who soon will have to face elections for state civic bodies and district councils in Maharashtra echoed the same fact saying that irrigated land must not be acquired. Farmers in many parts near Mumbai and Pune are angry that land sharks that are developers for the SEZ are targeting their land. For politicians, nothing could be worse than anger showing up at election booths. Maharashtra Chief Minister Vilasrao Deshmukh has already said that he would go slowly on acquiring land for these projects.

There is a distinct possibility that many existing manufacturing units would shift base to the SEZ just to escape tax. The SEZ would be a great place for them to park as it would not only be better in terms of doing business but also help them reap huge tax benefits making their profits soar.

The SEZ’s will mainly come up in Maharashtra, Gujarat, Uttar Pradesh, Tamilnadu, Orissa, Karnataka and Haryana. Many backward states that are underdeveloped will continue to be sentenced to remain so. This could lead to regional imbalances that will throw up complicated problems. NO SEZ for example, will come up in the north-east, which already suffers from the problem of alienation and discrimination.

The Commerce Ministry is pushing the argument that farmers would be well compensated. But the fact remains as true as ever-from experiences earlier-that farmers do not know what to do with liquid cash. It is the kind of money they never saw before. As they do not know how to manage it, invest it or recycle it for some other activity, it is often spent wastefully. Or it goes into gambling or liquor dens. Farmers are never counseled on how to spend the money or on how it can be made to grow. Land is sold and money is soon over. Having lost the only kind of livelihood they knew, they caught in the whirlpool of debt. Another argument being used to dent the critics is how farmers could be rehabilitated with jobs in the zones. Most of them are going to be Information Technology related and how are farmers going to do a nine to six job at a desk or with machines they do not understand? The issues that arise are far too sticky to have immediate and easy solutions.

It may not be so easy to find wasteland that is well connected to airports or ports. But it is an option that the government is now seriously looking at as anti-SEZ voices get louder. The government may use the Land Acquisition Act to force farmers say goodbye to their land after compensating them in cash, but the aam aadmi factor looms large especially as elections are concerned. No wonder ministers and Congress chief Sonia Gandhi are treading carefully on the SEZ bomb. She categorically said that good agricultural land should not be acquired for SEZ’s.

It is not going to be easy. Social engineering is more than throwing statistics at an agricultural community that is already under attack form market forces that is making it tough to farm. In India, farmers are emotional about the land that they have farmed for years and just giving it up so that industry can be set up, is not something that can be easily digested. Already, there have been numerous protests and farmers are now realizing the need to stick together to defend their right to their farmland.

The government is touting SEZ’s as the future islands of excellence. But at what cost will it be achieved? That is the moot question. As thousands of acres of agricultural land are converted into concrete jungles, how will it affect food security? Will the farmers who are ready to give off their land get a fair deal? Most of them fear they will get peanuts compared to what the developers will make. Punjab Chief Minister, Capt. Amrinder Singh, has already gone on record saying that land acquisition is a deal between the farmers and the SEZ developers and the government has nothing to do with it. Will the same attitude continue when environmental degradation starts in the race to make a fast buck?

The enthusiasm that the government has in setting up the SEZ’s underline an ugly fact that even after five long decades of independence, we still do not have the kind of decent infrastructure in the country that should have normally been the case. Services should have been available to all, but it could not be created and so now, there will be special areas demarcated for special people. The others will continue to live without power, water, roads and green areas. Islands of prosperity where the rich are ecologically subsidized are okay, while the lesser mortals live on the fringes.

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