January 28, 2007


A couple of interesting reasons prompted me to write this editorial on the Special Economic Zones (SEZ) Act 2005. Firstly, the amount of attention it has received, and secondly, the entire logic with which the Ministry of Commerce and Industry is driving the Indian SEZ bandwagon. Though it took the ministry decades to realise the potential of SEZs, the concept finally got kicked off in the year 2005. The bill was passed by both houses in 2005, which eventually was called the SEZ Act. Once passed, the Indian policy makers have decided of approve, hold your breath (!), a staggering 237 SEZs for the country! The logic for such staggering madness: to create an enabling environment for investments and counter China in its own turf, as it is universally believed that those are the Chinese SEZs that are critical reasons for China’s phenomenal economic success and are also instrumental in attracting voluminous FDI to China.

But the reality is, the experiment that started in 1979 with four SEZs – namely Shenzhen, Zhuhai, Xiamen and Shantou – could barely attract any FDI ($2 billion for the first couple of years). It was much later in the 90s that the Chinese started attracting more investments, simply because the investors saw a huge market in China, as the Chinese State by then had successfully generated productive engagements for millions of Chinese, thus enhancing their purchasing power.

So the entire logic on which the Ministry of Commerce and Industry has based its investment expectations is by itself flawed. In the right perspective, SEZs still hold a possibility of success, but the current SEZ Act drive reminds me of the industrial licensing era, where licenses were never issued to competent entrepreneurs, but to the ones who had close proximity with the ruling Government. And we all know what the result was: The Indian manufacturing sector kept competing in the 90s with 80s’ products, manufactured with 70s’ technology. If industrial licensing had taken India back by decades, then this SEZ Act, in its current form, is more devastating and is going to take India back by generations. Just like in the industrial licensing era, there is complete lack of transparency in the entire system of allocation of SEZs. And this time, it is not just about handing over licences, rather about handing over colossal pieces of land (which are agricultural land in most of the cases – for example, the 14,000 hectare SEZ coming up near Mumbai and the 1,000 hectare coming up in Jhajjar, close to Delhi,

are both primarily agricultural) to a select few corporations, the credibility of most of whom is yet to be tested and proved in the areas of infrastructure development. Moreover, unlike their Chinese counterparts (Chinese SEZs, which today are a huge success – including Hainan and Pudong near Shanghai, which were added later – are strategically located primarily on ‘wastelands’, close to ‘ports’ and ‘trading and financial centres’ of South-East Asia like Hong Kong), in most of the cases, the nominated Indian SEZ land is nowhere close to any port. Which means, all the economic activity that the ministry is talking about would again hit a roadblock (as the movement of goods from these SEZs to the ports would be through our existing road infrastructure, which is anyway in a poor state).

The bigger malaise is that unlike the license era, this time, the ownership of the targeted land is being transferred to the corporation from none else than the farmer, at that too at a price, which does not have any economic rationale. The modus operandi is simple: the state government would steam-roll the farmers into selling their land and then would transfer it to the corporation at a little higher price, which still is much lower than the market price. This process would eventually displace more than 100,000 farmer families, plus an equal number of those families who are indirectly dependent on these lands. Even if the Ministry of Commerce and Industry argues that these SEZs would enable mass scale employment, it does not make any sense, as for the industrial houses to absorb the farmer families with their current skillsets doesn’t make any economic ratonale, unless the same is made mandatory.

As if this were not enough, these landowning corporations, and the ones who would be operating in these SEZs, also get all kinds of tax exemptions for the next five to ten years to come (What more, the Reserve Bank of India had stated that the revenue loss in direct and indirect taxes would be to the tune of Rs.900 billion by 2009/10). No doubt, India, with its current fiscal health, cannot bear this revenue loss; and the burden would invariably fall on the Indian middle class.

All in all, the entire Act in its current shape looks like a classic strategy for a pan-national loot. It is disgusting that we are still contemplating such an Act whereby only a handful of business houses gain and most of India loses. If SEZs are meant for development in the truest sense, then, instead of allocating land from the agricultural and developed peripheries of the states, why can’t the land be allocated in the most economically inactive regions, so that positive externalities not only benefit these regions, but also help in reducing the existing regional disparities? Even if the government is compelled to continue acting the way they are in some cases, why is it that land is bought over from the farmers and transferred to the private enterprise? Why can’t we follow the Chinese route where the State owns the land and develops the infrastructure and invites private enterprises to invest? Or why can’t we leave the ownership of the land with the farmers, whereby every farmer becomes the shareholder to the SEZ, so that like other stakeholders of the SEZ, with infrastructure development, the farmers too would gain in the longer run? And for those farmers who want to sell their land outright, why can’t the private SEZ guarantee employment of at least one member of the family with health insurance and education for everyone?

It is not that our honourable Minister of Commerce and Industry is ignorant of this ‘national loot’, but he is trying his best to rationalise it with his trickle-down rhetoric. But Sir, let me tell you that the SEZ Act, in its current form, can only trickle down loads of misery and pain for the economically, politically and socially poor of this country. The crux is: if the Chinese model needs to be emulated, then put the trickle-down theory in the back-burner and adopt the Chinese trickle-up approach. Just concentrate on creating purchasing power for people at the bottom and remove mass scale poverty. Prosperity would automatically trickle up. And then you don’t need to try so hard to chase investments. In fact, investments would chase you, as mass purchasing power by itself attracts investors. Sir, let not the SEZ Act be known one day to historians as the National Land Loot Act...


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