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Last Updated: Monday, 2 October 2006, 15:12 GMT 16:12 UK
Economic zone plans polarise India

Paranjoy Guha Thakurta
By Paranjoy Guha Thakurta
India economic analyst

India's intention to set up a slew of Special Economic Zones (SEZs) is being vigorously opposed by an unlikely combination of interest groups.

Indian farmers
There are fears that the economic zones will eat up prime farmland

Politicians of the extreme left and right have joined with representatives of the International Monetary Fund and the head of India's Central Bank to oppose the SEZs.

So why are they - and a wide cross-section of other people - so opposed to an initiative that on paper at least provides for special export-promoting industrial areas with superior infrastructure facilities and tax concessions?

The enclaves are meant to showcase the country's manufacturing prowess and its burgeoning services sector, especially its world-class enterprises in the area of information technology.

'Economic hardship'

They are the brainchild of India's centre-left government - led by Prime Minister Manmohan Singh, who began India's economic liberalisation process in the early 1990s.

[The SEZ policy is the] biggest land grab movement in the history of modern India
Historian Sumit Sarkar

Critics of the proposed SEZs say that rather than promote prosperity, the zones will in fact create economic hardship because they would be built on prime agricultural land, without adequate compensation for farmers.

They say that the zones would become "islands of affluence in a sea of deprivation", only serving to exacerbate India's already wide regional imbalances.

The communists - who provide crucial "outside" support to Mr Singh's minority government - lay emphasis on the farmers' interests, arguing the case strongly for more compensation.

Their view is shared by some senior members of the government, including Sonia Gandhi, widow of former Prime Minister Rajiv Gandhi and head of the Congress party. She said recently that the government must safeguard the interests of the farmers "under any circumstances".

All this puts great pressure on Commerce and Industry Minister Kamal Nath.

Mr Nath's critics also include the Finance Minister, Palaniappan Chidambaram, who has publicly stated that he fears the central government could stand to lose billions of dollars of tax revenue because of the special concessions given to firms that will operate in the SEZs.

South Korean steel giant POSCO's headquarters in Seoul. India has approved POSCO's multi-billion-dollar plan to set up a special economic zone in the eastern state of Orissa.
181 zones approved by September 2006
Areas range from 10 to 100 hectares
Industries allowed 100% tax exemption on export profits for first five years
100% foreign direct investment allowed in industries under automatic route
Andhra Pradesh, Maharashtra, Haryana and Gujarat states lead in proposed SEZ commitments

Mr Nath argues that new economic activity generated by the zones would more than compensate the government for revenue lost from tax-breaks.

The SEZ act was passed by parliament last year, but became controversial after the Commerce and Industry Ministry released detailed rules and guidelines.

Critics of the government said these rules should have been finalised before granting approval "in-principle" to the SEZ projects.

The first export processing zone - or free trade zone as they were earlier known - in Asia was built near the western Indian port of Kandla more than four decades ago.

But things have changed a lot since then, and the authorities say that they want to emulate the success of SEZs operating in Shenzhen and Pudong - in Hong Kong and Shanghai respectively.

Both have become huge urban agglomerations of concrete and steel, and both have generated huge amounts of cash. Each year, exports from Shenzhen alone exceed India's total exports.

Unlike China, which has developed only six large export-oriented industrial areas, the Indian government has approved the establishment of over 170 SEZs and many more are in the pipeline.

Retaliatory measures

Most of these are clustered around already-industrialised cities like Delhi and Mumbai (Bombay).

The government contends that India's democracy makes it difficult to allow one corporate group to set up a SEZ and not another. They argue that India's proven capabilities in exporting computer software and outsourcing mean that smaller SEZs are more appropriate.

But critics say that the policy would be misused for real estate development rather than for generating exports.

They argue that companies will simply relocate to SEZs to take advantage of the tax concessions being offered. This would not create new jobs, they say, but merely displace people.

Others point out that the tax subsidies being offered by the government may well be challenged in the World Trade Organisation, and could attract trade retaliatory measures from importing countries.

While state governments, including the communist-led West Bengal government in eastern India, have joined the rush to set up as many SEZs as possible, local authorities are under attack for brokering land acquisition deals that benefit real estate developers rather than farmers.

Relatives of farmers protesting in India
Many Indian politicians fear farmers will suffer

The clamour of criticism has forced Mr Nath to backtrack in some cases. His ministry has changed a number of guidelines relating to the acquisition of fertile land and on the space allowed within SEZs for the construction of housing, shopping malls and recreational outlets.

Much to the chagrin of the Commerce and Industry Minister, the Reserve Bank of India has directed all banks lending money for projects set up in SEZs to charge higher interest rates - similar to those paid on loans advanced for commercial real estate development.

Historians like Sumit Sarkar describe the SEZ policy as the "biggest land grab movement in the history of modern India".

But where earlier movements were led by the poor to acquire land, this time round it is the rich that want to "grab" land belonging to poor farmers.

As the government continues to change its rules on SEZs, opposition to their establishment is unlikely to diminish in the near future.

If you have a comment on this article, please use the form below.

Why doesn't the government simply focus on providing basic amenities to the people like water, health, primary education, power and roads? Controlled economic growth would lead to more disparities rather than creating an equitable society. Let the economy grow naturally and be handled by the private sector, as happened in the software industry, where things moved because of 8 hour time difference between India and USA.
Madhu, India/US

We should make the approval process more stringent, where applicants for any particular SEZ must prove that they intend to carry out that SEZ's specific business (textiles, IT, biotech, etc) and generate a stipulated number of jobs. This will sift out real estate developers that don't intend to serve the purpose the SEZ was created in the first place (to spur jobs, economic growth, etc).
Nikhiel Silva, New York/Bombay

India cannot continue to protect its farmers if it wants a modern future. Modern countries do not have a large percentage of their workers farming out in the field. The ones who do find that it is expensive as they divert billions of dollars from industries into farm subsidies. India must avoid such a future. The solution is to compensate farmers for their lost land, but not with other farm plots as their future is with manufacturing and technology.

I am an Indian living in Hong Kong and have seen the economic progress of Shenzhen and Hong Kong prosper by the way of the SEZ.The idea of SEZ is good.But I don't understand why instead of starting with a few we have gone to take all eggs(181 SEZs) from the basket.Also the success of Indian SEZ may be delayed.....if the infrastructure of roads,communications systems and proper networking of goods to the exports ports is not set up.Whats the use of setting up SEZ when the goods manufactured by Indian ftys will take days to clear the red tape and be exported.
Kalpesh, HongKong,China

The Indian Government and each State has a history of not paying for the kand acquired under many statutes. In Kerala, land acquired 40 years ago from Brahmins in Palghat under the land Ceiling Act is yet to be paid. It is a very small amount but the politics in Kerala is so unjust and uneven, some sections have to suffer. Brahmins even though a microscopic percentage of the total population (less than 1.5%) is totally ignored in all development programmes. The reservation policy also makes matters worse. It is high time that a separate authority is constituted for taking over land for government or private projects which ensures fair price and ready payment of the price of land acquired in a time bound manner.
S Krishnamurthy, Quilon, India

Critics who are saying that SEZs is a land grabbing programme, should also see the growth rate of agriculture, which stands at 3.2% against 11% for manufacturing activities. If we can't leverage our fertile land for agricultural use better make it more productive with manufacturing activities, atleast people will get jobs.
Viki Shah, Usa

SEZ's are favoured and in vogue even today in many countries and we have seen the benefits in China. The issue is not if to go the SEZ way. But rather to what extent and what moderation. SEZs currently setup are being taken up by huge industrial business groups and are doing it more for rela estate benefits. Also are the SEZs contributing to exports? Most businesses are only relocating there rather than creating new businesses. The issue is to open it up in moderation and also to restrict the size. Also the government should participate by investing a stake in the same.
Vijay Bysani, Chennai, India

Some people will oppose the government irrespective of what it does. One shouldnt take these people seriously. India needs these SEZs, farmers can be better compensated. India wants to become a big power and SEZs will add muscle to India's economic status.
Ashok, Chennai, India

The report is appropriate and timely. After making a great deal about it being the people party, I hope the congress government does something more than just making politically correct noises - like scrapping the entire SEZ plan. Apart from the issue of reasonable compensation, such schemes tend to deprive the less privileged population of infrastructural needs such as electricity, water and transport and only set off frenzies in the real estate market and the construction industry.
Rajaram, Hyderabad, India

I am from the state of Andhra Pradesh which is allocating lot of lands to build SEZs. The idea is good but there are lot of loopholes in its implementation. Proper justice is not done to the poor farmers from whom government is taking (should I say grabbing) the land. In Indian villages, the entire family works in the fields for their livelihood. The government is paying a meagre amount for this lands, while not showing these uneducated people how to earn money elsewhere. India's quest to compete with China shouldn't forget the basics - more than 80% people live from the land, and by building SEZs on fertile land, it is neglecting its hardworking farmers.
Lavanya, Worcester, MA, US

The first priority should be infrastructure development. You don't need tax incentives to get people to produce more, just lesser government interference. Less of red-tape and bureaucracy will go a long way. Rather than make a few SEZs, every part should be serviced enough by infrastructure so that they become can become competitive production zones/ markets. People should have a choice of whether they want to farm, manufacture, or jump on the service bandwagon. It is not correct for a democracy like India try and emulate the measures taken by a communist China.
Srivatsan Iyer, DC, USA

The overzealous approach of Mr Kamal Nath is sure to backfire and result in - (a) Poorer farmers; (b) Richer unscrupulous real estate developers and power brokers; (c) regional developmental imbalance by neglecting the small towns and promoting SEZs near the already developed metros like Mumbai, Delhi, etc. where the infrastructure is crumbling at a scary pace. The compensation to poor farmers should be not only in terms of money, but also by providing them and their children free education, health care, water, electricity and other basics of life.
Kumar D Kapasi, Mississauga, Canada

Five to six SEZs are required. These should be focussed and clear compensation should be paid. Clear performance objectives in terms of infrastructure and investment returns must be defined. 181 SEZs is just a diluted land grab in my opinion
Ajit Matthew, Bangalore, India

I fully agree with the critics, SEZs are being exploited by corrupt politicians and developers to fill their pockets. They pretend to make farmers happy by paying them a token amount. But for India, it is a great loss of agricultural land. Poor infrastructure planning worsens the value of created SEZs. It is an approach to make quick money for only a small number of people.
Paresh Shah, Pune, India

India needs these SEZs. There should be a fair acquisition plan which is properly implemented. So far though. the government's record in this area is very poor. My parents' property was compulsorily acquired in 1993, and they haven't received full compensation even now.
Rajesh Alluri, Harrow, United Kingdom

I think the SEZs are the only solution left for further industrialisation. Yes some farmers will lose their land. If they are to avoid losing out, the government can make a rule not to displace the farmers completely from their dwellings, and leave them with some land whose price will rise once development in the area takes place. This can be seen as a sort of farmers' investment fund. Industries can also reserve jobs for locals. The government can levy some taxes on SEZs for a period of 25 years, and money acquired will be spent solely to provide monetary help to farmers. In the short term, SEZs are the only solution if we are to avoid the huge expense required to upgrade our infrastructure.
Madan Kumar, Brussels

In a democratic country like India there will be people with different opinions. The key is to work out how most effectively the land can be utilised. Most of the SEZs planned are around major cities where farming is not a prime activity. If you travel towards Delhi you will see miles and miles of land hardly used. The same is the case with Mumbai (Bombay) and Hyderabad. If this land is utilized for SEZs then it has got to be a positive development. If one acre of farm land can generate employment for 10 people while SEZs can generate employment for 1,000 people, in a country of one billion people like India they definitely make sense.
Ashish Shukla, London, UK

The problem here is allowing the establishment of so many SEZs. Is it not better to start small, and if the concept works, then expand it? There is no such thing in life as a free lunch. I just hope that SEZs work out well for Mother India.
Hirsh Singh, Newark, New Jersey, United States

SEZs are not a bad idea in themselves. However, it is essential that governments in Indian states put in place reasonable and satisfactory arrangements to compensate local farmers for land acquired. Also, state governments should do as much as possible to encourage industrial and technological investment, rather than just allow speculative property development on the newly-acquired land.
Shouvik Datta, Incheon, South Korea

Let's upgrade the poor infrastructure of existing industrial zones and declare them as SEZs before we start worrying about creating new areas. The government should invite direct investment in existing zones, and make them competitive. Presently the infrastructure is poor in these existing zones and the industries there are in run-down condition due to local levies and exorbitant taxes. All this alongside talk of a "world class infrastructure" for SEZs.
Shafiq Ansari, Mumbai, INDIA

It is evident that the abnormal appreciation in real estate prices surrounding the SEZs has made them powerful magnets for the elite and powerful in India. Very little thought is given to those from whom the land is taken or "bought" and those that sustain their livelihood on that very piece of land. When agricultural land is converted to SEZs, strict norms must be put in place to ensure that at least 25% of the future revenue collected from these zones is allocated purely for the education, socio-economic development and rehabilitation of those that are displaced. It seems that we almost always reward the well-placed and powerful with tax incentives when they least need them, while we penalise those at the bottom of the ladder least equipped to deal with the upheaval. This is the perilous road to sharper economic disparities that India must avoid.
Trivikram Nileshwar, Rochester, MN, USA

Clearly, the government needs to promote trade and industry strongly and create a large manufacturing base in this country. To compete with players like China in the manufacturing sector SEZs are vital. And obviously to build such large projects and in such numbers there will involve the displacement of people. People should be adequately compensated and relocated. It's just petty politics by the BJP and the left that's hampering the progress of SEZs and has nothing to do with land grabbing.
Dipesh, Kolkata, India

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