Industrial development calls for innovative ways to co-opt land owners
Posted online: Thursday, January 25, 2007 at 0000 hours IST
The government’s announcement of a review of the policy on
rehabilitation of land-losers in SEZs indicates the complexity and
contention involved in land utilisation and industrialisation in a
densely-populated, poor country like India.
Two major criticisms have been levelled about the prevalent SEZ policy.
By the first, the government should change the overall policy and legal
environment to promote economic activity, instead of creating islands
free from regulatory obstacles. This is a valid point in principle. But
in a vast and diverse democracy, changing the policy and legal
environment for the whole country is easier said than done. Such
far-reaching changes, however desirable, are time-consuming, and involve
painstaking negotiations and long-term engagement to build a consensus.
Therefore, using the investment in SEZs as a short-term economic booster
is a sensible policy tool, provided it presages a long-term change in
the investment climate.
The second criticism is that the incentives offered are excessive and
inequitable, and will entail revenue losses. A closer examination shows
that SEZ incentives are largely the same as those available to
export-oriented units. The one exception is that SEZ units can
participate in trading activities. It makes sense that these economic
incentives should be uniform throughout the country, while other
policy/regulatory incentives will, of necessity, be applicable to
notified SEZs for the time being. The loss of revenue on tax-incentives
is notional, and the argument that the additional investment growth and
jobs will more than offset this loss is reasonable.
In addition to these, there are five operational issues which need to be
addressed. First, what kind of land should be acquired for SEZs? The
government policy is both fair and reasonable. The government says that
mainly waste land and, if necessary, single crop agricultural land alone
should be acquired. Location-specific industries (port-based, for
example) may sometimes require valuable agricultural land. Otherwise,
the stated policy should be strictly enforced. The claim that loss of
cultivable land will undermine food security is exaggerated. Conversion
of 100,000 hectares of land, or even more, would reduce farm land by
less that 0.1%. With the decline in share of agriculture in GDP, greater
industrialisation and shift of occupations are both necessary and
inevitable. India cannot continue to be a largely agrarian economy if we
harbour ambitions of rapid economic growth and global power status.
Second, should land for SEZs be bought on market principles or acquired
by compulsion through state power? The land acquisition law and past
precedents do permit the state to acquire land for a company for a
‘public purpose’, and industrial growth does qualify as such. But it is
preferable to encourage private purchase through market mechanisms
including negotiations and bidding. However, there are occasions which
warrant state intervention. For instance, a recalcitrant owner of one
critical but small piece of land can thwart the whole project by
demanding an abnormal price or refusing to sell. In such cases, land
acquisition may be the last resort, and even then, the price should be
fixed through negotiations rather than depending on earlier registered
sales deeds (declared sale prices are often undervalued).
Third, how do we ensure that land losers have stakes in SEZs?
With the huge real estate boom, even 10-20% of the land would fetch the
owner multiple returns relative to the original compensation
Mere ‘compensation’ at current market prices is insufficient if the
asset value could appreciate significantly. Land losers suffer the
heartburn of relative deprivation as values skyrocket, and their
neighbours benefit from their sacrifice.
One elegant and equitable solution would be to treat part of the land as
equity in the project. In addition to the normal compensation, the land
owner could have right of owning a part of the developed land in the
SEZ. This could be about 10% in industrial projects, and 20% in
infrastructure projects. With the huge real estate boom, even 10-20% of
the land would fetch the owner multiple returns relative to the original
compensation. Such equity stakes will make SEZs attractive to the land
Fourth, displaced people need to be imparted with skills that could have
them absorbed in these SEZ projects. There exist successful precedents.
In 1985-86, a massive project was undertaken to train 8,000 youngsters
from the displaced families of the Visakhapatnam Steel Project, and all
of them are now productively employed. It took some effort, of course. A
national programme of training unemployed youth in India is overdue in
any case, and SEZs should be the starting point. Once SEZs provide local
employment, much of the resistance will disappear.
Finally, how do we integrate SEZs in the local governments, even as
their autonomy is assured? In AP, in 1996, the industrial infrastructure
corporation created a viable and successful model. Local entrepreneurs
were handed over the management of the industrial estate, and were given
the authority to raise service charges (‘taxes’) from the units/plots in
the area. An agreement that was struck between the local government and
the industrial estate transferred 30% of the taxes raised to the
municipality. In effect, the industrial township subsidised the
municipality, while quality of services and local autonomy stayed
intact. Such an innovation would be ideal for SEZs.
There are bound to be some losers in any growth process. But with
sensitivity, openness and innovation, we can grant stakes in growth to all.
—The author is coordinator of Voteindia; Email: firstname.lastname@example.org