`Allow them time to stabilise'

Interview with Union Minister Jairam Ramesh.

When the Special Economic Zones Act was being discussed in Parliament in 2005, Jairam Ramesh, the present Minister of State for Commerce, was yet to join the Ministry. But as a Congress member of the Rajya Sabha, he had taken an active part in the debates on the Act and had even cautioned against the possibility of the policy being misused by real-estate racketeers who had no interest in the development of either industry or infrastructure.

As the Commerce Ministry takes a series of steps now to advance the policy, Jairam Ramesh is compelled to address those very concerns he had expressed as a Member of Parliament, albeit from a different perspective. Excerpts from an interview he gave Frontline:

A variety of issues have come up in the context of the Commerce Ministry's initiatives to advance the SEZ policy. Players ranging from the farming community to the Finance Ministry to the Reserve Bank of India to the International Monetary Fund have questioned the direction of the policy. What is your reaction?

One cannot dismiss these fears without addressing them. There is a fear about revenue loss, which has been articulated very well. There is also a fear articulated by industrialists like Rahul Bajaj that the policy could lead to many normal units migrating to SEZ areas. There is also a fear about diversion of prime agricultural land. We should certainly try to manage the fallout of the SEZ policy initiative. But, there is no merit in the argument that the Act should be scrapped forthwith. My view is that we should give the SEZs some time to stabilise. The SEZs created by converting existing free trade zones is not an operating experience that one can go by. We have to wait for new ones to come up and be operational.

What would be a reasonable time-frame to evaluate the effectiveness of the policy?

I suppose that we should certainly review the policy if we do not have much to show at the end of three years.

But there are fears that by such time the SEZs would cause revenue loss to such an extent that it would virtually debilitate the economy. The projections of the Ministry of Finance is that there could be a loss of Rs.1,70,000 crores by 2010. This has virtually led to a clash of Ministries in the United Progressive Alliance government.

Revenue would be lost, basically, if existing units are going to migrate to SEZs. Rahul Bajaj points out that it is unfair not to put an export obligation on the SEZs. Right now the condition is that the SEZs should have only a foreign exchange positive. As of now, the fears of revenue loss have been made on the basis of calculations on paper. And I am told these differences between the Finance Ministry and the Commerce Ministry on SEZs are not a new phenomenon.

The Finance Ministry has held the view, even during the time of the National Democratic Alliance regime when the SEZ proposal first came up, that this is reducing the cost of capital, that it gives an unfair advantage to the IT [Information Technology] industry, and that it leads to revenue loss. These differences should not be seen in terms of personalities. The fact of the matter is that as a custodian of the country's finances, the Finance Ministry is worried. I would not lay great stress on the fact that perspectives are different. The stress should be on addressing the various perspectives to form a creative direction.

The Left parties have pointed out that there are differences between the policy thrust of the SEZ Act and the way it is being advanced in concrete terms. That the rules devised for the Act facilitate manoeuvres in favour of corporate players.

I do not think that there is any difference between the Act and rules. In fact, most of the questions that are being raised now had come up in the Parliament debates on the SEZ Act. I had partaken in this debate and warned specifically against the possibility of SEZs becoming real estate projects.

There is also the land question - the corporatisation of agricultural land.

It is not the corporatisation of agricultural land but the diversion of agricultural land that is the issue. The Congress president had also referred to this aspect at the Chief Ministers' conclave in Nainital. The premise is that food security is paramount, but at the same time agriculture is not showing the kind of buoyancy it should show.

In such a situation, the diversion of prime agricultural land for non-agricultural purposes must be done very very cautiously. I suppose the specific suggestions that have come up from the Nainital conclave - that of making farmers and agricultural labour force stakeholders in the SEZs as well as ensuring adequate compensation for acquired land - need to be taken up seriously.

But what is the point in merely telling this to Congress Chief Ministers? Don't you think that the conclave should have come up with a more concrete proposal involving the Central government too?

I agree that there is a shared responsibility for the State and Central governments. But, I suppose given the awareness that has come about on the farmers' issue, the governments as well as the corporate players need to take measures that enhance their credibility. I would say that it is in the industry's own interests to secure the participation of land-owners, whether through ensuring jobs or making them shareholders. This, of course, would need to be decided on the specifics of every situation. Obviously, the projects that have showed some advancement, like the Tata project in West Bengal and the Posco project in Orissa, would be the first test cases.

There is also the fear now that the policy would intensify the developmental imbalance between States.

That is the bigger issue as far as I am concerned. If SEZs are going to create further difference between States it has to be addressed. I am worried that a lot of SEZs would come up in infrastructure-rich areas. The backward States may get some SEZs on paper, but not the real significant ones. I would think that the Ministry and the government have a responsibility to see to it that SEZ investments reach areas that are not touched by the natural flow of private investments.

The other confusion, even among many promoters of the SEZ initiative, is about the areas of industry and commerce that should be covered by the policy. What is your perspective on this?

I would argue that the single most important benefit from the SEZ would be stimulating investment in labour-intensive manufacturing. If that is not happening, we should review the policy. If it is merely going to promote IT investment, it is nothing great as IT would have developed in any case, because we already have a competitive edge.

If the SEZs bring in big investments in textile, leather, agro-processing, light engineering or consumer-oriented engineering, then that would be worthwhile. The Nokia SEZ in Sriperumbudur (near Chennai) is a good example of this kind of labour-intensive initiative.

I had been highlighting the importance of the manufacturing industry right from the 1990s, when it was not fashionable to talk about the manufacturing industry. I had asked how we could go from an agro-based economy to a service-based economy without going through the manufacturing evolution.

The fact of the matter is we have a weak manufacturing sector, if you look at it as a proportion of the GDP (gross domestic product).

There is also the fact that our manufacturing sector is not absorbing the surplus agricultural labour force. Had we done something about that 12 years ago, we would not be in this sorry situation.

It needs to be seen whether the special economic zones can become an instrument to correct this.

So, even the Ministry does not have a clear perspective on the areas of focus or the mechanisms to advance the policy.

See, this is a new initiative and there is no point in pretending that we are know-alls. As Prime Minister Manmohan Singh has himself pointed out, the important thing is to start working and learn while working.