New Maharajas Of India
By Devinder Sharma
& Bhaskar Goswami
17 December, 2006
It took nearly 15 years for India’s
first Home Minister Sardar Patel to ensure that the 554 princely estates
scattered throughout the country finally integrate with the new nation.
Some 45 years later, and in the 60th year of India’s Independence,
almost an equal number of princely estates are once again being carved
A new breed of Maharajas is all set to grab the crown.
The only difference being that the new princely estates comes within
the gambit of a strange sounding acronym – SEZ – meaning
Special Economic Zones. As the name suggests, these cut out zones will
have a special status, very special indeed. Except for floating its
own currency, these zones would operate more or less like a princely
estate, and would even have special courts to try the economic offences.
Doling out state largesse in the name of ‘production incentives’
– no, it’s not fair to dub these as subsidies – these
SEZ will primarily be duty free zones. Complete exemption from excise
duty, custom duty, sales tax, octroi, mandi tax, turnover tax, as well
as income tax holiday for ten years are some of the inducements. Also
spelled out are provisions for 100 per cent foreign direct investment,
exemption on income tax on infrastructure capital fund and individual
investment, and an assurance of round-the-clock electricity and water
supply. The SEZ promoters have also been given a waiver from carrying
out an Environment Impact Assessment.
Permitted to indulge in commodity hedging, external commercial borrowings
up to US $ 500 million without any maturity restrictions, freedom to
bring in export proceeds without any time limit and make foreign investments
from it, exemption from interest rate on import finance, and setting
up off-shore banking units with income tax exemption for three years
and subsequently 50 per cent tax for another two years are some of the
financial enticements. And if the new Maharajas were to sub-contract
production to local manufacturers outside the princely estates, there
would be duty drawbacks, exemption from state levies and income tax
All these exemptions will mean a revenue loss of more than Rupees 1.75
lakh crore (Rs 1,750 billion) to the state exchequer after five years.
Although this staggering amount is enough to feed the country’s
320 million people who go to bed hungry stomach for a number of years,
or provide guaranteed employment to at least two members of each of
the rural families for the next five years, this is a ‘small price’
that the nation must pay to keep for the royalty tag for the rich and
beautiful. In a way, what is being considered as a revenue loss is in
reality like the Privy Purse for the new Maharajas.
The Privy Purse was a grant given to the princely states after India’s
Independence in 1947. As part of the process of accession to the Indian
union, the Privy Purses were accorded in terms of measurement of the
revenue and potential of the merging states. These Privy Purses, provided
to some 400 princely rulers, were abolished by the then Prime Minister
Mrs Indira Gandhi in 1969.
Legally authorized to disallow any inspection, search or seizure without
prior permission, and with sanction to operate its own private security
system, these princely estates will for all practical purposes be autonomous.
That is how the former princely estates operated– of course, with
blessings of the British Empire. The new princes too enjoy the confidence
of the ruling Congress-led UPA Coalition. Moreover, with the National
Democratic Alliance (NDA) and the left parties bending backwards by
seeking a few amendments to support the SEZ, the political backing is
No wonder, the State governments are letting no stone upturned to acquire
agricultural land and offer it on a platter. With promises of ‘the
right kind of environment’ many chief ministers are waiting with
garlands in hand. Take for instance the Haryana Chief Minister who had
specially flown to Mumbai to invite a top industrialist. Gujarat government
had sent in a team abroad to invite investments for SEZ. The Orissa
government is moving a step ahead. It is seeking amendment to the Scheduled
Area Tribal Immovable Property Act thereby allowing outsiders to come
and buy the tribal land. Given a choice, the central and state government
would leave no stone upturned to handover the prime land to industrialists
-- Tatas, Ambanis, Mittals, and the likes.
Union Commerce Minister Kamal Nath has been going around seeking investments
from European countries for the SEZ. After all, he has a huge responsibility
to ensure that the Prime Minister’s dream of turning India into
an international workshop is turned into a reality.
You may call it ‘the biggest land-grab of the century’ or
term it as ‘open-loot,’ the powers that be are simply not
deterred. Prime Minister Manmohan Singh has repeatedly said that the
SEZ are the need of the day. No wonder, agricultural land, which is
a scarce commodity, is suddenly available in abundance. Unmindful of
the fact that the per capita land holding is already at an abysmally
low of 0.25 acre, the government is using the draconian Land Acquisition
Act 1854 to further purchase any land that it sets its eyes on. In the
first phase of clearances accorded by the government, a total of 1.25
lakh hectares of prime agricultural land are in the process of being
acquired. In the second phase too, almost an equal area would be obtained.
It was only after an increasing tide of protests that the Ministry of
Commerce asked the state governments not to acquire agricultural land
and to also ensure prevailing market value to farmers. The State governments
are however more eager to make available land to the industries. In
Punjab, where almost the entire state is irrigated, SEZs are being set
up on prime agriculture land. The Punjab government, for instance, is
using repressive techniques to browbeat the agitating farmers near Barnala,
who have been opposing the forcible acquisition of land for the private
company, Trident. Similarly, farmers have been agitating against the
government’s repressive policies for acquiring fertile land for
an SEZ near Amritsar. Although rules forbid acquiring more than 10 per
cent of the double-cropped area for setting up SEZ, the fact remains
a majority of the princely estates are coming up on fertile land.
Even in Himachal Pradesh, where the average farm size is about 0.4 hectares,
the government is keen to convert 35,000 hectares in the Kangra valley
One of the biggest SEZ is coming up near Mumbai. Spread over 14,000
hectares, it is coming up predominantly on double-cropped land. The
Mukesh Ambani group has already acquired 9,000 acres of land in Jamnagar
for its petro-product SEZ. It plans ultimately to increase the size
of the product to 10,000 acres and convert it into a multi-product SEZ.
With provisions for owning 65 per cent more land than required, the
government has provided the ‘developers’ of SEZ an environment
to build supermarkets, malls, restaurants, recreation parks and so on
– essentially given permission for building small princely estates.
Out of 1.25 lakh hectares allocated so far to SEZ, nearly 31,250 hectares
can be used for real estate development. The real estate firms are obviously
Another major SEZ proposed in Jhajjar adjoining New Delhi is spread
across 10,000 hectares and is again gobbling double-cropped land. Interestingly,
both these SEZ, proposed to occupy a landmass larger than the suburb
of Gurgaon, are yet to be officially approved. In Mangalore, one of
the promoters is the government-owned ONGC and 2,200 hectares of double-
and even triple-cropped land is being acquired for setting up an SEZ.
Take the case of Tata Steel promoted Gopalpur SEZ in Orissa. Originally
acquired by the state government for a paltry sum, land was handed over
to Tatas for a steel plant. When the plant didn’t come up, and
the farmers demanded the land to be returned, the company promptly proposed
to convert this land into an SEZ. Korean steel giant Posco, which is
also setting up a steel unit in Orissa, was provided with 1,600 hectares
of land and exclusive access to an iron ore mine despite massive protests
by farmers. Posco now wants this land to be converted into an SEZ and
the state government is willing.
In another interesting example, the CPM government in West Bengal has
acquired some 400 hectares of fertile land for the Tatas to set up an
automobile factory at Singur, near Kolkata. Technically speaking Singur
is not an SEZ, but what makes the deal politically significant is that
the State government has actually acquired the land at cost of Rs 140-crore.
It has been made available to Tatas for a-mere Rs 20-crore, which is
one-seventh of the cost price. Even that can be treated as a loan for
5 years. Ironically, while the poor rural women in self-help groups
(SHGs) in West Bengal pay a minimum annual interest rate of 24 per cent
for micro-credit, Tatas will be charged a nominal rate of 0.1 percent
In Kerala too, the communist government is gung-ho over the promise
The setting up of the princely estates is being primarily justified
on account of employment generation. The premise is that it will create
5 lakh job opportunities. Does this kind of employment generation mean
anything for India? This question has been conveniently ducked and for
obvious reasons. Now let us examine the ground realities. It was at
the beginning of this century that some 75 lakh people, more than the
population of Switzerland, had applied for a mere 28,000 lowly paid
jobs in the Indian Railways. For a country, which is on a fast track
information highway, this does not mean anything significant except
for statistics. Even if you were to employ five lakh out of these 75
lakh, isn’t that a mere drop in the ocean? Millions of assured
jobs can be created if the total amount of revenue loss – Rs 1.75
lakh crore – and the several times higher public sector investment
to follow is used for employment generation.
Not to discount the achievements in information technology, the fact
remains that IT has provided only five to six lakh jobs. The BPO service
industry that we hear about every other day actually employs only 2
lakh people. Why a large number of IT companies applied for setting
up SEZs is not because they intend to provide huge job opportunities
but are simply looking forward to take advantage of the tax concessions.
The tax exemption currently enjoyed by the IT sector comes to an end
in 2009-10. Moreover, since existing contracts and employment can be
shifted, it is quite likely that IT units will merely shift their operations
into an SEZ, thereby nullifying claims of employment and revenue generation.
With such large-scale diversion of land the first and foremost impact
will be through displacements. Our estimates show that close to 1.14
lakh farming households (each household on an average comprising five
members) and an additional 82,000 farm worker families who are dependent
upon these farms for their livelihoods, will be displaced. In other
words, at least 10 lakh people (twice the number of jobs that SEZ promise
to create) who primarily depend upon agriculture for their survival
will face eviction. The plight of farm labour is surely going to be
worse as they will not only witness their source of livelihood being
taken away but they will hardly see any employment opportunities for
them in the princely estates. All they can do is to stand outside the
tall gates of the SEZ and dream to be born in such families in their
Now let us take a stock at the annual loss in income for those displaced.
As per the latest report of the National Sample Survey Organisation
(NSSO 2005), the average income of a farming household stands at Rs.
2,115 per month (income from cultivation - Rs. 969; farming of animals
- Rs. 91; wages – Rs. 819; and non-farm business – Rs 236).
Of these, income from the first two sources (Rs. 1,060) will be immediately
lost. Therefore, each farming household will lose Rs. 12,720 every year.
The total loss of annual income for the 1.14 lakh displaced farm families
works out to Rs.145 crores. While it remains a fact that most of these
displaced farmers would earn more for their land, but as several studies
have shown that unless a rehabilitation policy is in place a majority
of these farmers would ultimately end up further marginalized over a
period of time.
As per the National Rural
Labour Commission, an average agricultural worker gets 159 days of work
in a year; and as per NSSO (2005), the average daily wage of agricultural
labour in rural areas is around Rs. 51. Considering this, the estimated
82,000 agricultural labourers’ households will lose Rs. 67-crore
in wages. And put together, the total loss of income to the farming
and the farm worker families is to the tune of Rs. 212-crore a year.
For the marginalized, the loss of income – even if it hovers around
the poverty line – has disastrous implications. After all, the
small piece of land is his only economic security.
Food security too is no longer the national priority. Otherwise, no
sensible government would have at any cost tinkered with the country’s
dwindling ability to produce food for its own population. Our own conservative
estimate shows that the nation will suffer a loss of Rs. 250 to 400
crores from the reduction in area under cultivation of food grains alone.
Foodgrain production is expected to drop by at least 4 to 5 lakh tonnes
a year. [i] Remember these are only conservative estimates. In case
of land under high value crops, the losses would be much higher.
Tall promises of employment generation notwithstanding, who will be
held accountable if the promise of job creation remains unfulfilled?
First of all, the Ministry of Commerce has no true basis for telling
us how many jobs will be created. It is merely a guess-estimate. Secondly,
if the past experience is any indication, the real jobs that are added
by the industries are only a miniscule of what they promise. Take the
case of Pepsico’s entry into Punjab in the 1980s. The multinational
giant promised to create 50,000 jobs. In reply to a 1991 parliamentary
question, the Ministry of Food Processing in acknowledged that the company
had created only 482 jobs, of which 210 were unskilled workers.
It is primarily to avoid embarrassments at a later stage for promises
unkempt that industrial houses are seeking the advise of consultancy
firms like Price Water House, Ernest & Young and Feedback Ventures
among others to prepare master plans for the promoters. Basically the
job of these consultancy firms is to write the proposal in such a format
using the right vocabulary so that its gets the government’s nod.
At the same time the State governments too are utilizing their services
to ensure that the land transfers do not invite un-necessary litigation.
In essence, if you are rich and can afford to hire a consultancy firm
to write a proposal on your behalf you can aspire to be a modern-day
It is therefore a free for all activity. If you can mobilize political
support by hook or by crook you can be rest assured that you are on
the right path to royalty. Whether you finally deliver what you promise
is something that you can leave it to the consultants to take care of.
What is more significant is that where in the world will you find a
pliable government and a supporting bureaucracy like India that helps
you to not only identify the place where you want to set up your princely
estate but also provide you all the necessary sops, support and protection.
In China, from where India drew inspiration, only six SEZ – at
Shenzhen, Shantou, Xiamen, Zhuhai, Hainan and Pudong – have been
set up so far. These economic zones, all in public sector, came after
a lot of debate and deliberation, and all of them are situated along
the coast. Faced with shrinking cultivable land, the Chinese SEZ have
come up only in wastelands. In India, all these norms have been thrown
to the wind. World over, there are only some 400 special economic zones.
If it was such a productive and useful activity, why hasn’t the
world woken up to the promises that Dr Manmohan Singh’s government
has been making?
Creating an economic magic has not been the reason for setting up the
SEZ. It is essentially aimed to create a series of affluent islands
amidst the cesspool of poverty, hunger and deprivation. An oasis, or
call it a pocket of effluence for the rich and elite. After all, the
rich and the elite find the poor an eyesore. They have to be therefore
For the rest of the country, exploited in the name of development, sub-Saharan
Africa is the only comparison.
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