The Special Economic Zones (SEZs) are being promoted by the UPA Government which claims that this will build infra-structure and also `enhance employment generation’.  It has, however, been admitted that the SEZs are emerging more as conflict zones across the country, between Ministries of the Government of India, between political parties, between States, and between State Governments and the farming community. 

The horrendous consequences of all that has been proposed for setting up the SEZs have been pointed out by the political parties (except, of course, the Congress), experts on Constitutional law, leading social activists et al.. But, except for the JD(U), RSP, Akali Dal and RJD which have called for the scrapping of the SEZ Act, and the PMK which is for a review of the SEZ Scheme, none of the others are unequivocal in their stand, which will only embolden the UPA Government to go ahead and implement the Scheme.

  Instead of taking up proposals aimed primarily at the welfare of the people and suited to the conditions of the country, our Government wants to blindly copy what has been done in other countries, and it pretends that the successes achieved there can be replicated here.  Apparently, the Government of India is overawed by the successes supposed to have been achived by the SEZs in China.  No one knows on what reliable data this confidence of the Government is based.  They have found it convenient to brush aside the protest, that is `spilling in the land of dragons’.  Devender Sharma, the Farm Expert has pointed out how China faces 75,000 protests anually over the SEZs.

I shall touch briefly on what the SEZs are, what the proposals of the UPA Government are, what the political parties and experts in various fields have to say about them, and what further views we as citizens could have about these.

The SEZs are supposed to be clearly demarcated industrial zones constituting free trade enclaves, outside the country’s normal customs and trading systems, where foreign enterprises produce principally for export and benefit from certain tax and financial incentives.

The policy has evoked trenchant criticism on account of allocations of prime farm land to the SEZs.  Because of the protests and clashes of farmers’ bodies with the police, political parties have had to oppose the SEZ policy or call for a review.  The Congress President "warned" that prime agricultural land should not `normally’ be diverted to non-agricultural uses: Industry, no doubt, requires land; but this must be done without jeopardizing our agricultural prospects.  Former PM V. P. Singh feels that the SEZs would trigger social unrest on a mass scale and asks: ‘why should State Governments acquire land for Corporates? Because of acute farm crisis, these zones could become biggest land grabs in Indian History.’ Prof. M. S. Swaminathan, father of the Green Revolution in India who currently chairs the National Commission for Farmers, has expressed serious concerns over the issues, and asks the Centre to prevent the allotment of prime agricultural land to SEZs.  Devender Sharma, points out that SEZs will `accelerate low farm produce’, while the country is facing severe farm crisis and farmers’ suicide. Social activist Medha Patkar questions pertinently whether the Government addresses itself at all to the basic issue of livelihood for poor people and whether the SEZs and multi-storied building are the only yardstick to measure development. Why should the Government seek development at the cost of the farmers and the poor?  Vandana Shiva of Navdanya has found that the SEZs have been doing dis-service to the Indian farming community; they are swarming around metropolis, rich fertile land in and around Ganga, Yamuna and areas  around Mumbai and Pune. 

Understanding the implications better, the Reserve Bank of India (RBI) has treated SEZs on par with real estate projects and has ruled out any concessional finance to developers and units in the Zones.  `Like any other land, SEZ is real estate’, the RBI Governor has ruled.

While pointing out that the SEZ projects inter alia enjoy easy land acquisition, the veteran journalist Kuldip Nayar met along with some NGOs, the Minister for Industry and Commerce, to voice their protest against the acquisition of agricultural land in Haryana, Punjab, Maharashtra and UP for less than the market price. The Minister assured them (whatever it meant, the journalist says) that the Government did not want this to happen and gave them a copy of the letter which he had written to the Chief Ministers. The letter requested them "to ensure that the land acquired for SEZs in the State is primarily waste or barren land; and agricultural land may be acquired only if necessary to meet the minimum area requirement". This rider which has been added no doubt, with deliberate intent, is playing havoc, as the States are saying that the Centre has allowed them to make up the deficit in the requirement for the SEZs through agricultural land. The Minister’s stand is that Land is a State subject and the Centre does not come into the picture. Nayar points out that it is the Centre which is at the back of the industry and the initiative in this field has been taken by the Congress-headed Governments. There is no reason why the Government should come into the picture at all. Actually, industrialists talk to the land-owners directly and come to agreement on the purchase price, whereas, in the name of SEZ, the Government acquires the land at a price which is way down the market price. Nayar says that SEZ promoters have claimed that they have given the State Governments higher price than the one at which the land was acquired. He asks where the difference has gone. Some of it may have been paid into the Treasury, but some has found its way into the pockets of the political leaders; but the farmers and the casual labour who are uprooted from the place have to fend for themselves; and there is no rehabilitation plan for them. The Government’s policy is that when a farmer has been `paid’ for the land, he has no claim over it.

A few words may be appropriate with regard to what Nayar has rightly observed on land acquisition. Private land can be acquired by the Government under the Land Acquisition Act only when it is required for purely public purposes such as construction of a public road, laying of a railway line, execution of irrigation projects, construction of hospital, educational institutions, etc.. It cannot be stretched to include acquisition of land for fancy schemes such as Knowledge Park, Technology Park, Amusement Park or for being handed over to private parties for the development of the SEZs, whose avowed purpose is creation of an industrial zone where foreign enterprises produce principally for export, thriving on tax and financial incentives. Applying the provisions of the Act for acquiring large tracts of land at very low prices for the SEZs etc., is a colourable exercise of power, and is prima facie illegal; the Government has no locus standi in such land transactions, and its action is liable to be challenged in the Courts.

Among the other obnoxious features of the schemes relating to the SEZs are: "no income tax for developers/investors; no service tax; no customs duty on imports; no license for imports; no excise duty on capital goods, raw materials procured from the local market; 100% FDI except in a few areas; reimbursement of Central Sales Tax paid on domestic purchases and other types of largesse which the UPA Government is able to imagine or copy from other countries."

What will be the fall-out of these atrocious "incentives’? The Supreme Court lawyer Prashant Bhushan has – rightly and appropriately – has equated SEZs with apartheid; he asks: "what is the logic of giving concessions to SEZs in metropolitan areas". He further says that this will sound the death knell of all industry outside the SEZs and have enormous implication for other industry, Government revenue, environment and labour, as the SEZ Projects are freed of obligation to comply with environmental regulations, labour laws, etc.. By a notification under Sec. 49 of the SEZ Act, the Government could exempt any SEZ or all SEZs from the application of any law or all laws. Bhushan says that this should be challenged.

A few more observations on the possible repurcussions of these mindless exemptions, concessions and favours decided upon by the Government will be relevant.

The Government was taking measures – and is still doing so – to provide a `level playing field’ to the foreign multinationals, financial Institutions, etc. vis a vis the Indian industry, financial institutions, etc., as the cornerstone of its "reforms". One cannot fathom any reason or logic behind their providing the foreign parties with a safe and insulated enclave where they can function as they please, unfettered by any of the laws, taxes, rights and obligations which are applicable to the citizens and institutions in the country; do not the Indian industrialists, entrepreneurs, business enterprises, etc., deserve a level playing field vis a vis these foreign enterprises. Even the Minister of State for Commerce fails to understand why 50% of the SEZs are for IT companies which, he says, do not require all these benefits, which should be in the area of labour intensive manufacturing units. It should come as no surprise if all the SEZs are cornered by unscrupulous foreign companies who will use their freedom from all taxes, customs, excise and other laws to get their outsourcing work done at much lower costs than what they are paying to our IT companies at present. The latter will have to either diffuse into these SEZs or be at the mercy of the foreign SEZ parties for their survival. In either case, the employees/workers of the indigenous IT companies will be the worst sufferers – they will be facing wage cuts or job losses. One hopes that the IT companies will have the guts to challenge these decisions of the Government which are violative of the provisions of Art. 14 of the Constitution of India.

One would have thought that exemption of income from income tax is provided by the Income Tax Act, and that this exemption is applicable under the Act to all assessees who are similarly placed. The same principle will apply to levy of customs duty, excise, etc.; and the law cannot make invidious distinction between one assessee and another. As a blanket exemption has been accorded, no one will know how much revenue has actually been lost. One hopes that the Comptroller and Auditor General of India as the guardian of the public finances and watchdog of parliamentary financial control, will examine the legality of granting such exemptions and bring the matter to the notice of the Public Accounts Committee of Parliament.

The Finance Ministry estimated a revenue loss of Rs. 1,74,000 crores over a period of 5 years, based on a study conducted by the National Institute of Public Finance and Policy. The Chief Economist of the IMF cautioned policy makers in New Delhi to take a second look at its SEZ policy; his contention was that tax sops may divert a lot of activity from the rest of the economy into these zones. The Commerce Minister dismissed these criticisms offhand, saying that losses were notional, while the Minister of State for Commerce gave the same inane reply saying that there was no levy at the moment, so how can anyone say it would lead to revenue loss?

What is the tremendous gain that is expected to accrue to the country from all these sacrifices which the country is called upon to make for wooing these Foreign Investors? It is well to remember that, in all projections made by the Government departments while drumming up a project, it is their usual practice to exaggerate the benefits which will be derived and understate the costs involve, and omit certain costs and inputs. Quite in line with this, the Commerce Ministry which is credited with pushing the SEZ "reforms" has estimated creation of investment worth Rs. 1,00,000 crore, revenue of Rs. 44,000 crores and employment to 5 lakh people by 2007! Experts have dismissed the creation of 5 lakh jobs as cock-and-bull story. "Pepsi promised about 50,000 jobs when they came to India, but created less than 500 jobs. If the SEZs fail to create the promised job, then will the PM take them to task?" asks Devender Sharma.

As regards the investment and revenue figures of Rs. 1,00,000 crores and Rs. 44,000 crores (that is about US $ 22 bn and $10 bn), let us take a look at our exports and imports for the first two quarters of 2006-07 for which figures have been published. Total exports during the period April-September 2006 were $ 59.32 bn, while the imports were $ 83.92 bn, leading to a trade deficit of $ 24.60 bn, or Rs. 1,08,000 crores. Of these Oil imports were $ 28.66 bn; the non-Oil imports were about $ 55.26 bn or Rs. 2,48,000 crores. Assuming that about 50% of these were for the import of defence requirements, food items, capital and maintenance items for industry, etc., (as no breakup is available), the remaining Rs. 1,24,000 crores must have been for the import of inessential, consumable items for our elites and plutocrats. So, by a proper trimming of our imports (over which a judicious control seems to be non-existent), and forex reserves, it should be quite possible to meet the requirements for infra-structure development without converting the country into a doormat for the foreign investors who are predators par excellence.

Before closing, we may once again note the retrograde provision that the SEZ projects are exempted even from environmental regulations. It is for the legal experts to see whether this is intra vires of the provisions of the Environmental Regulations Act. In this connection, I am tempted to draw the attention of the Government and of all people to a saying of the Native American Indians, namely: "only when the last tree has been cut, the last river has been polluted, and the last fish has been caught, will man realize that he cannot live by eating money". The foreign investors who will be operating in our SEZs will be driving us to that contingency.

All thinking citizens should therefore wake up and make common cause with the JD(U), RSP, Akali Dal and RJD in telling the UPA Government: "Scrap the SEZ Act".

by C. A. Balasubramanian

[The author is Additional Controller General of Accounts, Government of India (retired)]

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