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Last Updated: Wednesday, 18 October 2006, 22:57 GMT 23:57 UK
Anger over India's special economic zones

By Karishma Vaswani
Business correspondent, BBC News, Mumbai

Indian Protestors
Not everyone believes special economic zones are a good thing

For Sadhu Pingre Dashrath, the journey to the city of Pune from his native village hundreds of kilometres away has been a long and arduous one.

A farmer for over 40 years, he is used to the sounds and smells of his native Maharashtran farmland. The hustle and bustle of one of India's newly industrialised cities is almost too much to bear.

But Mr Dashrath is very clear about his motives.

"I am here to join with my fellow farmers to protest against this plan by the government and big businesses to steal my land," he says.

"Do you know what they're planning to do to my land? They want to steal it at a fraction of the cost it's worth.

"They are offering me a tiny sum of money for it - and then they'll build buildings, malls and supermarkets on it - so they can sell it for much, much more. I will never give up my land, I'd rather die first."

His is a sentiment that was echoed by thousands of India's farmers who turned out in Pune recently to protest against India's special economic zones.

China's path

The Indian government is keen to develop tax-free trade zones across the country.

Special economic zones will attract investment to our state - they will create jobs for millions of our unemployed
VK Jairath, Secretary of Industries, Government of Maharashtra

But protestors have been increasingly making their views against the government's plans to attract foreign investment known.

They say special economic zones are an official way for Indian businesses to grab their land.

Special economic zones are not a new economic model by any means.

They have been used in China and South East Asia to attract foreign investment for the last few decades.

In fact, even India is no stranger to such zones.

Six years ago, India converted eight of its existing export processing zones into special economic zones.

But the zones have become a battleground of discontent, infuriating not only India's farmers, but also India's finance minister.

Lost revenues

P Chidambaram, or PC as he's known in India's financial circles, has voiced his reservations over India's special economic zones - but for very different reasons from India's farmers.

He says that special economic zones will encourage tax paying businesses to move to the tax-free zones - and will result in a huge loss of income for the Indian state.

His ministry estimates that India will lose around $40bn by 2011. This tax revenue is something India desperately needs if it is to plug its budget deficit.

But India's commerce minister, Kamal Nath, says that India will make $5bn from the special economic zones - and more importantly encourage foreign investors to come to India's shores and set up manufacturing units in the enclaves.

He says this will help to create much needed jobs for millions of India's unemployed young men and women.

Restrictions

Many Indian states are keen to set up special economic zones.

Prime Minister Manmohan Singh
India's Prime Minister is a supporter of special economic zones

The state government of Maharashtra, home to the Indian financial capital of Mumbai, will house Reliance Industries' mammoth town-sized zone.

Officials say the benefits that a special economic zone can create far outweigh any concerns.

"Special economic zones will attract investment to our state, " says VK Jairath, the Secretary of Industries for the Government of Maharashtra.

"They will create jobs for millions of our unemployed, we will provide businesses with fantastic infrastructure, and as for the criticism that we will lose revenue - that is incorrect.

"Under the laws, it's very clear that only new businesses can set up in special economic zones. So existing businesses can't just move their offices there to take advantage of the tax-free zones."

'Here to stay'

In theory, Mr Jairath's argument is sound.

However, many analysts say new foreign businesses would have come to Maharashtra anyway.

If it's a choice between Mumbai's creaking infrastructure, and a brand new complex which is tax-free, there's not much room for competition.

But India's leaders are convinced that the economic zones will bring much needed foreign investment into the country.

At a recent infrastructure conference, Prime Minister Manmohan Singh said special economic zones were here to stay.

Convincing India's farmers of their merit though, will be tough.


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