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SEZs: The Problem

By Aseem Shrivastava

19 February, 2008

‘Few cities anywhere have created wealth faster than Shenzhen, but the costs of its phenomenal success stare out from every corner: environmental destruction, soaring crime rates and the disillusionment and degradation of its vast force of migrant workers…’

– The New York Times, 19 December 2006, describing the world’s leading SEZ in China

‘SEZs are here to stay.’

– Prime Minister Manmohan Singh, 24 March 2007, after the Nandigram massacre

Sitting in pampered precincts of urban privilege few people can appreciate or even find credible the way globalizing India Inc. is actually working in the countryside, as it goes about gouging the earth for resources and accumulating land banks, uprooting its residents from modest livelihoods. Land acquisition for SEZs is only the latest instance of such a predatory style of growth – involving the loss of livelihood, land, forests, pasture and water sources for millions of rural families who live by agriculture and related occupations.

A criminal failure of cognition – to which our policy-making elites have become blind on account of its routine nature – ensures that vital subsistence economies of the rural poor go unnoticed or neglected and make way for ‘development’ projects based on modern, western technologies. The habit is as old as British colonialism.

Growth appears to have become a fetish with our policy-makers, experts and media managers. Its qualitative content, character and spread have ceased to matter. Only the numbers count. Development is supposed to trickle down as a matter of near-term inevitability. As the numbers rise, we are told that the next task, now that the Indian economy is riding the crest of a wave, is to make growth ‘inclusive’. However, even as the rhetoric of inclusion is touted, the enormity of the challenge is hardly appreciated.

For such skewed growth to turn into development and become inclusive – spread beyond the top quintile of the population – it is minimally necessary that people willing to work find reasonably rewarding jobs, something that appears to have been slow to come (in fact, the latest numbers reported in The Times of India indicate that up to 10-20 lakh people may have lost jobs due to falling export revenues because of the rising rupee). The entire organized sector of industry and services has generated less than a few million new jobs since 1991! Inclusive growth and development also imply that the government is prepared to spend growing sums of tax revenue on the employment guarantee scheme, education, health, housing and infrastructure for the poor. Here too there is little cause for cheer. No surprise that three-quarters of India spends less than Rs 20 a day, according to a recent National Sample Survey.

It is in this context that the desirability of Special Economic Zones (SEZs) in the country needs to be evaluated. Given that the impressive annual growth rate of 8-9% has been achieved without SEZs, how necessary are the latter for further growth and development? If the aim is to make growth more inclusive, are SEZs, with limited employment-generating prospects, the way to achieve the goal? Is the enormous public cost of creation of SEZs worth it? Will their expected benefits compensate for the environmental losses, displacement of rural populations and loss of traditional livelihoods and habitats? Will the liberal land acquisition and loopholes in the SEZ law become the vehicle of speculative real estate gambles? What are the political and legal implications of SEZs in the medium and long term? These are some of the key questions addressed in this issue of Seminar.

Few policies in independent India have attracted such immediate political opposition from the affected public and faced such fierce intellectual criticism from across the spectrum of commentators, including those in international multilateral organizations. No other policy in the era of economic reforms since 1991 has been red-marked by so many powerful institutions. The IMF, The World Bank, The Asian Development Bank and the WTO have at various points of time during the past year expressed openly their misgivings about the SEZ policy. The Economist magazine too criticized the policy in a long article in October 2006. The reservations of the Ministry of Finance have also been well-publicized. Its differences with the Ministry of Commerce are transparent. While some of these criticisms zero in on the enormous tax relief that has been provided to invite investment, others warn of anti-dumping measures which successful SEZs might invoke in the future from competing nations in the global marketplace (neutralizing all export benefits), and yet others cast doubt on the limited size of SEZs, on grounds of scale-inefficiency.

There are other post-acquisition issues of the economic viability of SEZs – whether they are likely to generate the promised jobs, exports, growth and infrastructure. Will local people benefit from the development of SEZs (on what used to be their land) in the form of high-value jobs? Or will (menial) jobs be given to migrants from out of state, as is becoming almost the norm in some parts of the country, the displaced left to fend for themselves?

We need to discuss the implications of the SEZ Act for the working population, drawing on the experience of functional SEZs around the country. It has been pointed out that SEZs have shown a decided bias in favour of hiring young women, known for being diligent and docile, and the act makes room for legally tenable super-exploitation of workers. Incidentally the experience is very similar in other countries like China, whose path we have chosen to follow.

The immediate resistance to SEZs around the country is explained by their location on agricultural land. The striking thing about their location is that they are being created on some of the most fertile land acquired from farmers. This is not coincidental. In principle there is no reason why industrial parks cannot be sited in deserts (like the Thar) or ravines (like Chambal). However, these areas are utterly lacking in infrastructure. If the government was to locate SEZs on such land, it would necessarily involve massive private investment in infrastructure. As such, the corporate sector can piggyback off the existing infrastructure – roads, power, water-supply – assiduously created for agriculture via public investment over the six decades since independence. This fact has significant, potentially massive, implications for the food security of the country. Food for tens of millions might have to be imported in the future if SEZs expand in number and size (if the experiment is adjudged a success some years down the road).

However, there are pre-acquisition issues involving SEZs, to do with environmental losses, displacement and the loss of livelihoods. In a time when climate change is fast becoming an everyday concern of policy-makers, what could justify the clear-felling of 10 million ecologically sensitive natural growth trees on a coastline prone to erosion by the sea? An oil refinery vital for the survival of the nation? A critical steel plant? A port-based SEZ?

The last answer appears to be the correct one. In Mundra, Gujarat, in clear violation of the Coastal Regulation Zone and various environmental laws, large tracts of land have been cleared and granted by the Gujarat government to a well-known business group to inaugurate an SEZ. Thousands of farming, grazing and fishing families have been adversely affected by the launching of the project. No social cost-benefit analysis worthy of economic science has been carried out for this (or any other SEZ) project.

A disturbing and revealing study brings out the nature of rentier and crony capitalism that seems to be taking deep roots through the implementation of the SEZ Act. It underscores the enormous premium (of possibly upwards of 10,000%) that is being earned (given the throwaway price at which land has been obtained) on land leases by the business group involved.

A tracing of the evolution of laws for land acquisition, compensation and rehabilitation reveals that in recent policy announcements there is no basic change in the structural injustices built into legislation since the days of colonialism.

The SEZ story cannot be grasped in the fullness of its implications unless and until it is placed in the wider context of policies for rapid urbanization and upgradation of Indian cities. We thus need to situate the SEZ issue within the perspective of urban development policies over the past half-decade, especially the JNNURM and the abrogation of land ceiling legislation, which has paved the way for large private holdings in and around metros.

It is no secret that there are large loopholes in the SEZ law which leaves the door wide open for land being acquired for real estate speculation. In multi-product zones only 50% of the land has been assigned for industrial processing. What is the remainder going to be used for? The most likely use is real estate speculation. In fact the RBI has classified all lending for SEZs as real estate lending. Analysts point out how the Indian real estate market is being packaged for global buyers (like investment banks and private equity firms) looking to hold large portfolios from single sellers in India.

An entire arsenal of methods are being deployed by different state governments across the country to acquire land, water, forests and rangeland for purposes of mining, industrialization and construction of infrastructure. SEZs constitute one among many such species of land acquisition. However, it would be wrong to see land acquisitions for SEZs as a mere continuation of the process by which so much land has been acquired for non-agricultural use in the past. Given that SEZs will be governed by a special set of laws and rules created for the purpose and that incomparable autonomy will be granted to the (unelected) SEZ Authorities, there are fresh issues of governance that arise.

There has been resistance to SEZs around the length and breadth of the country. From Barnala in Punjab and Jhajjar in Haryana to Kakinada in AP and Nandagudi in Karnataka, from Nandigram in West Bengal and Jagatsinghpur in Orissa in the East to Raigad, Mangalore and Goa on the West coast of India, farmers, landless workers, fishworkers and artisans have expressed their anger against the loss of land, livelihood and habitat. In some cases, as in Nandigram and in Goa, projects have been cancelled. In some cases SEZ land is being de-notified, despite the SEZ Act. In Goa, people’s struggle has been so successful that the SEZ policy has been abandoned by the government recently. The diversity of resistance to the SEZ policy across the country offers encouraging conclusions for the resilience of democracy in the country.

Finally, whenever government policies face criticism the question all too often asked is: ‘If the present framework of economic policies is not appropriate for a poor country, what is the alternative?’ A properly implemented full-employment programme backed by funds mobilized by the government can meet the goal of eliminating not only unemployment and poverty in a short time, but also generate domestic demand for industrial products in addition to restoring environmental quality and strengthening infrastructure. This is not merely a possibility, but the ‘compulsion’ of our times.

Concern for marginalized rural communities and their habitat is often misconstrued as sentimentalism in the face of necessary and inevitable industrial advancement and progress. It is taken for granted that just as happened in the West, there will be a transfer of the huge agrarian population to urbanized occupations in the industrial or the service economy. However, there are good reasons to be sceptical of such a widespread view. First, when the western economies were industrialising and urbanising there were abundant global markets, including in the captive markets of colonies held by Europe. Markets were ‘free’ for companies from the metropolitan countries. This is not true for poor countries today. Markets in the West are saturated and protected, despite the WTO.

Second, the global resource horizon has shrunk since the time when the West industrialised. There was no environmental crises, peak oil or climate change knocking on the doors. Third, the industrial and service sectors are far less labour-absorbing today compared to the time when the West industrialised. The Manchester mills and Yorkshire mines needed plenty of workers. Today, by contrast, growth everywhere is typically jobless, if not job-destroying. Finally, the West industrialised before it became (somewhat) democratic, in the notable absence of universal adult suffrage, something which came to western nations only in the 20th century. This meant that large populations could be moved forcibly from their birthplaces to make way for industrial expansion. India is perhaps one of the first countries trying to industrialise and urbanise under universal adult franchise. The resistance is understandable, especially since alternatives or safety-nets have not been planned for the hundreds of millions of losers.

In the bargain, it is also taken as an inevitability that India will industrialise along the same lines as the West, using up energy, water and other resources with the same intensity. In a time of peak oil and potentially catastrophic climate change, nothing is more worrisome. Growing and irreversible ecological damage is the ongoing consequence of such elite delusions. What is even more unforgivable is the irresponsible myopia of the state.

It is nothing but hubris to imagine that humanity can replace ten million naturally growing trees concentrated in an ecologically sensitive area. In blindly adopting the destructive template of industrial modernity with incomparably poorer safeguards than the West, India is exposing itself to terrifying dangers in the future. Acquisition of land for SEZs is to be understood in this sobering perspective.

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