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SEZs enter crucial phase

Besides land, there are many other contentious issues connected with the SEZs

PHOTO: MEENA MENON

FARMERS' CONCERN: Farmers from Vashi village, Maharashtra, who are opposing the SEZ.

WITH MORE than 230 of them sanctioned so far, special economic zones (SEZs) are no longer points of academic discussion in India. The implementation stage was always expected to be contentious, much more than the controversies surrounding the conception of SEZs. Land acquisition for the zones was always expected to pose problems but the magnitude of protests seems to have caught the authorities by surprise. Besides land, there are other contentious issues connected with the SEZs. These include preferential tax treatment (leading to revenue loss for the exchequer) and the fear that they may accentuate existing regional disparities.

The case for a uniform land acquisition policy, with resettlement and rehabilitation aspects thrown in, has never been stronger than now. But coming under State jurisdiction, formulating, leave alone implementing, such a policy by the Centre becomes impossible. Acquisition of farmland, especially for the purpose of developing SEZs (or for that matter any large industrial unit), is bound to be an emotional issue.

Naturally politicians of different hues have rallied against it. In Haryana which, because of its proximity to Delhi, has attracted a large number of SEZs, the main opposition has emanated from within the ruling party itself. Parties on opposite sides of the ideological spectrum have rallied against land acquisition from farmers. At the Nainital session of the Congress, no less than Sonia Gandhi cautioned against farmers getting a raw deal. That has really turned the spotlight on the SEZ land acquisition policies.

There have been only vague responses from the ruling party while (as yet) unspelt initiatives to induct the farmers in a "co-prosperity'' sphere have been aired. These are unlikely to mollify the opposition, either from the political parties or from the farmers themselves unless something more concrete is spelt out.

To be fair, Commerce Minister Kamal Nath, who has emerged as the main proponent of the SEZs, wrote to State chief ministers even before Ms. Gandhi's exhortation to her party men. The Minister had asked them to set up SEZs only in wasteland and non-agricultural land .If at all fertile land had to be converted into SEZs, it should not form more than 10 per cent of the total area.

It would certainly have been better if the Commerce Ministry had formulated a model land acquisition policy. In other areas too the SEZ policy appears to have been hastily conceived. Prior consultation with other Ministries (especially the Finance Ministry), other government departments and the Reserve Bank of India would have ensured a smoother passage for the SEZs.

Fears of revenue loss

As it is, the RBI fears of a revenue loss — some Rs. 170,000 crore over the next five years by way of income tax, excise and customs duties foregone (based on a NIPF study) — cannot be brushed aside. The Commerce Ministry has said that the overall tempo of economic activity, massive new investments as well job creation will more than offset the revenue loss.

One of the basic apprehensions over the SEZ policy — that it will encourage relocation of existing industrial units rather than promote new ventures — received a strong backing from Raghuram Rajan, IMF's Chief Economist, among others. The Government has promised to check this tendency and plug the loopholes.

Disparities may widen

The other basic criticism that the SEZs will further aggravate uneven economic development across India seems to be coming true. Going by the approvals so far, most of the SEZs are going to be around towns and cities already having developed infrastructure and in the relatively better off states. Haryana, Punjab, Tamil Nadu, Maharashtra, Gujarat and Punjab have among them cornered most of the SEZ approvals. Even within them, approvals have been for developments close to big centres. Thus, Gurgaon (Haryana) and Noida and Ghaziabad (Uttar Pradesh) have been popular because of their proximity to Delhi. In Andhra Pradesh, a number of SEZs are coming up in the proximity of Visakhapatnam with its well-developed port. That may make commercial sense for the SEZ developers. But one wonders what strategy a least developed State like Bihar should adopt to attract industries.

Jolt from RBI

The RBI's decision to classify bank lending to SEZs as loans to commercial property was not unexpected. That would make bank loans costlier. Some of the biggest names in the Indian real estate business — Ansals, DLFs, Rahejas and Unitech — are developing SEZs. One of the principal attractions for any developer is the real estate that will be available for conversion into malls, hotels and residential complexes that will be sold off. The Commerce Ministry has belatedly placed some restraint by restricting the acreage for non-industrial development.

A large number of approvals have been received for IT based industries. These are for small areas — 100 acres or less. The attraction for these industries that already enjoy income tax exemption until 2009 is to prolong the concession for another 30 years under the SEZ provisions. Given the nature of the IT industry one wonders whether additional jobs will be created using the SEZ route or for that matter fresh investments made in addition to those already planned.

Several State governments are emerging as large developers. Maharashtra, Gujarat and Andhra Pradesh are setting up SEZs. It remains to be seen whether the governments can be as savvy as private promoters in first developing the project and thereafter marketing it. Every bureaucrat worth his salt will be wary of giving approvals.

Almost certainly one scam or the other is bound to emerge sooner rather than later.

Official reaction thus far to lessen the controversies is to frame rules and otherwise micromanage the SEZ. In the end, that kind of response may defeat the very purpose of an SEZ.

Not to be forgotten, the opposition to SEZs is seen coalescing with other movements that have a larger agenda. There have always been some vocal opposition to large industrial projects, even though it is often made to appear as localised movements to help farmers who lose their land. In some states such as Orissa there has been a tradition of opposing industrialisation. It would be particularly challenging to get the several already approved projects, including those coming in through the SEZ route started.

C. R. L. NARASIMHAN

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