India Business
SEZs: Government must clear misgivings before moving ahead
May 6, 2007 - 1:10:23 PM

The controversy over the Special Economic Zones - appears to be unending with the latest agitation at Nandigram highlighting the depth of feeling in this country over these new entities. The disturbances have taken place even though West Bengal has dropped the idea of SEZs for Nandigram and Singur.

The clashes between a committee set up ostensibly to protect farmers from land acquisition and cadres of the Communist Party of India-Marxist show that the political fallout of the launch of SEZs will continue to rock the country for some time to come.

Despite these incidents, the United Progressive Allainace - government is going ahead to clear setting up of SEZs though modifications are being made to the original concept.

It must be recalled that it was former commerce minister Murasoli Maran who initiated the idea of setting up these special zones in India after a trip to China. He visited the vast SEZs located in that country which became economic engines to fuel the export effort of this giant trading nation.

The zones have special laws of their own. Workers can be hired and fired at will in these areas. Besides, extra special tax incentives and infrastructure facilities are given for units located in them.

But the SEZs now being set up here are vastly different from those in China. Firstly, the area covered by the zones here is much smaller than in that country where the special economic zones are virtually little integrated townships.

Secondly, the freedom to hire and fire workers has not been given to corporates and the normal laws of the land will prevail in these areas. Thirdly, though the SEZs in India are smaller, a much larger number of them have been cleared for implementation.

Apart from the SEZs being dissimilar in many ways, what is even more important is that these are being set up in a country where dissent cannot be stifled as it is in China.

The ambitious plans of policymakers in the commerce ministry did not take into account the strong feelings of farmers towards acquisition of arable land. Though the contours of the SEZs were debated for several years, the issue of buying land for manufacturing units that is still cultivable was evidently not raised in the discussions within the government. And the entire SEZ proposal has floundered on this sensitive issue.

Even within the government, there have been differences over the concept. As soon as the SEZ scheme was announced, Finance Minister P. Chidambaram obliquely hinted that the SEZs had more to do with real estate than industrial development. The governor of the Reserve Bank of India, Y.V. Reddy, was clearly of the same view when he said loan terms for SEZ developers would be on the same lines as for real estate development.

Prime Minister Manmohan Singh, however, appeared to share Commerce Minister Kamal Nath's view that the SEZ could be become an engine for economic growth and employment.

The doubts of the naysayers were ultimately proved correct when a small district in West Bengal, Nandigram, went up in flames as farmers protested against cultivable land being acquired for a chemicals hub in the region.

Simultaneously, the Tatas proposal for an automobile project at Singur in the same state faced similar opposition from farmers though it was made clear that this was not an SEZ.

The fact is that the entire policy was flawed in many respects from the outset. This included the failure to lay down guidelines in terms of infrastructure development as well as the decision to make government responsible for land acquisition.

Much needed changes have now been made in the policy. Terms and conditions have been stipulated about the kind of infrastructure activities that will have to be set up by the SEZ developers within the zone. These guidelines should enable the system to weed out developers who may have been viewing the zones as a huge real estate opportunity, as was hinted by the RBI governor.

The other major change is that corporates have been allowed to make land acquisition on their own, which means that the level of compensation being paid to farmers will rise steeply.

One issue that has yet to be addressed, however, is the sheer numbers of SEZs that have been approved. As many as 100 SEZs have so far been notified to be finally set up out of the 234 formally approved by an official committee. If so many SEZs are to be set up, then the tax incentives meant for these special zones might as well be extended to industry in the rest of the country.

Even so, the SEZ scheme has definite plus points. These include the impetus to output in a zone meant to exist without any bureaucratic red tape. In addition, there is the employment factor. Rural areas are starved of jobs as employment in agriculture is limited and the SEZs can come as a boon for a skilled and semi-skilled labour force.

Clearly, it is a scheme for which the time has come, but the government will have to rapidly clear the misgivings over the concept both at the political and at the grassroots level. Otherwise, more such Nandigram-style incidents may be in the offing.


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