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Farms or factories?

By Darryl D'Monte

At a heated debate in Delhi recently, Union Commerce Secretary G K Pillai presented the government's justification for SEZs. But the central question remained unanswered: how can India's 630 million farmers transition to other occupations?

An otherwise even-tempered debate on the pros and cons -- mainly the latter -- of Special Economic Zones (SEZs), organised recently by the NGO Kalpavriksh and Panos South Asia, in Delhi, ended on a somewhat acrimonious note when speakers and participants took strong exception to remarks by Dr Jayati Ghosh, the economics don from Jawaharlal Nehru University (JNU).

Dr Ghosh mentioned that industrialisation was inevitable, given the low productivity of agriculture and uneconomic landholdings, which appeared to imply that she was justifying the CPM's line on Singur and Nandigram. She protested that as someone who had actually put her hand to sowing rice, she had found it back-breaking. This didn't assuage the wrath of many present, although she clarified that she wasn't opposed to industrialisation per se but the kind of pattern that was being adopted, after making out a reasoned case against SEZs.

Presumably, environmentalists and grassroots activists believe that agriculture can prove sustainable, provided the State invests sufficiently in it. For instance, irrigation by itself would make a world of difference, not to mention remunerative prices for produce. Among the elite, there is certainly an antipathy towards agriculture, which is contributing a decreasing percentage of the country's GDP. It contributed 21% of GDP in 2001, but now has a share of only 17%. Many see this as a global, historical trajectory, where farming makes way for factories -- or, more currently, the services sector. And yet, since 60% of the employment is still in agriculture, the question is: how does this transformation come about?

Having heard an impassioned presentation by the Kolkata-based activist and filmmaker Sumit Choudhury, who has been involved in agitations against Nandigram and Singur, those present were not in a mood to countenance a position that might possibly have been construed to mean that the forcible or market-led displacement of farmers was necessary in the national interest. But Dr Ghosh was probably being misinterpreted. She might have meant that industries should emerge from the needs of the rural population, rather than being imposed on them by the State or private investors, domestic or foreign. The catch, though, would be that this sector has no investable resources -- indeed, farmers in certain pockets are committing suicide -- to initiate such a process. Only by raising agricultural productivity, through land reforms and better inputs, will there be a demand for such industrialisation from below.

The meeting was fortunate to hear from Union Commerce Secretary G K Pillai the government's justification for SEZs. By 2005, he pointed out, there were seven SEZs initiated by the government and 10 by the private sector, whereas between 1965 and 2004 there had been less than Rs 3,000 crore invested in such ventures. He saw this as "catalytic" investment, which would generate 280,000 jobs, which was only the beginning. Out of 201 SEZs notified, 100 were functioning and the government expected 6 lakh jobs in them.

Manshi Asher, a researcher, cited how out of 439 proposed projects, 138 had been approved in principle. These comprised an area of 1,820 sq km and something in the region of Rs 70,000 crore was expected to be invested in the projects. However, 255 of them were in IT, which itself employs less than 2 million people in the country as a whole. A few years ago, Finance Minister P Chidambaram deplored the fact that by 2015 the national exchequer stood to lose more than Rs 175,000 crore through the enormous tax concessions on these ventures.

At a meeting in Chennai, organised by the Australian High Commission a few months ago, Narendra Pani, who has returned to academics after working as an Economic Times journalist for a few years, narrated how the Asian financial crisis, in some senses, began with what might roughly be considered the equivalent of SEZs in Indonesia. The government provided huge concessions to investors, who set up these industrial and real estate projects. They were influenced by the tax write-offs rather than by actual market research, and they discovered to their dismay that there wasn't sufficient demand for these facilities from industrialists. This put them in debt and they borrowed heavily from banks, which started a dizzy spiral that finally ended in the collapse of the currency and triggered a financial crisis throughout the region.

Although India is a much bigger market and can withstand shocks of this kind to a larger extent than Indonesia, this is by any reckoning a cautionary tale.

Pillai was anxious to dispel what he termed misconceptions regarding SEZs. The allegation that these constituted "foreign territory" was not strictly correct; it was only for purposes of customs duty, since these were exempted enclaves. As for the other allegation that labour laws didn't apply in SEZs, he clarified that even the central government could not liberalise such laws. It would be worthwhile scrutinising this claim, which, on the face of it, does appear somewhat disingenuous. While it may be difficult to sack someone arbitrarily, surely the bulk of the workers in an SEZ would be on contract, which makes it easy to do so at the end of a given period. What's more, it would not be easy to form a union since the laws pertaining to SEZs are quite different from the rest of civil society (in any case, unions everywhere are on the back foot).

According to Pillai, environmental clearance is also not done away with. He specified that out of 60,000 hectares acquired, 40,000 had been acquired by the government before the SEZs came into effect. The Maharashtra Industrial Development Corporation (MIDC), for instance, had itself acquired 60,000 hectares. In Goa, industrial parks had been envisaged in 2001-02. However, after Nandigram, in January 2006, there is no longer cavalier clearance of some 40 SEZs per meeting by the empowered committee. And the very fact that there is a cap of 5,000 hectares for an SEZ speaks for itself. After April 2007, the government can no longer acquire land for private SEZs.

The government, only due to concerted opposition to this ill-conceived scheme, has also restricted the amount of real estate activity in SEZs by doubling the minimum area reserved for processing industries, from 25% to 50%. As much as 40% is also required to be earmarked for "green areas", "social infrastructure" and the like. However, here again, there are misgivings that under this pretext, golf courses and other private recreation facilities might be included in such a provision since, by definition, the public won't have access to areas within the SEZ. And what about housing for employees? The Infosys campus in Bangalore employs around 10,000 people, but not a single house has been built for them. All these details only reinforce the allegation that SEZs are a bonanza for investors, given the 10-year tax holidays and other excessive concessions.

The price at which land is acquired is the central issue. The government claims that the price is determined by the purchase value of land within a three-kilometre radius, rather like urban properties are valued by the last or latest sales in the vicinity. A study conducted of an SEZ in Sriperumbudur showed that a hectare was purchased for Rs 5 lakh versus one-tenth of this value for land falling outside the project. However, after completion, it is now priced at Rs 85 lakh, which only underscores the need to give those farmers or tenants whose lands were acquired a stake in the future development as well. Obviously, the promise of jobs for displaced people alone will not work because they lack the skills required for the new industry or service. At best, there will be a minimal number of unskilled jobs for local people.

Aseem Shrivastava, who has taught economics at several universities and is now an independent writer, drew a parallel between SEZs and the return of "enclosure capitalism" since the late-19th century in England. When that country was industrialising, land was scarce, unlike in the US. For successive decades, land was appropriated by the rich -- the annexation of "the commons" for various industrial and infrastructure projects.

The Chinese precedent was also not correct. There is the impression that China has succeeded with its SEZs, considering that there are 7,000-8,000 of them in that country. However, after 1998, the wheel turned full circle, despite the Shenzen free trade zone near Hong Kong, China stopped setting up any more SEZs.

The second crucial issue, after land acquisition, is the creation of employment. According to one survey cited by Shrivastava, there will be only 20 million farmers by 2020. What will happen to the rest? The government's Economic Survey for 2007 shows that while there were only 26.7 million people in the entire organised sector (consisting of white and blue collar workers in the manufacturing and service sectors with regular employment), the number actually fell marginally to 26.4 million by 2004, a good 13 years after the economy was liberalised. This is less than 10% of the entire workforce. The truth of these statistics is borne out by the situation in Mumbai which, since the early-1980s, has faced a steep decline not only in the cotton mills but also chemicals, petrochemicals and other manufacturing industries, including those owned by MNCs. In 1990, Tata Steel nation-wide had 85,000 workers who produced 1 million tonnes of steel; by 2005, they produced five times that quantity with only 45,000 workers.

Unfortunately, there is official data only on employment, not on jobs lost. As Shrivastava pointed out, global forces determine the choice of technology and the pattern of employment, of which SEZs are the most blatant form of exploitation.

The big difference in the UK and Europe was that during their industrialisation they had colonies. This meant not only that they obtained natural resources from these countries but also labour (slave or indentured -- typically, Indian labourers in the sugar plantations of the West Indies), markets and investment opportunities. India, by contrast, is a democracy where severe forms of exploitation of the poor shouldn't be practised. Nandigram points to how India is the first country in the world to industrialise within a democratic framework: by contrast, China is very much an authoritarian society. In the West, it was a more organic process, and India is fooling itself if it thinks that it can leap over this without imposing terrible costs on the poor.

Pillai tried to allay the fears of participants by pointing out how the SEZ called Sri City in Nellore, which is spread over 5,000 hectares, has a human resource centre that provides training to unemployed youth and has so far benefited 980 people. Similarly, Gems Park in Hyderabad hired 2,800 unemployed people at Rs 2,500 a month. In Appachi, Nellore, youth were trained for six months to work with leather in manufacturing sports shoes. Nokia too provided jobs at between Rs 4,000 and Rs 4,500 a month. He further cited how central laws needed to be amended to create jobs. Lawyers' services amounted to Rs 650 crore a year in the country, while the "business" totalled $ 200 billion globally. Lawyers couldn't hire more than 20 persons in a firm, which restricted their scope. Pillai comes from Kerala where, as health secretary years ago, he had to deal with five medical colleges. By 2001, there were 16. As another instance, Indians spend $ 4 billion on educating their children abroad. With some more flexibility in the system, Pillai believes -- such as paying teachers higher salaries and raising students' fees -- the country can tap into this market by setting up top-class educational facilities at home. But how all this addresses the central questions posed by SEZs remains unclear: how will India witness the transition of 630 million farmers to some other occupation?

Arun Kumar, another economist from JNU, underlined these apprehensions by citing how, according to RBI figures for 1990-91, every unit of output produced in the large-scale sector generated one job, whereas in the small-scale sector it generated six jobs. And yet, as everyone knows, the small-scale sector has been virtually decimated by the lowering of import duties on a range of goods. The same employment scale operates on large versus small farms. Every job in the new industries that are being approved displaces 30 people, directly and indirectly. For the Tata car factory in Singur, every job called for an investment of Rs 2 crore, versus an investment of only Rs 1.5 lakh in agriculture. Agriculture also has very high backward and forward linkages -- for such skills as carpenters, blacksmiths and potters. When farmers are displaced by industrial or infrastructure projects, these artisans vanish without a trace. Is it any wonder then that while corporate tax contributed only 6% of the GDP in 2001, it now accounts for 21%. And corporate tax is paid by 0.1% of the population, which just about sums up the highly unequal development that SEZs represent.

InfoChange News & Features, March 2008