SEZs: One More Anti-Bharat Act by India

1. Introduction

The Special Economic Zone (SEZ) policy has taken one more turn with the announcement from the Empowered Group of Ministers (EGoM). The freeze on them is being lifted but several parameters will be changed to accommodate the farmers, tribals and the civil society groups who have been agitating against the SEZs. From the earlier no limit on the maximum size of the multi-product SEZs now the limit has been set at 5000 hectares. The State governments are prohibited from acquiring land for the private players and they cannot form a joint venture with a private player unless the latter has the land to offer the project. States can acquire land for their own SEZ provided they take care of the relief and rehabilitation as per the new policy to be announced soon. Now the SEZs will be required to at least use 50 per cent of the land for the processing unit as compared to the earlier 35 per cent so that the real estate component would be lower. Finally, the export requirement has been made more stringent as compared to earlier.

Clearly, the EGoM has steered a middle path between the proponents of the SEZs, the corporate sector and their political supporters, and the opponents who wanted SEZs to be scrapped because of their adverse impact on the poor people in the rural areas. This was on the cards since the PM had stated that SEZs are an accomplished fact. He implied that there is no going back on the policy and the government would only do some tinkering to accommodate the opponents. Where does this leave the policy and the poor?

1. a. The Political Aspects

SEZs have occupied centre-stage in the national consciousness for the last eight months due to the events unfolding in Singur (akin to an SEZ though not one) and subsequently due to the occurrences in Nandigram (a proposed SEZ). News of dissent in the ruling party over the proposed SEZs in Haryana and Punjab has been making the rounds. In West Bengal, the government is determined to continue with its policy of setting up SEZs and continuing with Singur on the ground of industrialisation of the State. At the Centre also it is seen as a strategy for ensuring the continuation of a nine per cent rate of growth of the economy. If China can succeed through such a policy then, it is argued, why not India?

SEZs are threatening to sprout all over the country from the most backward States, like Orissa and Chhattisgarh, to the most advanced ones, like Maharashtra and Gujarat. They would number not in tens but in hundreds and would cover huge tracts of land across the country. Some of them would be so large as to create entirely new townships and since they promise world class infrastructure, they would be unlike the existing cities. They promise to create islands of affluence where foreigners and NRIs can come and live in comfort segregated from the poverty and squalor- ridden cities. According to an earlier draft of the SEZ Act, they would have been ‘deemed to be foreign territory for the purposes of trade operations, duties and tariffs’. Even though this phrase is no more used in the Act of 2005, it is feared that they would be functioning as such, given their enclave character.

Currently, seven previously created Export Promotion Zones (EPZs)
stand converted to SEZs, 63 SEZs are approved and notified, 171 are approved but not notified, 162 are approved in principle only and 322 applications are pending. Most of them are by Indian businessmen.

Resistance to these Zones has built up rapidly in the country even though most political parties seem to be supporting their creation since they are ruling in some States where they would like them to come up. In different parts of the country farmers and tribals, who are sought to be displaced by the creation of these Zones, are opposing them. In Singur (not an SEZ), Nandigram and earlier in Kalinganagar in Orissa there have been fierce resistance. The Opposition parties in the different States have taken advantage of these movements to put the ruling governments in the dock. However, only some parties, like the Trinamul Congress, are going the whole way while others are ambiguous at best.

Displacement is a larger issue. Movements around displacement caused by earlier large projects (Narmada Bachao Andolan is an example of that) already existed and the civil society leaders (like, Medha Patkar) of these movements are providing leadership to the anti-SEZ upsurge. New large scale displacement is being created by the mega projects coming up all over the country. This includes the setting up of steel mills, power plants, airports or the expansion of existing airports, the expansion of the highway network, etc. Millions of families are likely to be displaced in a short period of time.

Why is the rapid creation of these enclaves so important for the government, in spite of the build-up of the movements? Politically, perhaps the government believes that the movements will die down since different political parties are in power in different States and they will prevent the Opposition to the idea of SEZs from building up. The CPI-M is a case in point. It is encouraging Singur and SEZs in West Bengal; so its opposition elsewhere would be held in check and become tokenistic. Further, it is expected to hold other Left parties in check.

1. b. The Economic Aspects
to put the ruling governments in the dock. However, only some parties, like the Trinamul Congress, are going the whole way while others are ambiguous at best.
Displacement is a larger issue. Movements around displacement caused by earlier large projects (Narmada Bachao Andolan is an example of that) already existed and the civil society leaders (like, Medha Patkar) of these movements are providing leadership to the anti-SEZ upsurge. New large scale displacement is being created by the mega projects coming up all over the country. This includes the setting up of steel mills, power plants, airports or the expansion of existing airports, the expansion of the highway network, etc. Millions of families are likely to be displaced in a short period of time.

Why is the rapid creation of these enclaves so important for the government, in spite of the build-up of the movements? Politically, perhaps the government believes that the movements will die down since different political parties are in power in different States and they will prevent the Opposition to the idea of SEZs from building up. The CPI-M is a case in point. It is encouraging Singur and SEZs in West Bengal; so its opposition elsewhere would be held in check and become tokenistic. Further, it is expected to hold other Left parties in check.

1. b. The Economic Aspects

FINALLY, the Central Government perhaps believes that the economic gains will dilute the opposition over time. It expects these SEZs to be the nucleus of new investment, jobs and greater exports. Thus, it is propagating the SEZs as the solution to the country’s problems. The critics worry about food security being jeopardised and in response, it is argued that less than 0.1 per cent of the arable land will be involved in the proposed SEZs; so this will hardly effect total food production. Another argument is that the SEZs will accelerate development and create a large number of jobs. The critics argue that it will also destroy lots of low-skill jobs in agriculture and forestry. Further, the adverse impact on the small scale sector will reduce jobs. So in the net it is not clear that it will lead to more employment.

It is suggested that there are backward and forward linkages of industry; so it will promote development. But does agriculture not have such linkages? There is a fear that the large number of tax concessions being granted will lead to loss of revenue. However, the proponents suggest that increased production will result in enhanced tax collections. Will SEZs spur smuggling and tax evasion which will cause the tax loss to be larger than what is being anticipated? The number of questions that are being raised is quite large; so it is critical to understand where the truth lies. Some of these issues are dealt with in this paper.

2. Who Benefits and Who Loses from the SEZs?

CLEARLY, those who will benefit or lose from the SEZs will be different sets of people. Those who will be displaced by the SEZs will be the rural people and those who will come in their place will be the skilled urban people. It is true that those who lose land will get “market prices†(according to the government) for their land and theoretically will be able to invest their money in other businesses. Thus, theoretically, not only in the SEZs but the new investments by the former agriculturists would create new non-agricultural jobs and all this maybe expected to lead to a reduction in the rate of increase of unemployment which has accelerated in the last six years. It is said that agriculture cannot create jobs anymore and these jobs have to be created in non-agricultural sectors.

The SEZs are likely to curtail the rights of labour given that there will be no Labour commissioner and the Developer of the SEZ will govern the place along with a Development Commissioner. There will be no democratically elected body. Under Section 49 of the Act, there will be substantial powers to formulate new laws:

49. (1) The Central Government may, by notification, direct that any of the provisions of this Act (other than sections 54 and 56) or any other Central Act or any rules or regulations made thereunder or any notification or order issued or direction given thereunder (other than the provisions relating to making of the rules or regulations) specified in the notification—

(a) shall not apply to a Special Economic Zone or a class of Special Economic Zones or all Special Economic Zones; or
(b) shall apply to a Special Economic Zone or a class of Special Economic Zones or all Special Economic Zones only with such exceptions, modifications and adaptation, as may be specified in the notification.

Provided that nothing contained in this section shall apply to any modifications of any Central Act or any rules or regulations made thereunder or any notification or order issued or direction given or scheme made thereunder so far as such modification, rule, regulation, notification, order or direction or scheme relates to the matters relating to trade unions, industrial and labour disputes, welfare of labour including conditions of work, provident funds, employers’ liability, workmen’s compensation, invalidity and old age pensions and maternity benefits applicable in any Special Economic Zones.

It is likely that environmental considerations will be diluted. Many tax concessions have been announced. Given these considerations, profitability is being ensured; so investment will flow into the SEZs to take advantage of these features. It is also possible that there maybe relocation of units from their present locations to the SEZs so that the net investment would be lower.

It is true that new industry and businesses set up in the SEZs will generate new jobs. However, at first people would be displaced, work on the creation of the new infrastructure would then begin and new industry would take even longer time to come up; so new jobs will not immediately come. Further, the new infrastructure and industry is much more capital intensive than agriculture or non-farm rural activities it would displace; so fewer jobs would be created.

Further, the farmers receiving compensation for land would not really know of any activity other than agriculture; so they are unlikely to be able to invest in new businesses and may simply waste most of the capital they get. Even the most sophisticated businessmen, especially in the new environment, usually specialise in a few businesses and do not venture into businesses they do not know about. In this age of specialisation many businesses talk of core competencies and shed their other businesses or outsource them. How do we expect the ill-trained farmers to seamlessly transit to other businesses? This is unlikely. Further, every business requires some minimum capital to start but a large number of Indian farmers are small or middle farmers who would get marginal amounts of compensation which would be totally inadequate to start any kind of business even if they were competent to do so. Finally, consider the impact on small businesses which are failing in large numbers due to the new economic policies. The SEZs will accelerate this process since reservations will get further diluted. This will result in loss of a large number of jobs.

Many of the displaced are not likely to receive much compensation. This would include the landless who will not receive any compensation and those performing non-farm activities like the potters, herdsmen, carpenters, etc. These people, traditionally integrated into the farm economy, would be completely at sea without much of capital. Such people would constitute about half the population of the villages and can only add to the ranks of the unemployed.

The jobs the SEZs are likely to create will be of the high skill variety which the displaced farmers (with different skills or with low skills) would not be able to perform. Further, given their enclave like character they would not encourage the entry of low skilled workers displaced from the rural economy flooding their territory. Such people would of necessity become encroachers and slum dwellers in some urban areas. Thus the existing urban areas would face problems while the new enclaves would flourish creating differential urbanisation and more problems.

The displaced would require training to get even the low skilled jobs in the SEZs. The poor, who have not even attended schools or drop out by the fifth grade, are unlikely to be able to afford the training required and would be ruled out of working in these enclaves. Even if the training is sought to be given, it will be for low skills (like guards) or will take considerable time by which time others would get the jobs and the displaced people would languish. In brief, the rising unemployment and underemployment (doubled in the last six years according to the Economic Survey 2006) can only go up. Instead of farmers committing suicide, it will be the former farmers (and the landless) who would commit suicide.

Are farmers’ suicides important? According to a Secretary in the Government of India, too much is being made of this phenomenon. She says that only 16 per cent of the suicides are committed by farmers. There are several lacunae in this argument. One is not talking of the absolute numbers but of the increase in the suicides. Farmers are supposed to be hardy people and do not easily commit suicides. According to information, the number of suicides is increasing and specially in some of the better-off States and amongst the better-off farmers. It is not the landless who are the poorest in the rural areas who are committing suicides.

What one is talking of is the growing distress amongst farmers who are unable to face the emerging challenge of globalisation—an uncertain and unknown entity to them. Further, do we know how many suicides are being committed? Are our crime statistics complete? According to the Crime Statistics, Bihar has the least amount of crime and Kerala the highest. [A Kumar, 2002: The Black Economy in India, Penguin (India)] Clearly, in India, a lot of crime goes unreported and unrecorded and that is also the story of suicides, in spite of all the publicity that this phenomenon is now receiving. If we go by the amount of narcotics drugs confiscated each year, then little of it is used in India. What is caught cannot be used and what is not caught does not exist as far as statistics are concerned; so very little would be consumed in the country which is patently false. Clearly we cannot go by this argument since what is caught is only a small amount of the total drugs in use in the country. According to the estimates of gold brought into India and what was caught as smuggling, the ratio was 33:1. Thus official data on crime is not reliable and suicides, etc. maybe more in number than what is officially reported.

2. a. Experience of the Past Displacement

the Crime Statistics, Bihar has the least amount of crime and Kerala the highest. [A Kumar, 2002: The Black Economy in India, Penguin (India)] Clearly, in India, a lot of crime goes unreported and unrecorded and that is also the story of suicides, in spite of all the publicity that this phenomenon is now receiving. If we go by the amount of narcotics drugs confiscated each year, then little of it is used in India. What is caught cannot be used and what is not caught does not exist as far as statistics are concerned; so very little would be consumed in the country which is patently false. Clearly we cannot go by this argument since what is caught is only a small amount of the total drugs in use in the country. According to the estimates of gold brought into India and what was caught as smuggling, the ratio was 33:1. Thus official data on crime is not reliable and suicides, etc. maybe more in number than what is officially reported.

2. a. Experience of the Past Displacement

DISPLACEMENT in India is not new. Since independence, the nation has pursued the policy of development from above and set up large industries or industrial estates and projects, like mines, dams, ports, expansion of road and rail network. Each one of them has displaced people in large numbers. We have also had the experience of setting up Export Zones and Electronic Zones. In most of these cases, the displaced people have hardly found new employment in these projects while the educated elite (five per cent of the work force in the organised sectors) has benefited substantially.

The experience of HEC, Ranchi or BHEL, Haridwar or the steel plants, like Bokaro and Bhilai, has been that the neighbouring areas have remained largely backward. These industries were set up in backward areas and they remain some of the most backward. These have turned out to be mere implants in backward areas with little impact on the surrounding areas. While the country may have had a strategic interest in setting up these industries to achieve relative autonomy, in the absence of basic education for the children of the poor, the jobs went elsewhere. Mostly the local people did not get jobs except menial ones in the townships.

The people of these areas specifically and the non-elite in general trusted the post-independence leadership that there would be trickle down and they would soon benefit. So, either they willingly sacrificed for what they were told was the larger national interest or in the absence of organisation had no choice but to comply with what those in authority wanted. Now they know better that trickle down does not work and do not believe the elite ruling class. A white paper is needed on the impact of the earlier large projects on the people displaced from where these projects came up.

In brief, those likely to be displaced by SEZs are unlikely to find jobs in the SEZs and since they do not have the skills, they would not be able to shift to non-agricultural jobs. Many would get little compensation and those that do, are unlikely to be able to use the money well given their lack of familiarity with modern practices. Those likely to get jobs in the SEZs are likely to be the well- off sections of society.

3. Market Price, Compensation to the Displaced and Justice

IT is not that those displaced did not receive any compensation. However, since most of them did not know the modern institutions and practices, they did not know what to do with the compensation received. Often money was blown up in drinks and conspicuous consumption. This jeopardised the future of the family. The government should issue a white paper on what happened to development in these cases in the areas where some of the large projects came up. In some sense, the compensation received by the displaced people was not just.

This raises the larger question of whether there is justice to the displaced. In the market, if one receives a payment voluntarily for what one offers, it is a just trade. However, if one is coerced into accepting a price then this is unjust. However, this applies only to a situation where both parties understand markets. If one party does not understand the institution of the market and a capitalist economy, then even payment of a market price taken voluntarily by the seller may not be just. In a capitalist economy, the agents understand the idea that if they liquidate their primary asset, they need to invest the proceeds so as to continue to derive an income for the rest of their lifetime. Most poor have little idea of what it means to invest and what is the risk of investment or how to regulate their investment so as to get a secure future return. Thus, their ownership of an asset is far more important than the financial market compensation they may get for it.

Further, capitalism assumes the existence of homogeneous labour which can migrate anywhere to get work. Family ties are not that critical. That is not true for the agriculturists. For them, it is an inter-dependent life and kinship is crucial. Thus, displacement is very painful since it breaks the family and neighbourhood bonds that are not easy to re-establish in a new setting. The bonds may be between the labourer and the farmer or the farmer and the carpenter or the iron smith, etc. Specially, if the displaced migrate to an urban or semi-urban setting, life is very alienating for them. These relationships cannot be valued in the market. Thus, paying market price cannot be just compensation for the displaced because they lose much more than the land.

Finally, when the land passes on to the businessman and they establish a market in land, then a piece of land bought cheaply form the agriculturist shoots up in price. Thus, typically, the agriculturist receives a fraction of the price that the businessman will finally receive. One may ask: where is the justice in all this? Further, often there is a land mafia which operates in most areas where land is likely to be acquired. This mafia often gets to know where land is likely to be acquired and buys up land at prices higher than the current price knowing that the price would soon jump to much higher levels. The mafia also coerces sales by various devices. This is how the real estate developers have become billionaires. The loser in this process of capitalist development is the illiterate and poor rural population.

4. Location of SEZs close to Metros, Big Towns and Highways

AMONG the many concessions being offered to the developers of the SEZs, one is cheap land close to cities and new highways. Land is being allotted much in excess of the requirement of industries. The implication is clear that land is being seen as urban real estate where huge profits can be made. While Singur is not an SEZ, the Tata group is being given about 1000 acres of land when they only need perhaps 70 acres for the car factory. Since the land in Singur is at the intersection of two important highways, it is prime land. This kind of consideration is clearly important for many of the planned SEZs.

While the developers of many of the SEZs and the proponents of these schemes suggest that real estate is not the real consideration and development is the real concern, can these claims be relied on? One line of argument is that since agricultural development has already taken place, now it is time to go in for industrialisation since agriculture cannot accommodate more people.

There is another reason for the rush to set up these huge estates. In the last three years, the corporate sector profits have been growing at an average of 30 per cent so that they have a lot of cash to invest. Real estate is a good proposition to park their funds in. Thus, we are witnessing the creation of a large number of new landlords.

Finally, developers hope that there will be a shift of industries to these new sites. There was a precedence to this in the fifties and sixties when industry shifted from east India to the west because of rising labour militancy. Many industries shifted from West Bengal to Maharashtra. Very quickly, the number one industrialised State, West Bengal, became relatively backward and Maharashtra became the most industrialised State.

The government and industry are making a large number of promises regarding the SEZs. They are promising more investments in industry and massive creation of jobs. However, as has often happened in the past, industry and businesses have not kept their promises. For instance, Pepsi Cola was allowed to come into the country in the ‘bad old days’, prior to 1991, on the condition that it would export, it would develop Indian agriculture and create large numbers of jobs. None of these things materialised and most of the conditions were later dropped in the nineties since by then Coca Cola was allowed in without any of these conditions.

In Delhi, hospitals were allotted cheap land (almost free) on the condition that they would cater to the needs of the poor by providing a certain number of free beds, etc. However, not only have they not fulfilled that promise but they have been doing everything in their power (using political influence, etc.) to have the rules changed. Many industries have been set up in the backward areas and, as argued earlier, in most cases, these industries generated few jobs and of these even fewer went to the local people since these were cornered by the educated middle class people.

Given this past experience, what is the guarantee that land acquired by industries for the SEZs would only be used for specified purposes and not for speculative purposes as real estate. The example of DLF and others in Gurgaon and other places comes to mind. They acquired advance information as to which areas are likely to be urbanised around the new NH8 and acquired that land from farmers at literally throwaway prices (market prices for that time). They have then released the land slowly over the last 20 years keeping prices artificially high all along and benefiting enormously. Land prices in this period have risen almost 500 times, far higher than any other index of prices.

When industry goes back on its promises as it inevitably does, would the land revert back to the farmers and what would be the mechanism for this (to whom and at what price)? In a recent judgment the SC has said that the land need not be returned to those from whom the government acquires it. Thus, it is a one-way street and a mistake is costly to the displaced. Many farmers would be displaced and, as mentioned above, their social linkages would have been broken. One cannot re-establish the village again after breaking it up. This is not a reversible process. Further, who is going to pay the cost of the transition in which a community is broken up and which involves the suffering of the women and the children displaced from their hearths, schools, etc.?

and not for speculative purposes as real estate. The example of DLF and others in Gurgaon and other places comes to mind. They acquired advance information as to which areas are likely to be urbanised around the new NH8 and acquired that land from farmers at literally throwaway prices (market prices for that time). They have then released the land slowly over the last 20 years keeping prices artificially high all along and benefiting enormously. Land prices in this period have risen almost 500 times, far higher than any other index of prices.

When industry goes back on its promises as it inevitably does, would the land revert back to the farmers and what would be the mechanism for this (to whom and at what price)? In a recent judgment the SC has said that the land need not be returned to those from whom the government acquires it. Thus, it is a one-way street and a mistake is costly to the displaced. Many farmers would be displaced and, as mentioned above, their social linkages would have been broken. One cannot re-establish the village again after breaking it up. This is not a reversible process. Further, who is going to pay the cost of the transition in which a community is broken up and which involves the suffering of the women and the children displaced from their hearths, schools, etc.?

5. Democratic Process Not Followed

IN setting up SEZs an essentially undemocratic process is being followed. While industry and commerce have been consulted regarding what they need, the farmers and civil society groups have been left out of any consultation process. It is assumed that they will accept meekly the decision to take away land from agriculture for the setting up of commerce and industry. It is assumed that their notion of their own welfare is not important.

It is not that the entire country is being turned into SEZs. Certain areas are being selected so that the burden of this kind of industrialisation is going to fall on some people and not all. The question naturally arises as to whether in a democracy those to be adversely affected need to be consulted or not.

Should it not be the case that if the collective decides against such a project then the government should look for alternative sites where the people agree to the project? If no such site is found, then it means that the majority do not want that kind of development and then in a democracy that decision should be implemented and such a project not be allowed to set up. If people do not want a certain kind of development, then that decision should be respected. The government should not assume that it knows best and it can force its will.

Finally, for the sake of accountability, land if needed should be acquired in phases as the project is set up. Thus, it is necessary that the party interested in setting up an SEZ should give a time-bound plan and if that is not adhered to then not only should more land not be acquired but what was acquired should be returned. A fine should be imposed on the party involved and distributed to those whose land had been acquired. This would make the system more accountable which today it is not.

For example, if in Singur, the Tatas are now planning to set up a plant to produce 1 lakh cars then it may be allotted, say, 50 acres of land with the promise that more would come later as the project progresses to the next phase. After all, if Maruti producing many times more car can function in a plot of similar size, then why cannot the Tatas. It is also possible that land to the Tatas be given from out of the closed industries that abound in West Bengal. This would not add to the displacement. It would be a much better solution than giving fresh land and causing displacement and hardship to a large number of people.

6. a. Macro Aspects

TODAY, the government has adopted the policy of ‘growth at any cost’ with the cost falling on the deprived and marginalised sections of the population. The benefits are being taken by the better-off sections of the society and the big businessmen. It is argued that the SEZ policy would lead to a rise in the investment rate in the economy to achieve a 10 per cent rate of growth. It is suggested that there would be trickle down and that would lead to the poor also benefiting.

The question is: is this the only way to increase investments and the rate of growth in the economy? One could also ask as to whether growth cannot take place through a pro poor-policy. Finally, one needs to be sure whether there will be trickle down to the poor or would there be two separate circles of development a high growth one with the elite benefiting and a low growth path in which the bulk of the population would be trapped. How often it has been found in the Indian context that trickle down has not really worked or has been far too slow and yet the people are expected to put their faith in these policies once again.

In the last five years, the investment rate has jumped from around 25 per cent to around 32 per cent without the concessions being announced under the SEZ scheme. Then what is the need for further incentives at the expense of the marginalised sections of the population? The issue is: what are the prerequisites to investment increase? And, what is the role of concessions in the investment process?

The concessions in taxes and relaxation in environmental regulation and labour laws are expected to make operations in the SEZ highly profitable. All this is being done in the name of exports, to make these zones export competitive by helping industry in these zones to have lower costs of production and higher profits. There is no doubt that with the concessions announced and the privileged position that is being granted to the SEZs, they will get investment so that they will generate employment and output. However, it is equally true that they will also displace production that was already ongoing in the area where SEZs will come up. The past investments in agriculture, non-agricultural activities and in the creation of habitation in that area will be destroyed. Thus, the issue is: what would be the net increase in investment, employment and output?

Further, given the concessions, much of the investment in SEZs is likely to be at the expense of the investment in the rest of the economy. Finally, some may even close their units in the rest of the economy to shift to the SEZs. Due to these three factors, the net investment will turn out to be much less than what would be the gross flow of investment to the SEZs. In fact, because the price of output from the SEZ is likely to be lower than that in the rest of the country, a lot of smuggling will take place and the output in the rest of the economy will be adversely affected. This will further affect employment.

Since the industry set up in the SEZs is likely to be of the modern variety, it will use much more capital per worker and generate much higher output per worker. Thus, the SEZs are likely to generate little employment compared to what they will displace both inside the SEZ and outside it (and that too of the skilled variety). This will undermine any trickle down that is being talked of.

SEZs are likely to involve concessions in income tax, corporation tax, excise, customs and sales taxes; so there will be substantial revenue loss compared to the potential tax collection. Further, to the extent industry will shift from the non-SEZ areas where they are required to pay taxes to the SEZs where taxes would not be required to be paid, there would be a decline in tax collections. Moreover due to smuggling of cheap goods from SEZs to the rest of the country, there will be further loss of tax collection. When smuggling takes place easily from outside the guarded borders, it is not difficult to imagine that this would be easy from the unguarded SEZs. The resultant revenue losses will aggravate the deficit in the budgets and result in cut back in expenditures to fulfill the FRBM Act requirements. Most of the time these cuts tend to be in the social sectors which will worsen the situation for the poor.

Finally, as has happened so often in the past, there will be over-investment in the SEZs. As suggested earlier, this would be at the expense of the non-SEZ areas of the country. This would result in imbalanced development and a rise in uncertainty for the economy with consequential impact on the poor who by then would be out of jobs.

In brief, the macroeconomic situation will face major challenges. Employment in the SEZs would rise but would be adversely affected elsewhere. Net output following loss of production in the activities that were carried on prior to the setting up of the SEZs, in the small scale sector and in the displaced industries, would rise much less than claimed. Similarly, investment would rise but much less than being suggested because of the destruction of assets in the SEZs and the small scale sectors and displacement from the rest to the SEZs. Loss of tax revenue would be substantial and would affect the budgetary calculus. All in all, the macroeconomic portents are not very promising.

6. b. Enclave Development

IT is also clear from the earlier section that the SEZ areas will develop substantially at the expense of the non-SEZ areas. This is likely to accentuate the already rising disparities. Loss of taxes will lead to shortage of funds for development in the non-SEZ areas.
There is likely to be diversion of resources from the non-SEZ areas to the SEZs. For instance, water aquifers would be used rapidly as has happened in the past and the poor people in the surrounding areas will be starved of water. The only way to prevent differentiation from rising further is to declare the whole country an SEZ. One may ask: why limit the supposed benefits of SEZs to only limited areas and aggravate disparities?

7. Conclusions

THIS paper has analysed some of the key features relevant to the creation of SEZs. It is argued in the article that the SEZ policy is a part of the policy of ‘growth at any cost’ with the cost falling on the already marginalised sections in the rural areas. Huge concessions are being offered to the developers of SEZs and the entrepreneurs for locating in the SEZs. The beneficiaries are likely to be the affluent and skilled sections of the population. Thus, those who gain and those that lose will be different sections of the people. It has been argued that those displaced will not get the market price for their land and even if they do, this price would not take into account many of the hidden costs, like being a part of a community. As such, payment of market price for land will not be a ‘just’ compensation, specially to those who do not understand the institutions of saving and investment.

Displacement will not be just of agriculturists but of a far larger number of people associated with a way of life which will be totally disrupted. Market price does not factor this in since it is at best based on the future flow of incomes (with capitalist development) from the piece of land acquired. It is not valued from the point of view of the displaced to whom the way of life being destroyed may be worth much more, specially in the long run. Unfortunately, some Marxists seem to be going for a new form of class struggle where the workers and capitalists will together fight the marginalised, the farmers and tribals who instead of getting their support are being treated as anti- industrialisation.

The EGoM has not been able to resolve the problem of acquisition of land. If the government does so, it would pay much less than the potential market price but if this is left to the private sector, the land mafia would be involved and the price paid would be much lower than the market price. There is really no solution. Further, it is argued that many in the rural areas do not possess land and will get little compensation when they are displaced. They will join the ranks of the unemployed in the urban areas. Those who do get compensation will find that they would not be able to start businesses since they lack the experience for it (this is the age of core competency). Finally, at a time when the crisis in the small scale sector would only worsen, asking the inexperienced farmers to start small industry or business would be doing them a disservice.

It is argued in this paper that employment generation in SEZs will not be able to compensate for the loss of employment in the activities the SEZs will displace and in the small scale sectors which are likely to be hit hard. Further, the output increase will be much less than claimed and investment will be at the expense of the non-SEZ areas and less than claimed since there will also be destruction of capital. Finally, it is pointed out that the more successful the SEZs the more would be the loss of revenue to the government due to the tax concessions. There is likely to be large scale smuggling and new possibilities of transfer pricing and siphoning out of profits.

There would be enclave development and disparities would rise. Migration to urban areas will rise and they will face further collapse. The excess land being allotted to the SEZs will result in the creation of new landlords. The government is creating new landlords 60 years after independence and long after it was thought prudent to end landlordism in the country. Reports are that some large SEZs being set up by the corporates will be known as “….. desh†, like, Bangladesh, where the well-off will live in style.

If the overall gains from SEZs are so unclear and the government is going ahead with the scheme, then it can only be because it wants to give concessions to certain sections (who are pushing for it). The Central Government is playing the same role as the World Bank and IMF do in making nation-states to compete for capital and give concessions to it. The SEZ policy is making the States compete with each other to get capital. Those States that do not go for SEZs will suffer because others will go ahead and attract investment. Given the negative features of SEZs, even allowing 5000 hectares is too much land for one SEZ. Having hundreds of them sprouting in the country is even worse. In brief, if SEZs are the logical culmination of the current Indian strategy of ‘growth at any cost’ with the cost falling on Bharat, then one needs to not only scrap the SEZ policy but the development strategy itself.