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Treasure islands in a sea of poverty

By Aseem Shrivastava

From Nandigram in West Bengal and Jagatsinghpur in Orissa to Raigad in Maharashtra and Nandagudi in Karnataka, SEZs are being resisted with fury. Why? Because a small set of people derive the benefits, and a much larger set pay the costs

Treasure Islands

Almost no economic policy in independent India has raised as much controversy as the SEZ Act passed in 2005. Moreover, few policies since 1991 have been red-marked by the IMF, the World Bank, the WTO and the Asia Development Bank for one reason or another. Even The Economist of London, normally an aggressive defender of corporate interests, has written against it.

What is an SEZ (Special Economic Zone)? It is an especially demarcated area of land, owned and operated by a private developer, which is deemed to be foreign territory for the purpose of trade, duties and tariffs. Within it (with the intent of increasing exports), production can be carried out by investing companies under a large number of concessions -- tax exemptions, guaranteed infrastructure and the relaxation of labour and environmental standards -- which is what makes SEZs 'special'. It is worthy of note that India is perhaps the first country in the world to be experimenting with privately owned SEZs, which will make governance within them quite unaccountable.

The Indian economy has sustained an 8%-9% rate of economic growth in the past five years without SEZs. Why then are they seen as necessary?

It is deceiving to suggest that they are aimed at generating jobs. Modern industry and services are growing at the expense of jobs, thanks to rapid automation. (There is a lot of data.) In fact, they are taking away jobs from agriculture and related occupations. How many? We cannot say. No one knows. The government never gathers data on livelihoods lost (something for RTI activists to reflect on), only on jobs created. But estimates done by independent researchers suggest that upwards of 200,000 jobs may already have been lost due to displacement on account of approved SEZs, now close to 800 in number, occupying nearly 200,000 hectares of land across the country.

Are SEZs meant for exports, as Commerce Minister Kamal Nath claimed in an interview to this writer? If so, why is there such a minimal export target assigned to SEZs? They are only supposed to generate positive net exports every year. The reason for this liberal condition may have to do with the fact that imports into India are growing significantly faster than exports, expanding the trade deficit!

Will SEZs generate new infrastructure, as is being claimed by their votaries? Unlikely. SEZs are being created on fertile agricultural land, often multiple-cropped land. The reason is that this is where (thanks to decades of State and private investment by farmers) infrastructure is most readily available. (Why would a corporate developer like to develop infrastructure from scratch when he can have it readymade?) So it is not just land that SEZ developers are looking for, but also some pre-existing infrastructure and proximity to cities (which, again, is not coincidental: cities have historically evolved close to fertile regions and water). This contradicts the government's claims that SEZs will contribute to the country's infrastructure. More accurately, they will steal it from the farmers. And any infrastructure which is privately developed is likely to be captive for companies in the SEZ, not for the public outside.

Previous experience with SEZs

SEZs are not new to the subcontinent. They have evolved out of Export Processing Zones (EPZs), the first one in India dating back to 1965, when the Kandla EPZ started in Gujarat. They have also been experimented with in Sri Lanka and Bangladesh. According to the ILO, in the world as a whole there were over 100 countries with SEZs in 2002.

The Indian policymakers' recent enchantment with SEZs is a direct consequence of the perceived success of the Chinese model.

China's experiment with SEZs began in the 1980s. However, barring the notable exception of Shenzhen, which enjoyed the advantages of proximity to Hong Kong, there were hardly any other lasting successes. The policy was widely abused by developers (often bureaucrats themselves) to make quick and handsome gains on land deals, borrowing big sums of money from banks. Only when one of the big banks in Hainan went bankrupt did policy planners in Beijing wake up to the follies of the approach and pass legislation in 1998 to stop further conversion of land from agriculture to industry. The 'zone fever' died down and only five major SEZs survive in China at this point.

A few significant points need to be borne in mind when learning from the Chinese experience. Firstly, SEZs there have been owned and managed by the State. In India, the corporate sector is developing barricaded SEZs, exempting them from democratic accountability and transparency.

Secondly, SEZs in China have been large, making it possible for industries to seize scale advantages, especially in relation to infrastructure. Shenzhen, for instance, is 32,700 hectares in area. In India, the largest SEZ planned (and that too now exceeds the new limit of 5,000 hectares applied by the government) is the 14,000-hectare Reliance MahaMumbai SEZ. Contiguity of land ownership, a precondition for an SEZ, is very difficult to achieve in India where small amounts of land are held by a large number of farmers. This of course would not be a problem if the State and the corporate sector did not eye fertile agricultural lands for SEZs, something they have been doing with uncanny predictability.

Thirdly, SEZs may have enriched real estate builders and developers but they have brought few gains for ordinary Chinese except for the strange success of Shenzhen, whose export and employment record has impressed many. Ironically, it is exactly the Shenzhen experience that has induced the abandonment of the SEZ model because of "environmental destruction, soaring crime rates and the disillusionment and degradation of its vast force of migrant workers..." The Shenzhen recipe has been regarded by Chinese economic planners "as all but irrelevant: too harsh, too wasteful, too polluted, too dependent on the churning, ceaseless turnover of migrant labour". "This path is now a dead-end," Zhao Xiao, an economist and former adviser to the Chinese State Council told the New York Times.

So there are sobering lessons from the Chinese experience which are not discussed in the Indian business media.

What the above observations imply is that SEZs may bring lots of investments from abroad and from within the country, and lead to impressive growth figures, but their intentional contribution to the economic fate of ordinary Indians, like in China, is likely to be minimal. On the other hand, the unintended consequences of SEZs, resulting from the attempt to ensure land and resource prerequisites, are already huge.

One set of people pays the costs, another set derives the benefits. The environment, and all that rests on it, is wounded forever. Ten million mangrove trees have been cut from 6,000 hectares of coastal wetland in Mundra, Gujarat, to make way for the port-based SEZ. One of the largest waterfalls in India in Khandadhar, Orissa, will dry up once the POSCO SEZ comes up. Who can name an industrial project which can justify such massive violations of the earth?

The attraction of SEZs to the corporate elite

How do big business interests view SEZs? The answers are to be found in the peculiarities of the Indian situation and the utterly odd world in which our corporate and policymaking elites find themselves today. The economy has been growing at an internationally impressive 8%-9% for about five years now. Indian corporations have become globally mobile units, locating themselves in Eastern Europe and China, Bolivia and Equatorial Guinea, acquiring companies in Europe and North America, mines and oilfields in Africa, Latin America and Australia.

However, there is immense corporate frustration -- still -- right here at home in India. Some of the cheapest labour in the world is at their command. And yet, because of the inconvenience of democracy they can't be hired and fired in sync with the impulses of the business cycle, as happens in China. Some of the most readily accessible natural resources are at their disposal. Except that there is the nuisance of bureaucracy in the shape of clearance of industrial projects by pollution control boards and the Union Ministry of Environment and Forests. They have firm control over the hearts and minds of politicians. But from their point of view, there are still too many taxes to be paid. And so on.

SEZs offer a relief from all these hurdles. All that can't be attempted in the civilised world outside will be the norm within SEZs. American corporations routinely abuse labour and the environment in Shenzhen in ways unacceptable to the Western world (though few object to the cheap shoes and clothing). In India, SEZs will provide a profitable refuge from the Indian Constitution, an effective waiver from democracy. The development commissioner and the SEZ Authority will have overwhelming powers, making local, provincial, national and international laws all but irrelevant. 'Little Chinas' and Shenzhens will be developed. There will be protests from time to time, but so long as they don't all happen simultaneously, and too close to an election, one could 'move forward' in a stop-go pattern to accommodate the formal requirements of an electoral democracy.

This is what India Inc wants.

However, thanks to the policy not having been publicly discussed and consequences thought through clearly in advance, the central government has been reduced to a flip-flop on the issue for the past two years. After the haste of 2006 (when the SEZ rules took effect), when at one stage the Board of Approvals was clearing SEZ proposals at the rate of one a day, the government has been forced to slow down, especially after the Nandigram massacres.

The government's equivocation on SEZ rules is a good example of how policies are made, unmade and remade in this democracy. Policies are made in the shadows. The government implements them by stealth. People protest. Government appears to budge. Money whispers. The media feels sorry for the mega corps. Politicians nod. They wait for people to get tired. Soon everything goes back to where it started.

SEZs and real estate

For the Mundra SEZ, the Adanis got land at Rs 2-8 per sq m and have leased it at Rs 1,000 per sq m. Similar figures could be cited for acquisitions in Karnataka, Tamil Nadu, Andhra Pradesh, Haryana and elsewhere. Huge premiums are being earned for what is, effectively, land speculation.

Concessions (like the liberalisation of foreign direct investment in real estate), the rush of builders and developers to acquire SEZ land (they are building as many as half the SEZs), the fact that only 50% of the area under a multi-product SEZ has to be dedicated to processing (whose definition is stretched liberally to include everything from mining to agriculture), the fact that industrialists are all too often being granted land well in excess of their production requirements (whether Tata in Singur or Reliance in Dadri) -- all point in the direction of an engineered real estate boom through SEZ growth. Real estate majors find the markets valuing them much higher if they have launched SEZ investments. Huge amounts of capital, especially private equity, are pouring into the real estate market, both from within India and abroad. Returns of 30%, 40%, even 100% in many segments of the market are becoming common -- making the Indian real estate market one of the most attractive places for global finance capital to invest in.

Not without reason has the RBI classified loans for SEZs as "real estate lending", with various restrictions on the loans made.

Political implications

SEZs will inaugurate a fresh chapter in the privatisation of governance. To serve their purpose they will have to be run quite differently from the rest of the province in which they are geographically located. It might be a bit like the centralised rule under which union territories in the country function -- minus the local elections. Given that every SEZ Authority will be made up of the development commissioner, three officers of the central government, and two representatives of the private developer, there will be no elected local government drawn from state legislatures, town councils or local panchayats. Nor will there be any labour welfare officers. What's to prevent a corporate oligarchy emerging from such a cabal of ruling officials?

Many of the SEZs, like the MahaMumbai SEZ (to be built by Reliance Industries), are planned like a mid-sized city, over 100 sq km in area (the size of Chandigarh). The development commissioner and the SEZ Authority will govern the area with the main aim of facilitating economic growth. Infrastructure, like power, roads and water supply has been guaranteed to investors and developers, not to the people of the region. Several lakh people may one day be living/working inside the SEZ. All the non-economic laws of the land under the Indian Penal Code (IPC) and the Criminal Procedure Code (CrPC) would be formally applicable to SEZs. However, internal security will be the responsibility of the developer. Will the SEZs turn ultimately into sovereign city-states -- treasure islands of prosperity in a sea of poverty and misery -- unaccountable to the vast majority of citizens in the neighbourhood?

If erstwhile rural areas are going to be reclassified as urban, it is not clear whether SEZs will fall under the jurisdiction of the village panchayats or the city municipality. What is clear is that SEZs being developed by a private party will be outside the purview of town planners and gram sabhas alike, and will be run exclusively by the SEZ Authority. This, as has been noted widely, is a violation of the 73rd and 74th amendments to the Constitution which guarantee, respectively, constitutional status to urban local governance and panchayats. It has implications for the rural poor who will stand to suffer most from regional environmental damage (like the drying up of groundwater) but are helpless to prevent it. The Chinese SEZ city of Shenzhen, with a devastated hinterland, is a warning poster on the wall.

Further, entry into (physically bounded) SEZs will be regulated by identity cards, making them even more inaccessible to the people of the region. Artificially creating a 'foreign territory' within the geographical boundaries of the nation undermines constitutional rights like freedom of movement.

SEZs have been declared 'public utility services' under the Industrial Disputes Act. This, as mentioned earlier, transfers all the powers of the state labour commissioner to the development commissioner of the SEZ -- who will arbitrate in any labour issues or disputes in the SEZ area, even as he is obliged to further the goals of the SEZ: growth and profit-making above all.

A most dangerous precedent that is being set by the SEZ policy is the raw, unabashed conflation of private and public interest. Within SEZs, given their 'public utility status', shopping malls and golf courses, luxury apartments and multiplexes will be treated on a par with roads and streetlights, schools and hospitals. All of these things constitute one or another form of 'infrastructure', exempt from taxation.

In all countries (especially in the Western world), and in India hitherto, the aims of corporations -- maximisation of profits, market share, growth -- have been rightly regarded in law as private objectives which have to be distinguished sharply from public goals. SEZs, however, offer us a keyhole view into the future desired by global corporate lobbies. They can be seen as a pilot experiment in real time and space, with real people, with a new political order: the autonomous corporate city-state.

The surrounding sea of human misery and squalor is bound to give rise to repeated and violent rebellions. Which is why private armies of security guards are being trained and readied for approaching inevitabilities.

The alternative?

For the country to pay such a high cost for a growth policy that will yield benefits to an already wealthy minority is neither desirable nor politically feasible. Protests against SEZs sprang up soon after the policy began to be implemented in 2006. From Nandigram in West Bengal and Jagatsinghpur in Orissa to Raigad in Maharashtra and Nandagudi in Karnataka, SEZs have been and are being resisted with fury. Recently, the Goa government was forced under popular pressure to cancel SEZs in the state. It is unlikely that in this election year they will pass the political test in most states without fierce resistance.

There is an alternative vision -- founded in an effectively audited implementation of the National Rural Employment Guarantee Act (NREGA) and the Right to Information (RTI) Act -- which can tackle within a short period of time long-standing problems of mass unemployment and poverty in India. It can even co-exist with a selective engagement with the global economy. In fact, it is possible that such an engagement may be politically feasible in the future only if the so-called reforms (which have hitherto enriched the rich without trickling down much) are thus 'humanised'. A 'two-track' structure of economic policy may be the only thing viable in the short run.

Through effective implementation of the NREGA, for which viable financing schemes are not too difficult to think of, several goals can be reached at once. First, mass unemployment and poverty in the country can be eliminated within the foreseeable future. Second, by putting purchasing power in the hands of the poor, the domestic market for industry will increase, creating a sustainable spiral of growth for the macro-economy. Third, through the public works programmes that the rural poor will carry out, infrastructure (like roads, irrigation, etc) can be developed. Fourth, urgent environmental programmes (such as watershed development, afforestation and soil conservation) can be undertaken to face the rapidly deteriorating environmental predicament that the country is facing. Finally, by generating employment in villages, the policy will stem the tide of distress migration to the cities, relieving the burden on urban infrastructure and public health.

Not only are SEZs not a requirement for such a policy framework to be effective, they will militate against it.

(Aseem Shrivastava is an independent economist based in New Delhi.)

InfoChange News & Features, April 2008