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By Devinder Sharma
SEZs, with their special status and privileges, will operate much like the princely states of yore
It took nearly 15 years for India’s first home minister Sardar Patel to ensure that the 554 princely estates scattered throughout the country finally integrated with the new nation. Some 45 years later, and in the 60th year of India’s independence, almost an equal number of princely estates are being carved out once again.
A new breed of maharajas is all set to grab the crown.
The only difference is that the new ‘princely estates’ come within the gambit of a strange sounding acronym -- SEZ -- meaning Special Economic Zones. As the name suggests, these zones will enjoy special status, very special indeed. Except for floating their own currency, they will operate more or less like princely estates; they will even have special courts to try economic offences.
Doling out state largesse in the name of ‘production incentives’ -- it’s unfair to dub these subsidies -- SEZs will primarily be duty-free zones. Complete exemption from excise duty, customs duty, sales tax, octroi, mandi tax, turnover tax, as well as an income tax holiday for 10 years are some of the inducements. Also spelled out are provisions for 100% foreign direct investment, exemption of income tax on infrastructure capital funds and individual investments, and an assurance of round-the-clock electricity and water supply. The SEZ promoters have also been given a waiver from carrying out Environment Impact Assessments (EIAs).
Permission to indulge in commodity hedging, external commercial borrowings of up to US$ 500 million without any maturity restrictions, freedom to bring in export proceeds without any time limit and make foreign investments from it, exemption from interest on import finance, and setting up offshore banking units with income tax exemptions for three years (and subsequently 50% tax for another two years) are other financial enticements. And if the new maharajas sub-contract production to local manufacturers outside the princely estates, there will be duty drawbacks, exemptions from state levies, and income tax benefits.
All these exemptions will mean a revenue loss of over Rs 1.75 lakh crore (Rs 1,750 billion) to the state exchequer after five years. Although this staggering amount is enough to feed the country’s 320 million people who go to bed hungry for a number of years, or provide guaranteed employment to at least two members of every rural family for the next five years, this is a ‘small price’ that the nation must pay to keep the royalty tag for the rich and beautiful. In a way, what is being considered a revenue loss is, in reality, like the privy purse for the new maharajas.
The privy purse was a grant given to princely states after India’s independence in 1947. As part of the process of accession to the Indian union, privy purses were accorded in terms of measurement of revenue and potential of merging states. These privy purses, provided to some 400 princely rulers, were abolished by the then Prime Minister Indira Gandhi in 1969.
Legally authorised to disallow any inspection, search or seizure without prior permission, and with sanction to operate their own private security system, these princely estates will, for all practical purposes, be autonomous. That is how the former princely estates used to operate -- of course with the blessings of the British Empire. The new princes too enjoy the confidence of the ruling Congress-led UPA coalition. Moreover, with the National Democratic Alliance (NDA) and the left parties bending over backwards to seek a few amendments to support SEZs, the political backing is complete.
No wonder then that state governments are leaving no stone unturned to acquire agricultural land and offer it on a platter. With promises of ‘the right kind of environment’, many chief ministers are waiting with garlands in their hands. Take for instance the Haryana chief minister who specially flew to Mumbai to invite a top industrialist to set up shop in his state. The Gujarat government sent a team abroad to invite investments for SEZs. The Orissa government is moving one step further: it is seeking an amendment to the Scheduled Area Tribal Immovable Property Act, thereby allowing outsiders to come and buy up tribal land. Given a choice, both central and state governments would not hesitate to hand over prime land to industrialists like the Tatas, Ambanis, Mittals, etc.
Union Commerce Minister Kamal Nath has been going around seeking investments from European countries for SEZs. After all, he has the huge responsibility of ensuring that the prime minister’s dream of turning India into an international workshop becomes a reality.
You could call it ‘the biggest land-grab of the century’, or ‘open-loot’. And the powers-that-be remain undeterred. Prime Minister Manmohan Singh has repeatedly said that SEZs are the need of the day. No wonder agricultural land, which is a scarce commodity, is suddenly available in abundance. Unmindful of the fact that the per capita landholding is already an abysmal 0.25 acre, the government is using the draconian Land Acquisition Act 1854 to buy up any land it sets its sights on. In the first phase of clearances accorded by the government, a total of 1.25 lakh hectares of prime agricultural land is in the process of being acquired. In the second phase too, an almost equal area will be taken over.
It was only after a growing tide of protests that the commerce ministry asked state governments not to acquire agricultural land and to ensure that farmers got the prevailing market value for their land. The state governments are, however, eager to make land available to industry. In Punjab, where almost the entire state is irrigated, SEZs are being set up on prime agricultural land. The Punjab government is using repressive techniques to browbeat agitating farmers near Barnala who have been opposing the forcible acquisition of land for the private company Trident. Similarly, farmers have been agitating against the government’s moves to acquire fertile land for an SEZ near Amritsar. Although the rules forbid the acquisition of more than 10% of double-cropped area for SEZs, the fact remains that a majority of these ‘princely estates’ are coming up on fertile land.
Even in Himachal Pradesh, where the average farm size is about 0.4 hectares, the government wants to convert 35,000 hectares in the Kangra valley into an SEZ.
One of the biggest SEZs is coming up near Mumbai. Spread over 14,000 hectares, it is being set up predominantly on double-cropped land. The Mukesh Ambani group has already acquired 9,000 acres of land in Jamnagar for its petro-product SEZ. It plans, ultimately, to increase the size to 10,000 acres and to convert it into a multi-product SEZ. With provisions for owning 65% more land than is required, the government has provided SEZ ‘developers’ with an environment to build supermarkets, malls, restaurants, recreation parks and so on -- essentially it has given permission for the building of small princely estates. Out of the 1.25 lakh hectares allocated so far to SEZs, nearly 31,250 hectares can be used for real estate development. Real estate companies are obviously delighted.
Another major SEZ proposed in Jhajjar, adjoining New Delhi, is spread over 10,000 hectares and is, again, gobbling up double-cropped land. Interestingly, both these SEZs, proposed to occupy a landmass larger than the suburb of Gurgaon, are yet to be officially approved. In Mangalore, one of the promoters is the government-owned ONGC, and 2,200 hectares of double, even triple-cropped land are being acquired to set up the SEZ.
Take the case of the Tata Steel-promoted Gopalpur SEZ in Orissa. Originally acquired by the state government for a paltry sum, the land was handed over to the Tatas for a steel plant. When the plant didn’t come up, and farmers demanded that the land be returned, the company promptly proposed to convert the land into an SEZ. Korean steel giant Posco, which is also setting up a steel unit in Orissa, was given 1,600 hectares of land and exclusive access to an iron ore mine, despite massive protests by farmers. Posco now wants the land to be converted into an SEZ, and the state government is willing.
In another interesting example, the CPM government in West Bengal has acquired around 400 hectares of fertile land for the Tatas to set up an automobile factory at Singur, near Kolkata. Technically speaking Singur is not an SEZ, but what makes the deal politically significant is that though the state government acquired the land at a cost of Rs 140 crore, it has offered it to the Tatas for a mere Rs 20 crore. This is one-seventh the cost price. Even that can be treated as a loan for five years. Ironically, while poor rural women in self-help groups (SHGs) in West Bengal pay a minimum annual interest rate of 24% for microcredit, the Tatas will be charged a nominal rate of 0.1% for macrocredit.
In Kerala too, the communist government is gung-ho over the promise of SEZs.
The setting up of these princely estates is being primarily justified on account of employment-generation. The premise is that they will create 5 lakh job opportunities. But does this kind of employment-generation mean anything for India? This question has been conveniently ducked, and for obvious reasons.
Let us examine the ground realities. At the beginning of this century some 75 lakh people, more than the entire population of Switzerland, applied for a mere 28,000 low-paid jobs in the Indian Railways. For a country on the fast-track information highway, this is not very significant, except for the statistics. Even if you were to employ 5 lakh people out of the 75 lakh, it’s a mere drop in the ocean. Millions of assured jobs can be created if the total amount of revenue loss -- Rs 1.75 lakh crore -- and the several times higher public sector investment to follow, are used to generate employment.
Without discounting the achievements in information technology, the fact remains that IT has provided only 5-6 lakh jobs. The BPO service industry that we hear about every other day actually employs only 2 lakh people. A large number of IT companies applied to set up SEZs not because they intended to provide huge job opportunities but because they wanted to take advantage of the tax concessions. The tax exemption currently enjoyed by the IT sector comes to an end in 2009-10. Moreover, since existing contracts and employment can be shifted, it is quite likely that IT units will merely shift their operations into an SEZ, thereby nullifying claims of employment and revenue-generation.
With such large-scale diversion of land, the immediate most important impact will be displacement. Our estimates show that close to 1.14 lakh farming households (each household on average comprising five members) and an additional 82,000 farm worker families that are dependent on these farms for their livelihoods, will be displaced. In other words, at least 10 lakh people (twice the number of jobs that SEZs promise to create) who primarily depend upon agriculture for their survival will face eviction. The plight of farm labour is surely going to worsen, as they will not only witness their source of livelihood being taken away but will hardly have any employment opportunities in the princely estates. All they can do is stand outside the tall gates of the SEZ and dream of being born into such families in their next birth!
Now let us take stock of the annual loss in income for displaced people. According to the latest report of the National Sample Survey Organisation (NSSO 2005), the average income of a farming household is Rs 2,115 per month (income from cultivation -- Rs 969; farming of animals -- Rs 91; wages -- Rs 819; non-farm business -- Rs 236). Of these, income from the first two sources (Rs 1,060) will be immediately lost. Therefore, each farming household will lose Rs 12,720 every year. The total loss of annual income for the 1.14 lakh displaced farm families works out to Rs 145 crore. While most of these displaced farmers will earn more for their land, as several studies have shown, unless a rehabilitation policy is in place, a majority of these farmers will end up being further marginalised in the long term.
According to the National Rural Labour Commission, an average agricultural worker gets 159 days of work a year; according to NSSO (2005), the average daily wage of agricultural labour in rural areas is around Rs 51. Considering this, the estimated 82,000 agricultural labourer households will lose Rs 67 crore in wages. Put together, the total loss of income to farming and farm worker families is to the tune of Rs 212 crore a year. For the marginalised, this loss of income -- even if it hovers around the poverty line -- has disastrous implications. After all, that small piece of land is the farmer’s only economic security.
Food security too is no longer the national priority. Otherwise, no sensible government would have tinkered with the country’s dwindling ability to produce food for its own population. Our conservative estimates show that the nation will suffer a loss of Rs 250-Rs 400 crore from the reduction in area under cultivation of foodgrain alone. Foodgrain production is expected to drop by at least 4-5 lakh tonnes a year.(1) Remember, these are only conservative estimates. In case of land under high-value crops, the losses will be much greater.
Tall promises of employment-generation notwithstanding, who will be held accountable if the promise of job-creation remains unfulfilled? Firstly, the ministry of commerce has no true basis for telling us how many jobs will be created. It is merely a guess-estimate. Secondly, if experience is any indication, the real jobs that are added by the industries are only a minuscule amount of what they promise. Take the case of Pepsico’s entry into Punjab in the 1980s. The multinational giant promised to create 50,000 jobs. In reply to a 1991 parliamentary question, the ministry of food processing acknowledged that the company had created only 482 jobs, of which 210 were unskilled workers.
It is primarily to avoid embarrassment at a later stage for promises not kept that industrial houses are seeking the help of consultancy firms like PriceWaterhouseCoopers, Ernst & Young and Feedback Ventures, among others, to prepare master plans for the promoters. Basically, the job of these consultancy firms is to write proposals in the right format, using the right vocabulary so that it gets the government’s nod. At the same time, state governments too are using their services to ensure that land transfers do not invite un-necessary litigation. In essence, if you are rich and can afford to hire a consultancy firm to write a proposal on your behalf, you can aspire to be a modern-day prince.
It is therefore a free-for-all activity. If you can mobilise the necessary political support, you are assured of being on the right path to royalty. Whether you finally deliver what you promise is something that you can leave to the consultants to take care of. More significant is the fact that nowhere else in the world will you find a more pliable government and a supporting bureaucracy as in India, which not only helps you identify a place to set up your princely estate, but also provides you with all the necessary sops, support and protection.
In China, from where India drew inspiration, only six SEZs -- at Shenzhen, Shantou, Xiamen, Zhuhai, Hainan and Pudong -- have been set up so far. These economic zones, all in the public sector, came up after a lot of debate and deliberation. And all of them are situated along the coast. Faced with shrinking cultivable land, the Chinese SEZs have been built only on wastelands. In India, these norms have been thrown to the wind. There are only around 400 special economic zones the world over. If it were such a productive and useful activity, why has the world ignored the promises that Dr Manmohan Singh’s government has been making?
(Devinder Sharma is a New Delhi-based policy analyst. Bhaskar Goswami is his colleague)
InfoChange News & Features, December 2006
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