Conflict zones

VENKITESH RAMAKRISHNAN
in New Delhi

The Centre's special economic zone initiative evokes protests from
farmers and fears of a huge "land scam".

A discussion on special economic zones (SEZs) was certainly not on the
agenda of Prime Minister Manmohan Singh when he embarked on his four-day
trip to South Africa on October 1. The focus was on commemorating
Mahatma Gandhi's life and times in that country, with a special emphasis
on the Gandhian concept of satyagraha. However, the intensity and
expanse of the debate on the promotion of SEZs by the United Progressive
Alliance (UPA) government was so huge and striking that the issue chased
the Prime Minister even in South Africa. Mediapersons accompanying him
on the trip raised questions on the various aspects of the issue and the
Prime Minister responded with characteristic underplay. "SEZs have come
to stay, but they need to operate in a manner in which the concerns that
have been expressed can be dealt with," Manmohan Singh underlined, and
went on to explain the confusions and controversies surrounding the
promotion of SEZs as expressions of a functional democracy. He added
that they need not be perceived as a weakness of the system.

It was indeed a decorous attempt at rationalisation but whether it found
many takers, even within his Cabinet, is a moot question. For, the
promotion of SEZs has stirred unrest across the country starting from
farmlands - which are being acquired at a fast pace for SEZ projects -
to trade and industrial bodies - many of which have accepted the SEZ
policy in principle - to different Ministries in the UPA government.

Consider this. Lakhs of people from States as far-flung as Haryana,
Orissa and Maharashtra are engaged in a sustained agitation against the
"unjust" acquisition of their land for many SEZ projects. These
agitations focus attention on the potential massive displacement of
people from agricultural areas. They have also raised questions about
the kind of land that is being acquired for the SEZs and whether the
displaced are getting adequate compensation. The debate has become so
intense that UPA chairperson Sonia Gandhi and Union Agriculture Minister
Sharad Pawar have stated repeatedly that prime agricultural land cannot
be taken over for SEZ projects. Regardless of the Congress president's
views on the matter, Punjab's Congress Chief Minister Amarinder Singh
has said that he needs to promote SEZs to strengthen infrastructure. But
almost all the land in his State is irrigated and hence suitable for
agriculture. Reports from Pawar's home State of Maharashtra indicate
that big corporate companies promoting SEZs are taking over even fully
cultivated land.

Consider this too. The SEZ Act was passed in 2005 in the hope that it
would help build up infrastructure, promote exports, and enhance
employment generation. The Commerce and Industries Ministry, which
piloted the Act, states in its official documents that "SEZs are about
infrastructure creation" and that "infrastructure is not only roads,
ports and airports but also workplaces like industrial parks and
Information Technology (IT) parks". The Ministry's note states that an
"extremely critical element is that of social infrastructure, which
would constitute housing facilities and entertainment, etc".

B.MATHUR/REUTERS

MINISTER FOR COMMERCE and Industries Kamal Nath.

But the Finance Ministry says that the promotion of SEZs in the manner
in which the Commerce and Industries Ministry is doing now would cause a
revenue loss of over Rs.1,60,000 crores by 2010. The Commerce Ministry
responds by asserting that the Finance Ministry's projection of loss is
based merely on "paper calculation" and that the SEZs would actually
bring in investments amounting to Rs.100,000 crores by the end of 2007.
It also adds that there would be a net revenue gain of Rs.44,000 crores
and the creation of five lakh additional jobs.

When the two Ministries, headed by Congress leaders P. Chidambaram and
Kamal Nath respectively, clash in this manner, it is not surprising that
Rashtriya Janata Dal (RJD) leader and Union Rural Development Minister
Raghuvansh Prasad Singh terms the promotion of SEZs a "land scam".
According to him, the SEZs serve as a ploy to hand over huge tracts of
agricultural land to corporate bigwigs.

Parties supporting the UPA government from outside such as the Communist
Party of India (Marxist), and those opposing it, such as the Bharatiya
Janata Party (BJP), have called for a review of the SEZ Act, 2005.
Former Prime Minister Vishwanath Pratap Singh and the Jan Morcha front
led by him have called for a six-month moratorium on the implementation
of the Act, during which time new regulatory mechanisms would be put in
place for SEZs.

The Janata Dal (United), a constituent of the BJP-led National
Democratic Alliance (NDA) has gone one step further and demanded that
the SEZ Act be scrapped.

It is clearly a chaotic situation politically and administratively, and
yet the Commerce Ministry and the Board of Approvals (BoA) for SEZs,
which functions under it, are going ahead with the process of clearing
SEZ proposals, seemingly in a hurry. The clearance involves five stages.

In the first stage, an application received by a State government from a
private enterprise is routed to the Union Commerce Ministry after an
initial clearance at the State level. It is then placed "under
consideration"; this leads to "in principle approval" and "formal
approval". The final stage is the notification of the project.

By early October, the BoA had given "formal approval" to 181 SEZ
projects across the country and "in principle approval" to another 128.
However, tabulation by the Confederation of Indian Industry (CII) shows
that only 12 of the "formally approved" projects have been notified. As
many as 16 export trade zones, which had been functioning before the
passage of the SEZ Act, 2005, have also been categorised as SEZs now.
So, only about 30 of the 181 projects have built-up, functional
structures. Others are still in the run-up stage.

According to informal estimates based on proposals for SEZs, the total
land that has been acquired or would be acquired for formally approved
SEZs is to the tune of 30,000 hectares. The SEZ projects that have got
"in principle approval" and those that are "under consideration" are
expected to consume another 95,000 ha. This would mean a total of
1,25,000 ha - almost equal to the size of Delhi, which has an area of
approximately 1,40,000 ha. That is indeed exceptional statistics.
According to the Maharashtra-based SEZ Virodhi Sangharsha Samiti, the
quantum of land itself points towards large-scale displacement of people.

The Commerce Ministry, however, is undaunted by the figures. Commerce
Secretary Gopal K. Pillai maintains: "Not a single farmer has been
displaced by any of the 181 SEZs sanctioned." According to him, the land
for these was already in private hands or was with the industrial
development corporations of various States.

What is interesting in the context of his contention is that a project
like the Reliance SEZ in Haryana has not even come up for approval
before the BoA, though the State government has already offered Reliance
25,000 acres (10,000 ha) and even acquired some land. An office of sorts
has started functioning on this land. So what validity do BoA procedures
have when a SEZ promoter starts functioning without formal approval?

The Commerce Ministry admits that land acquisition has been going on
since 2002 for the SEZ at Dadri, promoted by the Anil Dhirubhai Ambani
Group (ADAG), and nearly 80 per cent of the land for the project has
been acquired and handed over. But the project has got only an
in-principle approval. What happens to the land if the project fails to
get formal approval?

The application for the 10,000-ha Mahamumbai Reliance SEZ in Navi Mumbai
is before the BoA. The BoA has also received various representations
against it and has reportedly told the company that it is acquiring "too
much land". It has also asked the State government to "look into the
matter". Such large-scale acquisitions have aggravated fears about SEZs
becoming instruments of real-estate racketeering. It is not clear what
authority the BoA will exert if Reliance persists with its acquisition
and the State government fails to "look into the matter".

The CPI(M) has called for legislative measures to impose a ceiling on
private holding of land for SEZs. Interestingly, Section 5(2) of the SEZ
Act, which addresses the issue of land acquisition, talks only about the
minimum land area requirements for different classes of SEZs. Not only
that, the Act provides for non-industrial use of 75 per cent of the land
in the possession of an SEZ developer. This is justified by the argument
that social infrastructure, which would constitute things like housing
facilities and entertainment, is extremely critical. Several political
leaders have pointed out that, in reality, this is an open licence for
real-estate racketeering.

The West Bengal government has, in keeping with the CPI(M) central
leadership's proposal, stipulated that the multi-product SEZs in the
State will use 50 per cent of the land for industrial use (see separate
story). CPI(M) general secretary Prakash Karat is of the view that the
stipulations brought about by the West Bengal government could well be a
model for correcting the anomalies in the SEZ Act.

But V.P. Singh and the Jan Morcha contend that stipulations on the use
of land are only one aspect of the land question raised by SEZs; the
more fundamental issue is government intervention in acquiring land for
private projects. "And unless this is stopped," he told Frontline, "SEZs
would not be true to the dynamics of market economy, a concept accepted
and advocated by all SEZ developers" (see interview).

Another disturbing dimension is the manner in which a large number of
SEZ proposals have come up in areas adjoining major urban centres. The
CII has noted that this is a cause for worry. A CII study has shown that
proposals for as many as a dozen SEZs have come up around Delhi and the
National Capital Region, including in places such as Gurgaon and Panipat
in Haryana and Ghaziabad in Uttar Pradesh.

But the functional problems of the SEZs are not confined to the use of
land. Even in terms of its larger goals, the SEZ initiative is bereft of
clarity. The Commerce Ministry's note talks about developing all kinds
of infrastructure - industrial, IT and social - while Jairam Ramesh,
Minister of State for Commerce and Industries, asserts that the focus
should be on labour-intensive manufacturing. CII president R. Seshasayee
is also essentially of the same view. In fact, Jairam Ramesh contends
that there is not much of a need for IT and IT-enabled services (ITES)
projects since India already has an edge in these sectors (see
interview). According to Seshasayee, "if the objective is export-led
growth, manufacturing-led growth and employment-led growth, then the
focus must be sufficiently on these activities".

And yet, a closer look at the projects that have been approved
"formally" and "in principle" in various States shows a marked
predilection for the IT and ITES sector.

Maharashtra leads in the number of "formally approved" projects with 39,
14 of them in the IT and ITES sector. Andhra Pradesh comes next with 29
approvals, and here too IT is the single largest component with 19
projects. Karnataka is third with 21 and has a whopping 18 projects in
the IT sector. The story of other States with fewer projects is not
different. Seshasayee said: "There is a need for a certain course
correction if it is found that SEZs are going towards IT predominantly."

The large influx of IT and ITES companies into SEZs has other
connotations too, in terms of labour laws and tax relaxation. Observers
of the IT sector have pointed out that more and more companies are
migrating to SEZs to benefit from the SEZ norms vis-à-vis labour.
Karthik Shekhar, general secretary of the Union for ITES Professionals,
a fledgling national trade union of IT sector employees, told Frontline
that in the background of the spate of attacks against call centre
employees in different parts of the country, the union had stepped up
demands for employee protection and other labour rights; and the
response of a large number of companies has been to move to SEZs.

Another factor motivating the "migration" of IT companies to SEZs is tax
concession. According to Rahul Bajaj, a doyen of India's automobile
industry, the current promotion of SEZs is impelling even established
industries to move into special zones. He feels that tax concessions and
other privileges extended to SEZ projects are steadily leading to an
unequal trade-industry regime, which is bound to be hazardous to the
country's economic health in the medium and long term. There is little
doubt that the present promotional scheme is marked essentially by a
resounding confusion.

Asserting that this confusion is a natural challenge in a functional
democracy may sound statesmanlike or even philosophical, but a solution
to the crisis caused by the SEZ initiatives would require concrete
steps, rather than moralising.

http://www.frontlineonnet.com/stories/20061020005000400.htm