Conflict zones

The Centre's special economic zone initiative evokes protests from farmers and fears of a huge "land scam".

VENKITESH RAMAKRISHNAN in New Delhi

A discussion on special economic zones (SEZs) was certainly not on the agenda of Prime Minister Manmohan Singh when he embarked on his four-day trip to South Africa on October 1. The focus was on commemorating Mahatma Gandhi's life and times in that country, with a special emphasis on the Gandhian concept of satyagraha. However, the intensity and expanse of the debate on the promotion of SEZs by the United Progressive Alliance (UPA) government was so huge and striking that the issue chased the Prime Minister even in South Africa. Mediapersons accompanying him on the trip raised questions on the various aspects of the issue and the Prime Minister responded with characteristic underplay. "SEZs have come to stay, but they need to operate in a manner in which the concerns that have been expressed can be dealt with," Manmohan Singh underlined, and went on to explain the confusions and controversies surrounding the promotion of SEZs as expressions of a functional democracy. He added that they need not be perceived as a weakness of the system.

It was indeed a decorous attempt at rationalisation but whether it found many takers, even within his Cabinet, is a moot question. For, the promotion of SEZs has stirred unrest across the country starting from farmlands - which are being acquired at a fast pace for SEZ projects - to trade and industrial bodies - many of which have accepted the SEZ policy in principle - to different Ministries in the UPA government.

Consider this. Lakhs of people from States as far-flung as Haryana, Orissa and Maharashtra are engaged in a sustained agitation against the "unjust" acquisition of their land for many SEZ projects. These agitations focus attention on the potential massive displacement of people from agricultural areas. They have also raised questions about the kind of land that is being acquired for the SEZs and whether the displaced are getting adequate compensation. The debate has become so intense that UPA chairperson Sonia Gandhi and Union Agriculture Minister Sharad Pawar have stated repeatedly that prime agricultural land cannot be taken over for SEZ projects. Regardless of the Congress president's views on the matter, Punjab's Congress Chief Minister Amarinder Singh has said that he needs to promote SEZs to strengthen infrastructure. But almost all the land in his State is irrigated and hence suitable for agriculture. Reports from Pawar's home State of Maharashtra indicate that big corporate companies promoting SEZs are taking over even fully cultivated land.

Consider this too. The SEZ Act was passed in 2005 in the hope that it would help build up infrastructure, promote exports, and enhance employment generation. The Commerce and Industries Ministry, which piloted the Act, states in its official documents that "SEZs are about infrastructure creation" and that "infrastructure is not only roads, ports and airports but also workplaces like industrial parks and Information Technology (IT) parks". The Ministry's note states that an "extremely critical element is that of social infrastructure, which would constitute housing facilities and entertainment, etc".

But the Finance Ministry says that the promotion of SEZs in the manner in which the Commerce and Industries Ministry is doing now would cause a revenue loss of over Rs.1,60,000 crores by 2010. The Commerce Ministry responds by asserting that the Finance Ministry's projection of loss is based merely on "paper calculation" and that the SEZs would actually bring in investments amounting to Rs.100,000 crores by the end of 2007. It also adds that there would be a net revenue gain of Rs.44,000 crores and the creation of five lakh additional jobs.

When the two Ministries, headed by Congress leaders P. Chidambaram and Kamal Nath respectively, clash in this manner, it is not surprising that Rashtriya Janata Dal (RJD) leader and Union Rural Development Minister Raghuvansh Prasad Singh terms the promotion of SEZs a "land scam". According to him, the SEZs serve as a ploy to hand over huge tracts of agricultural land to corporate bigwigs.

Parties supporting the UPA government from outside such as the Communist Party of India (Marxist), and those opposing it, such as the Bharatiya Janata Party (BJP), have called for a review of the SEZ Act, 2005. Former Prime Minister Vishwanath Pratap Singh and the Jan Morcha front led by him have called for a six-month moratorium on the implementation of the Act, during which time new regulatory mechanisms would be put in place for SEZs.

The Janata Dal (United), a constituent of the BJP-led National Democratic Alliance (NDA) has gone one step further and demanded that the SEZ Act be scrapped.

It is clearly a chaotic situation politically and administratively, and yet the Commerce Ministry and the Board of Approvals (BoA) for SEZs, which functions under it, are going ahead with the process of clearing SEZ proposals, seemingly in a hurry. The clearance involves five stages.

In the first stage, an application received by a State government from a private enterprise is routed to the Union Commerce Ministry after an initial clearance at the State level. It is then placed "under consideration"; this leads to "in principle approval" and "formal approval". The final stage is the notification of the project.

By early October, the BoA had given "formal approval" to 181 SEZ projects across the country and "in principle approval" to another 128. However, tabulation by the Confederation of Indian Industry (CII) shows that only 12 of the "formally approved" projects have been notified. As many as 16 export trade zones, which had been functioning before the passage of the SEZ Act, 2005, have also been categorised as SEZs now. So, only about 30 of the 181 projects have built-up, functional structures. Others are still in the run-up stage.

According to informal estimates based on proposals for SEZs, the total land that has been acquired or would be acquired for formally approved SEZs is to the tune of 30,000 hectares. The SEZ projects that have got "in principle approval" and those that are "under consideration" are expected to consume another 95,000 ha. This would mean a total of 1,25,000 ha - almost equal to the size of Delhi, which has an area of approximately 1,40,000 ha. That is indeed exceptional statistics. According to the Maharashtra-based SEZ Virodhi Sangharsha Samiti, the quantum of land itself points towards large-scale displacement of people.

The Commerce Ministry, however, is undaunted by the figures. Commerce Secretary Gopal K. Pillai maintains: "Not a single farmer has been displaced by any of the 181 SEZs sanctioned." According to him, the land for these was already in private hands or was with the industrial development corporations of various States.

What is interesting in the context of his contention is that a project like the Reliance SEZ in Haryana has not even come up for approval before the BoA, though the State government has already offered Reliance 25,000 acres (10,000 ha) and even acquired some land. An office of sorts has started functioning on this land. So what validity do BoA procedures have when a SEZ promoter starts functioning without formal approval?

The Commerce Ministry admits that land acquisition has been going on since 2002 for the SEZ at Dadri, promoted by the Anil Dhirubhai Ambani Group (ADAG), and nearly 80 per cent of the land for the project has been acquired and handed over. But the project has got only an in-principle approval. What happens to the land if the project fails to get formal approval?

The application for the 10,000-ha Mahamumbai Reliance SEZ in Navi Mumbai is before the BoA. The BoA has also received various representations against it and has reportedly told the company that it is acquiring "too much land". It has also asked the State government to "look into the matter". Such large-scale acquisitions have aggravated fears about SEZs becoming instruments of real-estate racketeering. It is not clear what authority the BoA will exert if Reliance persists with its acquisition and the State government fails to "look into the matter".

The CPI(M) has called for legislative measures to impose a ceiling on private holding of land for SEZs. Interestingly, Section 5(2) of the SEZ Act, which addresses the issue of land acquisition, talks only about the minimum land area requirements for different classes of SEZs. Not only that, the Act provides for non-industrial use of 75 per cent of the land in the possession of an SEZ developer. This is justified by the argument that social infrastructure, which would constitute things like housing facilities and entertainment, is extremely critical. Several political leaders have pointed out that, in reality, this is an open licence for real-estate racketeering.

The West Bengal government has, in keeping with the CPI(M) central leadership's proposal, stipulated that the multi-product SEZs in the State will use 50 per cent of the land for industrial use (see separate story). CPI(M) general secretary Prakash Karat is of the view that the stipulations brought about by the West Bengal government could well be a model for correcting the anomalies in the SEZ Act.

But V.P. Singh and the Jan Morcha contend that stipulations on the use of land are only one aspect of the land question raised by SEZs; the more fundamental issue is government intervention in acquiring land for private projects. "And unless this is stopped," he told Frontline, "SEZs would not be true to the dynamics of market economy, a concept accepted and advocated by all SEZ developers" (see interview).

Another disturbing dimension is the manner in which a large number of SEZ proposals have come up in areas adjoining major urban centres. The CII has noted that this is a cause for worry. A CII study has shown that proposals for as many as a dozen SEZs have come up around Delhi and the National Capital Region, including in places such as Gurgaon and Panipat in Haryana and Ghaziabad in Uttar Pradesh.

But the functional problems of the SEZs are not confined to the use of land. Even in terms of its larger goals, the SEZ initiative is bereft of clarity. The Commerce Ministry's note talks about developing all kinds of infrastructure - industrial, IT and social - while Jairam Ramesh, Minister of State for Commerce and Industries, asserts that the focus should be on labour-intensive manufacturing. CII president R. Seshasayee is also essentially of the same view. In fact, Jairam Ramesh contends that there is not much of a need for IT and IT-enabled services (ITES) projects since India already has an edge in these sectors (see interview). According to Seshasayee, "if the objective is export-led growth, manufacturing-led growth and employment-led growth, then the focus must be sufficiently on these activities".

And yet, a closer look at the projects that have been approved "formally" and "in principle" in various States shows a marked predilection for the IT and ITES sector.

Maharashtra leads in the number of "formally approved" projects with 39, 14 of them in the IT and ITES sector. Andhra Pradesh comes next with 29 approvals, and here too IT is the single largest component with 19 projects. Karnataka is third with 21 and has a whopping 18 projects in the IT sector. The story of other States with fewer projects is not different. Seshasayee said: "There is a need for a certain course correction if it is found that SEZs are going towards IT predominantly."

The large influx of IT and ITES companies into SEZs has other connotations too, in terms of labour laws and tax relaxation. Observers of the IT sector have pointed out that more and more companies are migrating to SEZs to benefit from the SEZ norms vis--vis labour. Karthik Shekhar, general secretary of the Union for ITES Professionals, a fledgling national trade union of IT sector employees, told Frontline that in the background of the spate of attacks against call centre employees in different parts of the country, the union had stepped up demands for employee protection and other labour rights; and the response of a large number of companies has been to move to SEZs.

Another factor motivating the "migration" of IT companies to SEZs is tax concession. According to Rahul Bajaj, a doyen of India's automobile industry, the current promotion of SEZs is impelling even established industries to move into special zones. He feels that tax concessions and other privileges extended to SEZ projects are steadily leading to an unequal trade-industry regime, which is bound to be hazardous to the country's economic health in the medium and long term. There is little doubt that the present promotional scheme is marked essentially by a resounding confusion.

Asserting that this confusion is a natural challenge in a functional democracy may sound statesmanlike or even philosophical, but a solution to the crisis caused by the SEZ initiatives would require concrete steps, rather than moralising.