Sunday, October 15, 2006

`Allow them time to stabilise'


Interview with Union Minister Jairam Ramesh.

JAIRAM RAMESH, UNION Minister of State for Commerce.
When the Special Economic Zones Act was being discussed in Parliament in
2005, Jairam Ramesh, the present Minister of State for Commerce, was yet
to join the Ministry. But as a Congress member of the Rajya Sabha, he
had taken an active part in the debates on the Act and had even
cautioned against the possibility of the policy being misused by
real-estate racketeers who had no interest in the development of either
industry or infrastructure.

As the Commerce Ministry takes a series of steps now to advance the
policy, Jairam Ramesh is compelled to address those very concerns he had
expressed as a Member of Parliament, albeit from a different
perspective. Excerpts from an interview he gave Frontline:

A variety of issues have come up in the context of the Commerce
Ministry's initiatives to advance the SEZ policy. Players ranging from
the farming community to the Finance Ministry to the Reserve Bank of
India to the International Monetary Fund have questioned the direction
of the policy. What is your reaction?

One cannot dismiss these fears without addressing them. There is a fear
about revenue loss, which has been articulated very well. There is also
a fear articulated by industrialists like Rahul Bajaj that the policy
could lead to many normal units migrating to SEZ areas. There is also a
fear about diversion of prime agricultural land. We should certainly try
to manage the fallout of the SEZ policy initiative. But, there is no
merit in the argument that the Act should be scrapped forthwith. My view
is that we should give the SEZs some time to stabilise. The SEZs created
by converting existing free trade zones is not an operating experience
that one can go by. We have to wait for new ones to come up and be

What would be a reasonable time-frame to evaluate the effectiveness of
the policy?

I suppose that we should certainly review the policy if we do not have
much to show at the end of three years.

But there are fears that by such time the SEZs would cause revenue loss
to such an extent that it would virtually debilitate the economy. The
projections of the Ministry of Finance is that there could be a loss of
Rs.1,70,000 crores by 2010. This has virtually led to a clash of
Ministries in the United Progressive Alliance government.

Revenue would be lost, basically, if existing units are going to migrate
to SEZs. Rahul Bajaj points out that it is unfair not to put an export
obligation on the SEZs. Right now the condition is that the SEZs should
have only a foreign exchange positive. As of now, the fears of revenue
loss have been made on the basis of calculations on paper. And I am told
these differences between the Finance Ministry and the Commerce Ministry
on SEZs are not a new phenomenon.

The Finance Ministry has held the view, even during the time of the
National Democratic Alliance regime when the SEZ proposal first came up,
that this is reducing the cost of capital, that it gives an unfair
advantage to the IT [Information Technology] industry, and that it leads
to revenue loss. These differences should not be seen in terms of
personalities. The fact of the matter is that as a custodian of the
country's finances, the Finance Ministry is worried. I would not lay
great stress on the fact that perspectives are different. The stress
should be on addressing the various perspectives to form a creative

The Left parties have pointed out that there are differences between the
policy thrust of the SEZ Act and the way it is being advanced in
concrete terms. That the rules devised for the Act facilitate manoeuvres
in favour of corporate players.

I do not think that there is any difference between the Act and rules.
In fact, most of the questions that are being raised now had come up in
the Parliament debates on the SEZ Act. I had partaken in this debate and
warned specifically against the possibility of SEZs becoming real estate

There is also the land question - the corporatisation of agricultural land.

It is not the corporatisation of agricultural land but the diversion of
agricultural land that is the issue. The Congress president had also
referred to this aspect at the Chief Ministers' conclave in Nainital.
The premise is that food security is paramount, but at the same time
agriculture is not showing the kind of buoyancy it should show.

In such a situation, the diversion of prime agricultural land for
non-agricultural purposes must be done very very cautiously. I suppose
the specific suggestions that have come up from the Nainital conclave -
that of making farmers and agricultural labour force stakeholders in the
SEZs as well as ensuring adequate compensation for acquired land - need
to be taken up seriously.

But what is the point in merely telling this to Congress Chief
Ministers? Don't you think that the conclave should have come up with a
more concrete proposal involving the Central government too?

I agree that there is a shared responsibility for the State and Central
governments. But, I suppose given the awareness that has come about on
the farmers' issue, the governments as well as the corporate players
need to take measures that enhance their credibility. I would say that
it is in the industry's own interests to secure the participation of
land-owners, whether through ensuring jobs or making them shareholders.
This, of course, would need to be decided on the specifics of every
situation. Obviously, the projects that have showed some advancement,
like the Tata project in West Bengal and the Posco project in Orissa,
would be the first test cases.

There is also the fear now that the policy would intensify the
developmental imbalance between States.

That is the bigger issue as far as I am concerned. If SEZs are going to
create further difference between States it has to be addressed. I am
worried that a lot of SEZs would come up in infrastructure-rich areas.
The backward States may get some SEZs on paper, but not the real
significant ones. I would think that the Ministry and the government
have a responsibility to see to it that SEZ investments reach areas that
are not touched by the natural flow of private investments.

The other confusion, even among many promoters of the SEZ initiative, is
about the areas of industry and commerce that should be covered by the
policy. What is your perspective on this?

I would argue that the single most important benefit from the SEZ would
be stimulating investment in labour-intensive manufacturing. If that is
not happening, we should review the policy. If it is merely going to
promote IT investment, it is nothing great as IT would have developed in
any case, because we already have a competitive edge.

If the SEZs bring in big investments in textile, leather,
agro-processing, light engineering or consumer-oriented engineering,
then that would be worthwhile. The Nokia SEZ in Sriperumbudur (near
Chennai) is a good example of this kind of labour-intensive initiative.

I had been highlighting the importance of the manufacturing industry
right from the 1990s, when it was not fashionable to talk about the
manufacturing industry. I had asked how we could go from an agro-based
economy to a service-based economy without going through the
manufacturing evolution.

The fact of the matter is we have a weak manufacturing sector, if you
look at it as a proportion of the GDP (gross domestic product).

There is also the fact that our manufacturing sector is not absorbing
the surplus agricultural labour force. Had we done something about that
12 years ago, we would not be in this sorry situation.

It needs to be seen whether the special economic zones can become an
instrument to correct this.

So, even the Ministry does not have a clear perspective on the areas of
focus or the mechanisms to advance the policy.

See, this is a new initiative and there is no point in pretending that
we are know-alls. As Prime Minister Manmohan Singh has himself pointed
out, the important thing is to start working and learn while working.


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