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India: Special Economic Zones, Path to Massive Land Grab

by Praful Bidwai, 17 September 2006

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Inter Press Service, 15 September 2006

New Delhi, Sep 15 (IPS) - India, often touted as an emerging economic superpower and "the next China", seems bent on emulating some of the worst aspects of Chinese economic policy as practised before that country embarked on sustained industrialisation.

One controversial policy allows the creation of special economic zones (SEZs), which are duty-free and tax-free enclaves. Lubricated by exceptionally lucrative incentives, these are meant to promote exports. India is planning to set up as many as 300 SEZs in its different states.

Some of these will be dedicated to specific products or services, and some will be multi-product zones. Each of the larger zones will colonise up to 10,000 hectares (25,000 acres) of land.

"This is liable to create one of the greatest land grabs in modern Indian history," says Sumit Sarkar, an eminent historian and writer, who recently retired from Delhi University. "India has never before witnessed the transfer of hundreds of thousands of hectares of agricultural land to private industry. Nor probably has any other developing country."

To establish the SEZs, India’s state governments are procuring farmland in coercive ways, at prices well below the prevailing market rates, and handing it over to promoters - including big business groups such as the Ambani brothers, the South Korean steel giant POSCO, the Tatas, Mahindras, Unitech and Sahara. They stand to make huge super-profits.

The land procurement process is producing enormous resentment among farmers. Their land is being acquired through special laws legislated for the express purpose of creating SEZs.

Farmers are agitating against SEZs in states as different as Uttar Pradesh, India’s most populous province, and Himachal Pradesh, one of the smaller states. The anti-SEZ mobilisation acts across different political parties, from the Hindu Right, which is in power in Gujarat, to the Left parties which have ruled West Bengal for a quarter-century.

One of the fiercest battles is being fought over a proposed SEZ at Dadri in western Uttar Pradesh. The agitation there is led by former prime minister and widely respected leader V.P. Singh. Arrayed on the other side is the Samajwadi Party, one of the most vocal parties of India’s rising middle castes, along with the Anil Ambani group.

As the confrontation over SEZs builds up, industry groups are salivating at the prospect of windfall gains. The SEZs will be considered "foreign territories" for the purpose of trade operations and tariffs. Units located in SEZs can import goods without licence or duties. They can also freely repatriate profits.

SEZ tax concessions are handsome even by ‘banana republic’ standards: a 100 percent tax holiday for five years, a 50 percent tax-break for another five years, and a further five-year tax-break on production based on reinvested profits. SEZ developers will enjoy a tax holiday for a straight 10 years.

"This is a complete reversal or inversion of the ‘land grab’ movement, as it was called in India", says Sarkar. "This was a great mobilisation of peasants and landless people, beginning in the late-1960s in Bihar and Andhra Pradesh, in which people occupied land which was over the prescribed legal ceiling of ownership by a person or family. That was a movement of the poor led by the Left. Today’s land grab is by the super-rich."

SEZs have become controversial not only because of the land issue. They will also inflict enormous losses on the exchequer through tax breaks and forgone duties. The Indian Finance Ministry estimates the losses at 20 billion US dollars for just 150 zones. This sum is unconsciously large for an investment estimated at about 25 billion dollars.

SEZs could also be used as tax heavens. They will bleed the larger economy in other ways too.

Even Raghuram Rajan, chief economist of the International Monetary Fund, opposes SEZs. He warns that besides causing a heavy revenue loss,"(SEZs) also offer firms an incentive to shift existing production to the new zones at substantial cost to society."

India’s SEZs have different origins than China’s. In China, the "successful" Shenzhen zone was created because the Communist Party could not agree on suspending labour laws and offering other concessions to foreign capital on its own "normal" sovereign territory. But the leadership had set its sights on attracting large foreign direct investment (FDI). SEZs were seen as the way out of this contradiction.

In India, SEZs are being established even though the government has greatly liberalised FDI. They are also a response to industry pressure to abolish labour protections and allow unfettered hiring and firing of workers.

Fully three-fourths of SEZ land can be used for non-core activities, including binding elitist residential or commercial properties, shopping malls and hospitals. This represents a humongous urban property racket favouring big builders. No wonder, some multinational building companies are planning to enter India through the SEZ route.

The global experience with SEZs hasn’t been happy. Only a handful of SEZs, of the hundreds that exist, have generated substantial exports, and that too at an enormous social cost.

In India, several export processing zones were first set up in the 1970s. A recent government audit report found that these have caused a customs duty loss of 1.7 billion dollars, which is 60 percent higher than their export earnings.

The government projects that SEZs will generate one million new jobs. Going by experience, this promise seems illusory. As for the quality of employment, no labour laws will apply to SEZs. Workers will enjoy no rights, including the fundamental rights of association and protest.

"The SEZs will be socially and economically retrograde," says D. Thankappan of the Centre of Workers’ Control. "They will enable employers to run early Victorian-style sweatshops, where no trade unions will be permitted."

SEZs will also be exempt from environmental impact assessment and obligations to employ local people. They are certain to deplete groundwater and other resources. And they will be islands of prosperity amidst deprivation and agrarian distress.

SEZs are being established through retrograde legislative changes too. Earlier, land acquisition laws in India required a public purpose. But the new Acts mandate acquisition for private profit and without adequate compensation to farmers - already a seriously distressed lot in India and compromising 70 percent of the country’s 1.1 billion people.

In many SEZs, there is a three-fold difference between market rates for land and the compensation being offered to farmers. India’s SEZs are a recipe for widespread social discontent going by the confrontations that are already building up in states like West Bengal. (END/2006)