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Mainstream, Vol XLVII, No 38, September 5, 2009

Impact of Special Economic Zones on the Agriculture Sector

Wednesday 9 September 2009, by Dharminder Singh


Today all countries of the world are in the race to enhance their socio-economic develop-ment. They are using different methods and policies to achieve socio-economic development. Of these methods and policies, the policy of Special Economic Zones (SEZs) is a new one and is adopted by many countries like Brazil, China, Pakistan, India, Iran, Jordan, Poland, Russia etc. to enhance their socio-economic development.

A Special Economic Zone is a geographical region which has economic laws that are more liberal than a country’s general economic laws. It is a specifically delineated duty-free enclave treated as a foreign territory for the purpose of industrial, service and trade operations, with exemption from customs duties and a more liberal regime in respect of levies, foreign investment and other transactions. In fact, the SEZ is a development tool, with the goal of promoting rapid economic growth by using tax and business incentives to attract foreign investment and technology. The policy of SEZs was first adopted by China in 1978 as part of its economic reforms. On seeing the success of this policy in China, India adopted this scheme in April 2000.

The concept of SEZs is not a new one and it is an improvement over the concept of Export Processing Zones (EPZs). India was one of the first in Asia to recognise the effectiveness of the EPZ model in promoting export, with Asia’s first EPZ set up in Kandla in 1965. Seven more EPZs were set up thereafter. The policy provides for setting up of SEZs in the public, private, joint sector or by the State Government. There is also a provision in this policy that some of the existing Export Processing Zones would be converted into Special Economic Zones.

The SEZ Act 2005, supported by the SEZ rules, was passed by Parliament in May 2005 and came into effect on February 10, 2006, providing for drastic simplification of procedures and for single-window clearance on matters relating to the Central as well as State governments. Prior to the SEZ Act 2005, there were only 19 operational SEZs in India. But after the SEZ Act 2005, the number of SEZs increased at a very fast speed. As on May 15, 2008, 462 formal approvals and 135 principal approvals had been given for the setting up of SEZs by the Government of India. Out of these 462 formal approvals, notifications have been issued to 222 SEZs. This happened due to the incentives and facilities which were offered by the government under the SEZ Act, 2005 to the developers of the SEZs like duty-free import, 100 per cent income tax exemption on export income for SEZs, exemption from minimum alternate tax, external commercial borrowing by the SEZ units upto US $ 500 million in a year, exemption from Central sales tax and service tax, single-window clearance for Central and State level approvals, exemption from State sales tax etc.


SEZs of India are of three types: (a) multi–product SEZs occupying a minimum 1000 of hectares (2500 acres) of land; may produce garments to automobiles; (b) sector-specific SEZs occupying minimum of 100 hectares (250 acres) of land, in which there are garment, leather, electronics SEZs etc.; (c) gems and jewellery; It-BPO and biotech SEZs occupying a minimum of 10 hectares (25 acres) of land in backward States such as Assam, Meghalaya, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, J&K and Goa and the UTs.

To set up such a large number of SEZs there is a need for land on a large scale to be acquired. The total land area of India is 29,73,190 sq km out of which 16,20,388 sq km area is used for agriculture (agricultural area). The share of the agricultural area in the total area is 54.5 per cent and the non-agricultural area in India is 13,52,802 sq km. The total area for proposed SEZs (formally approved and in principle approved) is approximately. 2061 sq km which would not be more than 0.069 per cent of the total land area and not more than 0.12 per cent of the total agricultural land in India. (Ministry of Agriculture)

If SEZs are set up on non-agricultural land, especially on barren land, then they play an important role for the social and economic development of the country. They can generate employment, enhance export and attract foreign direct investment (FDI) and technology at low social cost. In case of China SEZs are set up on non-agricultural land. Therefore they have played an important role for the economic development of the country. From 1980 to 1995, the annual rate of economic growth of China was nearabout 10 per cent.

On the other hand, if SEZs are set up on agricultural land then they create obstacles for the social and economic development of the country. If fertile land is used for the establishment of SEZs, then the area under agriculture will decline. This will lead to decrease in the production of agriculture. India at present is facing a food problem (leading to import of wheat) and this problem will become more severe if the area under agriculture declines due to the setting up of SEZs.

But in India SEZs are being set up not only on non-agricultural land but also on agricultural land. In case of Punjab, Haryana, UP, West Bengal, Maharashtra and some other States of the country, SEZs are being set up on fertile land. For example, the land of West Bengal is basically good for agriculture but even then the West Bengal Government is allowing SEZs in Nandigram and Singur. Those SEZs, which are set up on fertile land, adversely affect our agricultural production. The social cost of such SEZs is more than the benefits one gets from these SEZs.

For the setting up of SEZs the government acquires land forcibly from the farmers at a price lower than what is prevailing in the market and gives this land to the developers of SEZs at a subsidised rate. Farmers organise agitations against the government for such a move on the latter’s part and there is often loss of pubic property and lives in these agitations as happened in Singur and Nandigram.

When land is acquired from the farmers, the farmers and agricultural labourers lose their employment, as they are not skilled labourers to relocate them to other jobs. The problem of displacement and rehabilitation of farmers and agricultural labourers also comes to the fore. Indian farmers are mostly uneducated, so they cannot get high-rank jobs in SEZs; they can work only as labourers in SEZs. But farmers are not ready to work as labourers in SEZs. Already farmers and agricultural labourers are facing a bad situation in India and when there will be no work for them their economic conditions will become worse.

On the other hand, if the farmers invest their money (which they get as compensation for land) in a proper way, they can get more profit. If they spend their money on the education of their children then their future will be bright. The labourers, who work in the agricultural sector, can also work in SEZs when an industry is set up under the SEZ scheme. The wage rate is high in SEZs as compared to the agricultural sector. So there can be improvements in the economic conditions of agricultural labourers. Thus SEZs can play an important role for the transformation of labour from the agricultural sector to the industrial sector. Then the burden of the population on the agriculture sector will decline and this will be beneficial for both the development of agriculture and industry. Due to this disguised unemployment in the agriculture sector would disappear and lead to proper utilisation of our manpower.

For the last 60 years, we are claiming that we have a democratic country. But, where has our democracy gone when the land of the farmers is grabbed forcibly by the government at low prices? No policy, no scheme can be successful without the cooperation of the people. If the government wants to ensure the success the SEZ scheme in India, then SEZs must be set up on non-agricultural land and the government must consult with the farmers before acquiring their land. One thing which should always be borne in mind is that agriculture and industry are the main wheels of the country’s economy and so there is a need to strike a fine balance between them.

The author is a Research Scholar, Department of Economics, Punjabi University, Patiala.

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