SEZs — Stop the runaway train

The concept is a dangerous force that aligns self-interest in a particularly intense manner
 
RAMESH RAMANATHAN
Posted online: Tuesday, September 26, 2006 at 0000 hours IST
 
       
 
 
 I wrote an article in this publication a few weeks ago that was critical of Special Ecomomic Zones (SEZs). Among the responses were a surprising number from professionals in the corporate sector — those who were involved in working on SEZs. And their sentiments were deeply disturbing: without exception, the common refrain was that the SEZ idea was a runaway train, and that it was using the singular, concentrated force of greed and self-interest to rip open the land market in the country.
An executive from one of the big four consulting firms told me: “I advice my clients on succeeding in being a part of these SEZs, but I am selling my soul.” Another lawyer said: “Unfortunately, it’s the biggest money-making opportunity we have ever seen.” A senior IT industry executive said: “I agree that it’s a land scam, and it shouldn’t be happening. But we ourselves are bidding for them, because we can’t be left behind. I have my shareholders’ interests to protect — they would tell me, ‘You want to be Gandhi, don’t do it on our money’”. So much for Munnabhai.

I consider myself a middle-of-the-road person: I believe in the potential of the market, but also in an affirmative state that regulates the market vigorously and transparently. I recognise that public policy choices are not black-or-white, and need to balance various views, while always keeping the citizens’ and the nation’s interests in mind. But for the life of me, I cannot figure out the compelling argument for SEZs in India. Their stated benefits are debatable.

On the promise of job creation, five lakh jobs is too trivial a target for the incentives being provided — close to 50,000 hectares of subsidised and clean-title land, leaving aside the tax-breaks. These jobs — and more — could surely be created through other, cheaper means. On catalysing economic development, there is little credible evidence that SEZs actually make a difference by themselves, unless accompanied by a slew of accompanying actions.

I have tried to educate myself by talking to people, and reading up material related to SEZs. There are some successful examples across the world, and there is apparently far greater understanding today of the conditions to make SEZs more effective — one trend seems to be to make them bigger, with more mixed utility—almost like private cities with their own,individual governance environment.

Even supporters of SEZs concede: “When evaluating the success of an SEZ, it is important to determine how the resources would have been used in the absence of the zones. Would capital have remained in the country and would employment be created in more productive areas? When there has been a failure to put in place adequate legal and regulatory frameworks, and a trained administration to oversee its correct implementation, the cost of SEZs outweigh the benefits since the benefits, such as job creation, are short-term and considerable amount of existing revenue is lost through avoidance.” This comes from a World Bank site on debate about SEZs.

Shenzhen, arguably among the most ‘successful’ of China’s SEZs, raises more questions than answers for us. A sampling: “The costs to the state for developing Shenzhen will not be recaptured until probably the second decade of the 21st Century. The size of the net loss was projected in 1990 to be US $131 billion by 2003.” (Wu, China’s Shenzhen Special Economic Zone, 1990). “Early on, manufacturing took on the most important focus. The following few years saw more real estate speculation than industrial development. Speculation in the property market has been ‘little short of anarchic’” (Studwell, Unlocking China: A Key to Investment Regions). I looked up the list of countries that have SEZs: Brazil, China, Hong Kong, Kazhakstan, Leichtenstein, Monaco, the Philippines, Russia, Singapore, Sri Lanka. I thought of India’s buzzword in Davos 2006, when we made the big splash — “The world’s fastest growing democracy”.

Examine our august SEZ company when it comes to this qualifier: there is not one mature, functioning democracy in that list—with Kazhakstan, we are really scraping the bottom of the barrel. So have we reduced democracy to a tagline now? There is an old proverb— “cross the river by feeling the stones”, meaning, do it carefully. As we gingerly tread the path to economic prosperity, our democracy is what is holding us together. We do have a system of checks and balances—however inefficient it may seem to an outsider or a layman.

Clearly, there is an urgent national economic imperative, especially given our demographics, and what seems like an opportunity to capitalise on the current momentum. But we are also beginning to slowly rip apart into two countries, with the naxalite movement spreading across more than 30% of the districts. There is an 85-km barrier fence with check-points that separates Shenzhen SEZ from the rest of Shenzhen municipality. Is this what we want our cities to look like, walled-off economic fortresses? These boundaries will become the contested terrain of conflict between the two Indias, one globalised and competitive, the other left behind, with no tools to participate and only the rage of disaffection. This is besides other distortions, like the the use of fertile agricultural land for non-agricultural purposes, or skewed spatial planning outcomes.

I have a great deal of faith in the sensitivity of our business leaders to know that they are aware of this. But the SEZ concept is a dangerous force that aligns self-interest in a particularly intense manner, and corrodes checks-and-balances, as the earlier statements from those involved in these structures shows.

So, if the executive and legislature have failed us, should we — as we are beginning to do with increasing regularity–––turn to the judiciary? If this be so, I hope that an effective case is made, because I am not sure that we can afford the price that SEZs will extract. This runaway train must be stopped.

—The writer is founder of Janaagraha. He can be reached at ramesh@janaagraha.org