Monday, February 05, 2007

Think `SDZs', not SEZs


P. V. Indiresan

Had the Government thought of creating Special Development Zones instead
of the Economic Zones, and created better educational, medical,
communication, municipal and other facilities of direct value to people.
Had it explained to the people that just to pay for those amenities, it
is establishing a Public-Private Partnership and bringing in major
industry, then the SEZs, or rather SDZs, would have been met with much
enthusiasm, not scepticism, says P. V. INDIRESAN.

In spite of the euphoric success of the Tatas in the Corus takeover,
they are facing painful opposition to their mega projects in Bengal and
Orissa. The vast reputation the Tatas have has not been good enough for
them to prevent bruising political damage.

Sad to say, and truth to tell, the problem has arisen because of the
poor reputation of the governments that have invited the Tatas to
invest. Association with Tatas should have enhanced the reputation of
those governments. Instead, the poor reputation of the governments has
rubbed off on the Tatas. It is like laying a flower garden next to a
coal yard: The coal yard does not become more beautiful, but the garden
definitely becomes dirty.

Villagers are not blind to the advantages of modern developments of this
nature. They are unhappy because few of them will become as prosperous
as the company employees. In projects of this nature, living conditions
within the company campus are excellent. Immediately outside, slums are
what people get. The difference in quality of life is difficult to
accept; it creates jealousies. The important point is not how good a
campus you build for your employees, but how good is the habitation in
which you embed your industrial plant, how equitable the proposed
development will be ultimately.

On a retreat

The kind of problems the Tatas are facing is even more acute in the case
of Special Economic Zones. Opposition to the SEZs has been so fierce,
scepticism within the government itself so high, that the Government has
been forced to beat a hasty retreat.

Goldman Sachs may predict that India will be a larger economy than the
US in a few decades. Such predictions smack of the pronouncement of a
mathematician that nine crows will remain when one of the ten crows
sitting on a tree is shot. The way social conditions are deteriorating,
the country may become rich but not necessarily better.

By year 2050, will there be more slums or less? Will water supply be
better or will it become worse? Will the country be a safer place to
live or will it be more dangerous? Will rich-poor, rural-urban disparity
decrease or will both increase? Answers to such questions do not hold
out much hope for a distinctly better future. That is the subconscious
reason why power-mad politicians are able to get large sections of
population to obstruct even worthwhile programmes of industrial
development.

Suppose the Government had described these projects as Special
Development Zones and not Special Economic Zones. Suppose it had
explained its primary objective as creating better educational, medical,
communication, municipal and other amenities of direct value to people.
Suppose, it had explained that, in order to pay for those amenities, and
only for that reason, it was establishing a Public-Private Partnership
and bringing in major industry. Then, the same projects would almost
definitely have been met with much enthusiasm, not scepticism.

Open to all

The Government should have placed in front social service providers —
reputed entrepreneurs in education, healthcare and the like, and let the
industrialists follow in their wake. Instead of big industries building
fancy campuses to which outsiders will have no admission, they should
have located themselves in the midst of an attractive habitation open to
all. Then, the employees would have shared those amenities with their
neighbours; they would have made those facilities viable by
cross-subsidising them.

There is a story of an old teacher of Akbar who sought out the Emperor
seeking some favour. He found Akbar praying, "Allah! I am a poor devotee
and grant me favours." That set the teacher thinking; he started moving
out just as the Emperor came in. When the Emperor asked his teacher why
he was going away, he said: "I realise you too are a beggar. I will seek
favours directly from your donor than try to get them indirectly from
another beggar like you."

The present situation is similar: The Tatas would have been wiser if
they had gone directly to the people and had not asked the Government to
intercede on their behalf. In the villagers' view, any business that
does so is a tax-avoider enriching itself at their expense. The tax
shelters that businesses seek are prominent; the benefits they may
provide are intangible. The same scheme, promoted in a different way,
and at no extra cost, could have been welcomed with open arms.

A different approach

It would have helped if the project had also paid more attention to
agricultural needs. Instead of seeking one large chunk of land that
would inevitably include large fertile areas, investors could have
collected smaller patches of low-value land, as small as a 100 acres or
less, as and where they were easily available. That would have saved
considerable expense.

What is more that move would have muted the criticism of
environmentalists. Further, in case any farmer proved uncooperative, the
project could have been moved somewhere else where farmers are more
receptive. That prospect of the investor going away would have set a
competition among the farmers to cooperate than extract a monopoly price
the way they are doing now.

Monopoly, even in the hands of farmers, is bad. It cannot indicate what
the proper price is; only competition will do so. Hence, the present
impasse will not be resolved by offering farmers more. However high the
price paid, farmers will have a lingering suspicion they were diddled,
that they could have extracted an even higher price; they will never
feel satisfied. The Government would have gained greater political
advantage if it had organised the programme in the form of a Special
Development Zone and not merely a Special Economic Zone.

Industry would have profited better if it had emphasised harmony and
participative welfare. Both should have realised that the bottomline
should factor in political costs. Unfortunately, our governments and
business houses know, as Oscar Wilde said, the price of SEZs but not
their value (rather lack of it).

The direct approach

All middlemen evoke mistrust. If State governments were wise, they
should stop acting as middlemen and let investors negotiate with the
farmers directly.

In turn, investors should work with service providers and make consumer
amenities the primary focus. They should develop the SDZs as modern
habitations and not as mere industrial estates. They should also confine
themselves, as far as possible to land of low quality. As a thumb rule,
in every SEZ, services should generate at least twice as many jobs as
industries do. Then villagers will recognise the full benefit of an SEZ,
nay, an SDZ.

I am not suggesting that the Government should remain passive. It can,
and should, provide valuable support by contributing what it only can —
connecting roads for instance. In extreme cases, it should even acquire
land — for instance, when the odd farmer turns recalcitrant and
obstructive. Even then, as a matter of self-discipline, it should limit
such acquisition to no more than 10 per cent of the total.

The essence of democracy lies is self-restraint; in governments
exercising power, in not making a naked exhibition of it. Failure to
observe this basic discipline has turned many useful projects into
political liabilities; negated whatever financial profits they would
have provided.

Therefore, to paraphrase President John F. Kennedy, whether you are
administering a government or managing a business house, ask not what
farmers can do for you; ask what you can do for them.

(Concluded)

(This is 193rd in the Vision 2020 series. The previous article was
published on January 22.)

(The author is a former Director of IIT Madras. Response may be sent to:
indiresan@gmail.com)

http://www.thehindubusinessline.com/2007/02/05/stories/2007020500590800.htm

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