PANOS SOUTH ASIA-KALPAVRIKSH MEDIA DIALOGUES

MissingtheWood for the Trees:

Covering environment in the era ofeconomic reforms.

Session 4

SEZs: Oasis or Mirage?

Date: 26 February 2008 (Tues)

Time: 10:30 am to 5:00 pm

Venue: YMCA, New Delhi

The fourth session of Panos South Asia and Kalpavriksh media dialogues was organized on 26 February 2008 at YMCA, International Conference Center, Jai Singh Road, New Delhi. The session was titled ‘SEZs: Oasis or Mirage?’. It was designed to understand the intricacies of the SEZ debate. The media dialogue was an effort to facilitate participants to take a closer and nuanced look at the debate so far. Representatives of the bureaucracy, political parties, peoples’ movements, and academics were brought together to this discussion. The programme involved panel discussions that brought out the viewpoints of regulators, planners, activists, and researchers on various themes. Representatives from the media were also invited to participate in the discussion and to get a platform where their queries on the issue. The programme was facilitated Darryl D’ Monte (Chairperson of the Forum of Environmental Journalists of India).

Media kit contained:

1.  An article on Special Economic Zones by Abhirup Sarkar (Indian Statistical Institute, Calcutta)

2.  An article titled ‘How the battle was won’, by Rifat Mumtaz and Madhumanti Sardar

3.  An article on ‘Enclavisation of Tourism: Special Tourism Zones (STZs) in India’ by

Equations, December 2007

4.  An article on ‘SEZ and Corporate governance’ by Anirudh Burman.

Eleven journalists attended the program over the day. The highlights of the presentations and discussions that were carried are as follows:

Session One: Describing the beast.

1. Manshi Asher (Independent researcher working on social rights and human issues, regularly tracking developments around SEZ in the country, presently documenting SEZ status in 4 different states)

Presentation titled ‘SEZs in India: A Report Card’.

India introduced the concept of the Export Processing Zones (EPZ) in the 1960’s. These were government promoted non-integrated zones, where rules of taxation were relaxed. India’s first EPZ came into existence in 1965, the Kandla Free Trade Zone. Followed by seven EPZs, of which except two, all of them where State or Centre Government owned. Till the end of 1990’s, there were eight EPZs in India, but the amount of employment generated, net foreign exchange earned and the functioning units were not, as expected. In 2000, the NDA government introduced the SEZ policy, as a part of the Export Import Policy. The transition from EPZ to SEZ was portrayed as a course of development. However, there are large differences between these two policies. SEZ as envisaged now in India, are integrated zones with residential areas. They are either product specific or multiproduct and open for private developers. There are tax exemptions and other kinds of relaxations. SEZs have a board of approval at Central level and Development Commissioner in the Approval Authority at the State level, which forms the operative part of the SEZ legislation. Single window clearance, along with relaxation of labour and environmental laws, in the policy has been the crux of the debate revolving around SEZs. FDI (Foreign Direct Investment) for export promotion is a major target. Different states have enacted/implemented their own policies for this purpose. The SEZ Act was passed in 2005, as a legislative framework, to strengthen the concept of SEZs. The Government of India had very strongly stated, that the SEZ Act couldn’t be challenged, as it has been passed through a parliamentary process. However, it is important to look at the process of how it happened in the Parliament. The Ministry of Commerce drafted the SEZ Bill in 2004, tabled in Lok Sabha on 9 May 2005 and was debated in the Lok Sabha on 10th may 2005 along with 41 other issues. It was the 42nd and the last point of discussion for that day. 7 parliamentarians were present, where the members of the opposition were absent. Left parties opposed to two sections of the Bill, the sections 50 and 49. The Bill was passed by a voice vote on the same day after two hours of discussion. In the lower house of the parliament, the bill was discussed on 11 May 2005, with one opposition member present before it was passed. In Rajya Sabha, there were some questions raised on impacts on the environment due to SEZs, the regional imbalances that will be created, the location of the zones in infrastructure rich areas, but the Minister did not respond to any of the above issues raised. Amendments were made in the Bill after the session, like in the section 49 (proviso was added that industrial disputes and labour related acts could be challenged but not the other central rules under this act, in terms of the over riding effect of the SEZ).

The Board of Approval at the Centre has given formal approvals to 439 SEZs covering an area of 59,700 ha till 2008. This along with in-principal approvals adds up to 200,000 ha of land, which Ministry quotes as only 0.112% of agricultural land of the country. According to the Ministry, SEZs have been successful proposals for the nation, as it has received Rs.70, 000 crores of investment, created incremental employment of Rs.40, 000 crores, and increased export by 50%, since 2005-06. 255 projects out of the total 404 projects, approved are from the Information Technology (IT) sector. Of these IT SEZs, 90% are being developed by real estate and property developers like Delhi Leasing Finance (DLF), Raheja, Hira Nandani, MR properties. DLF has received 11 approvals for an area of 125 ha in 7 different states. Raheja’s have six SEZ approvals in five different states. Fewer number of multiproduct SEZs has been approved in the country. Till date there are 19 multi product SEZ, which cover an area over 25000 ha.

The Ministry of Finance had raised concerns regarding revenue losses in 2006, when already 100 approvals were granted. At the same time, RBI issued a notification / guideline for banks to treat SEZ as part of the real estate sector and finance them accordingly. International Monetary Fund (IMF) termed the give away under SEZs, as not affordable. The OECD (Organization of Economic Co-operation and Development) had raised concerns as well, about the economic growth and efficiency not being affected by SEZs..

In the next section the presentation highlighted the people’s movements initiated against SEZs in Haryana, Maharashtra, and Andhra Pradesh, initially and later on West Bengal. During the Nandigram protests (which took place due to the West Bengal government’s plans to expropriate 10,000acres of land for SEZ to be developed by the Indonesian-based Salem Group), an Empowered Group of Ministers under the chairpersonship of Pranab Mukherjee was formed, to review the SEZ policy. No approvals were given to SEZs during the review period. The committee gave three recommendations, firstly to have a maximum limit to the amount of land that can be acquired by an SEZ, which was put as 5000 ha; secondly to increase the industrial processing area from 25% to 35% and 50% for two different types of zones and thirdly to not let the State government to acquire land for the private SEZs using Land Acquisition Act. A guideline was also issued in this regard. The cap from the approval was lifted in April 2007 after the review was over. Only in Goa, the protests had been successful to scrap 15 SEZs. It is required to reflect the same in the other states, as the issues are the same throughout the nation regarding the establishment of SEZs.

2. G.K. Pillai (Secretary with the Ministry of Commerce, India’s Chief negotiator in the World Trade Organization and the Chairman of the Board of Role of Special Economic Zone in the Ministry)

Presentation titled ‘Special Effects: SEZs as instruments of economic progress’.

He started the presentation by commenting on the SEZ Act. He said the primary purpose of the legislation was to give the investors a stability of an investment regime. The section 80IA of the Income Tax Act has the provision of tax benefit for the developers and the private bodies. Thus, the tax regime along with other provisions existed even before the legislation on SEZs was introduced in the nation. This provision has been introduced in the SEZ Act as the section 10A.

By 2004, the private companies like Mahindra World City and Nokia wanted to invest in SEZs as they had intimation that formulation of legislation was in process. There were around 17 SEZs proposals when the Act was notified on 10th Feb 2006, of them 7 SEZs were government and 10 private. The Act, acted like a catalyst for the investments to come in for SEZs. From less than Rs.3, 000 crores between 1965 and 2004, the investments have raised to Rs.65000-Rs.70000 crores at present. The total employment generated from 1965 to 2004 had been 1,34704, whereas it rose to 280832 in the last two years. The employment generation is expected to increase further, with more investments pouring. Of the 201 SEZs notified, about 70 of them will generate around six lakh jobs by 2009-10. A misconception about SEZs is that they are considered as foreign territories. It will be so, only in the case of implementation of custom laws, as that will ensure zero import and export duty. Every other law will be applicable to the SEZs and the Ministry of Environment and Forests (MoEF) will be granting the environment clearances. The Central Government has the power to relax any law in a SEZ, but it has not exercised it till now. However, the centre has no powers to relax provisions of any labour laws. The Department of Commerce had not anticipated the tremendous response towards the Act. No real estate activity will be allowed inside the SEZs. The push has been to develop the social infrastructure inside the SEZ so that the dependency on the state government becomes less and it provides easy living for the inhabitants. Many of the inequities in the existing laws came to the forefront because of the SEZ Act, like in the Land Acquisition Act. Of the 60,000 ha of land under SEZ area, 40000 ha, was already acquired by the State Industrial Development Cooperation much before the SEZ Act came into forth. Maharashtra Industrial Development Cooperation had 60,000 ha of land in their possession acquired during 1960 to 2000. In Goa, the land given for SEZs was not acquired for the purpose of SEZ; it was acquired in 2001-02 for an industrial park by the Government of Goa, which was given to the SEZ developer, later.

The problem with the land acquisition has been the inequity. The land acquired for SEZs under the Land Acquisition Act is less than 10% of the total land acquired. The land acquisition provides, the basis on which the value is fixed for the registration of the documents of the land. The real value is not put on the paper to save the stamp duty, which is as high as 8% to 16%, therefore farmer gets a lower value of land at the fixed rate. This inequity can be settled either by allotting a market value that the government determines and keeps notifying, or having a provision to lower the stamp duty to almost around 2% so that most of the people can be honest and willing to register at market price, a procedure which is prevalent in many urban areas. In the new revised Land Acquisition Act, which is before the Parliament, the provision on SEZs is that, no compulsory land acquisition for non-private developers will be allowed. If there is any complaint of compulsory acquisition from a landowner, then the State Government cannot notify the land as a SEZ, nonetheless the State Government cannot be stopped from acquiring land, under the Land Acquisition Act for any other purpose but SEZs. Such complaints can be addressed to the Board of Approval.

The numbers of applications for SEZ, have reduced after the initial euphoria on the Act, which led to 439 formally, approved SEZs. About 30-40% Information Technology (IT) SEZ, of the total approved are expected to drop out, as there is much more work involved than to just acquire land. There are issues with the multiproduct SEZs and with the kind of administration coming up in the zone. As per the present legislation of SEZ, there will be a developer, development commissioner and the representatives of the state government within a SEZ. This form of administration is not adequate; SEZs need to have a better representative organization. The Ministry of Urban Development has been referred on this regard. A study is proposed by the Department of Commerce, on the status of farmers whose lands have been acquired.

3. Aseem Shrivastava (Economist, has taught in many universities in India and abroad, now an independent writer on Globalization, human rights and foreign policies)

Presentation titled ‘Repeating History: SEZs as 21st Century Enclosures’

SEZs could be studied within two perspectives. Firstly, the comparative perspective of the globalized world, in context of India adopting a path of aggressive capitalist development and the competition it offers; secondly with knowing the historical trajectory of SEZs. Land acquisition plays a major part in the SEZ process.

Tracing the history of SEZs, he said, land acquisition process started in 1890’s and reached the peak after 1991, which led to the introduction of the SEZ Act in India by 2005. The history of SEZs in the West is very instructive and can be a learning lesson for India. In China, with the implementation of the SEZ policy, there was a Zone fever, which led to the 7000-8000 SEZs by early 1990’s. By 1998, despite the success perceived, the SEZ policy was abandoned. Further, an Act was passed to stop the transfer of agriculture land for non-agricultural purposes. In United Kingdom, the industrialization took place in the 18th and the 19th century. Being a land scarce country, land acquisition took place by enclosures of open fields. The process continued for over a period of 3 ½ and 4 centuries.