Dear students of ANALOG IAS and THE IAS FORUM.As i have not given you any printed material related to SEZ,so i am posting this article ,which will help you immensely in your preparation for GS,Interview and paper-2 SOCIOLOGY .
SPECIAL ECONOMIC ZONES
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Saroj Kumar Samal
M.A(Gold-Medalist) M.Phil & LL.B
Director, Saroj Samal’s I.A.S, New Delhi
Email: sarojksamal@gmail.com
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Special Economic Zones (SEZs) denote
geographical areas which enjoy special privileges as compared with non-SEZ
areas in the country. The main motivating force for setting up SEZs came from
the Ministry of Commerce with a view to boost exports by attracting both Indian
and foreign corporates to undertake investment in these areas. Earlier Export
Processing Zones are now also being converted into Special Economic Zones.
The main argument to establish
SEZ is to promote exports by concentrating resources in some pockets
(designated as SEZs). The policy was introduced tract labour to any extent. The contract Labour (Regulation &
Abolition) Act is also proposed to be amended to include certain peripheral
activities.
SEZ Policy
Motivated by the Chinese Experiences
China established in 1980
special economic zones (SEZ) in 14 coastal cities. The main purpose was to
provide a dual role for SEZs to act as “Windows” in developing the
foreign-oriented economy, thus, generating foreign exchange by boosting exports
and importing advanced technologies. Consequently, SEZs became “radiators” in accelerating economic
development. In these zones, to attract foreign investment, custom duties
and income tax were eliminated. This helped China to improve the coastal
regions and thus accelerate the development of these regions. The policy helped
to attract foreign-funded enterprises to invest over $20 billion in China and
over 5,000 domestic enterprises from all over the country to invest about 30
billion Yuan in SEZ regions. As a result, six
pillar industries took firm roots in China. They are: automobiles and spare
parts and components, micro-electronics and computers, household electrical
appliances, bio-medicines and optical, mechanical and electrical products.
CRITICISM OF SEZ
POLICY
The
critique of SEZ policy has emerged from within the UPA government as well as
from the left parties and even independent sources. It would be relevant to
review the debate going on.
Firstly,
the Finance Minister Mr. P. Chidambaram, disagreed with the Commerce Minister on issues of key concessions, land use and
the future of existing export-oriented units. A study made by the National
Institute of Public Finance and Policy (NIPFP) found that the Government will lose Rs 97,000 crores in
tax revenues during 2005-10 as a consequence of the tax concessions to SEZ
units. This works out to be an annual average loss of Rs 19,400 crores to the
state exchequer. The IMF Chief economist estimates that the loss of revenue to
the public exchequer will be of the order of Rs 1,75,000 crores. These figures
are being quoted by the Left that the SEZ policy needs a review because it is
bound to add to fiscal deficit whereas the Finance Minister was making efforts
to reduce the budget deficit every year. The Reserve Bank of India has also
expressed its reservations about it. The basic question is: shall these tax
concessions bring about any dramatic change in giving an impetus to the export
growth? The fact that the SEZ projects
in 2004-05 were able to provide exports barely to the tune of Rs 17,729 crores
(4.9 percent of the total exports) indicates the capacity of these units to
accelerate exports. In contrast, the small scale sector provided exports of the
order of Rs.1,24,416 crores during 2004-05 or 34.4 percent of the total exports.
The question which the nation must decide is: should it promote the SME sector
which has much greater potential or the SEZ units which contribute relatively
much less in terms of foreign exchange earnings? Although Mr. Chidambaram is
being dubbed as a conservative vis-a-vis the reformist but there is much more
sense in his point of view. Mr. Narendar Pani observes in this connection: “The
FM knows that he will be in trouble if
the economy as a whole does not do well, while the Commerce Minister concerns
are only with export-oriented industries that are expected to benefit from
SEZs. “(Narender Pani, SEZs as a Chinese Puzzle, Economic Times, September 22, 2006). The basic issue is that the
assumption of closer links between
sectors benefiting from globalisation and the rest of the economy has not
been validated by international experience.
The
second issue pertains to acquiring huge
tracts of prime agricultural land for SEZ units. For instance, the UP government
had given a corporate house 2,500 acres of land in Dadri to set up a power
plant which required only 50 acres. Similarly, West Bengal Chief Minister has
handed over prime agricultural land for the Tata Small Car Manufacturing unit
at Singur. This land was capable of producing three crops a year. Moreover, acquisition of land is done at prices
determined by the Government and not market prices which is the legitimate
right of the farmers. Obviously, this was being done to feed rich
industrial houses and developers at the cost of poor farmers. Congress
President Mrs. Sonia Gandhi felt seriously disturbed about the way things were
going on. She laid down the following guidelines for Congress-ruled states on
23rd September 2006.
“Prime agricultural land should not
normally be diverted to non-agricultural uses. Industry required land. But this
must be done without jeopardizing agricultural prospects.”
She
added “farmers must be compensated well for their land, rehabilitation policies
must be strengthened to reassure displaced people, and farmers could perhaps be
given a stake in projects set up land acquired from them.”
Following,
the indictment of SEZ policy by the Congress President, whereas the Left felt
that its stand was vindicated, ministers within the UPA were keen to do a
U-turn and declare that they were already following these guidelines. On
September 25, 2006, Commerce Minister Mr. Kamal Nath announced that “the Board
of Approval for SEZ has made it mandatory that no proposal for setting up SEZs on prime agricultural land be cleared.”
The Agriculture Minister, Mr. Sharad Pawar, said: “The government’s idea of acquiring land at government rates was not
good. The concept of economic development by putting the farmers out on the
streets is not welcome.” Pawar expressed his unhappiness about the policy
of state governments deciding the price at which farmers sell land to private
companies. “Actually it should be between the industrialists and the farmers.
If at all the government is involved, then it should ensure that the farmers
get the rightful compensations and also some share (at least 12.5 percent) of
the developed land.”
Mrs.
Sonia Gandhi’s guidelines produced an electrifying effect and the UPA ministers
started singing a different tune on the policy of protecting the interests of
farmers.
Thirdly,
a related question is about the land use.
To stipulate only 25 percent land for
export-related industrial purpose and the rest for infrastructure, housing,
parks, golf-courses appears to be totally unjustified. Moreover, to suggest the
construction of 25,000 housing units in a multi-product SEZ implies that
instead of boosting manufacturing and rendering services for exports, the
developers will be given total freedom to make enormous profits from housing.
It would, therefore, be proper to lay down norms of land use and insist that at
least 50% land in a SEZ will be used for industrial production, 25% for related
infrastructure and only 25% is made available for other facilites like schools,
a hospital, a housing complex for workers employed in SEZ and recreational
facilities.
Fourthly,
the question of exemption from labour
laws is another vital issue. In order to attract industrialists – Indian as
well as foreign, state governments are over bending to promise SEZs from
exemption of labour laws. What does this imply?
This
implies that state Labour Commissioners have no jurisdiction over factories in
SEZs. The power of the Labour Commissioner will be transferred to the
Development Commissioner and the Labour Commissioner will be required to take
permission from the Development Commissioner to enter SEZ, even for inspection
of ‘safety and environmental norms within the factory.’
Mr.
Mahesh C. Agarwal, Chairman – Managing Director of Brijbasi Hi-tech Group, in
his article states in a very forthright manner: “So workers are completely at the mercy of the factory owners in the SEZs,
and they either have to accept the inhuman and fascist conditions prevailing
therein or lose their livelihood. The working conditions in the units set
up in the SEZs are appalling, as expected, and there is often no restriction
even on the length of the working day.”
But the
irony is that the Left parties, which earlier had an uncompromising stand on
the application of labour laws vis-a-vis the Governement, are also having
second thoughts on this question. Indications to this effect were noted in a
article titled “Marxism and Left Front government’s efforts of
Industrialization” published recently in the party organ Desh Hitaishai by
Benoy Kumar, a member of the CPM Central Committee, where he argues: Bengal
alone cannot afford to refuse the abolition of labour laws. If it does so,
industries will come up in other states, thereby adversely affecting the
interests of the working class. “If states like Maharashtra, Gujarat. Karnataka
and Tamil Nadu announce that they will abolish labour laws as desired by the
Centre and if the working class there fails to resist such a move, what will
our state government do? If we insist on maintaining labour laws in our SEZs,
there will be no industries here.” (Hindustan
Times, September 19, 2006).
The
attitude of both the Centre and the State Governments on the application of
labour laws is very questionable. The blame game is no use, the states putting
the responsibility on the Centre and vice versa. The real issue is: When SEZs are provided land by the
Government at below the market rate, they are provided exemption from a host of
taxes, customs duty, excise duty, service tax, VAT etc., are these not
sufficient incentives for them as against non-SEZ industrial units, then what
is the justification of providing exemption from labour laws. Giving the
industrialists power to exploit the workers and force them to work in inhuman
conditions shall be violative of Article
38(1) of our Constitution which states: “The State shall strive to promote
the welfare of the people by securing and protecting as effectively as it may a
social order in which justice, social, economic and political, shall inform all
the institutions of the national life.” Should the state forget its duties to
provide citizens the ‘right to work’
and ensuring a ‘decent standard of life’
and full enjoyment of leisure?
Lastly,
the country will be divided into two
separate groups – SEZ and non – SEZ areas, Experience of locational preference
with huge relative reduction in taxes and duties as also cost reduction on
account of exemption of labour laws shall prompt industrial units to shift from
non-SEZ to SEZ areas. This implies that net additions to total investment will
be less than the projected level by the advocates of SEZ.
To conclude: There is a need to have a reconsideration of SEZ approach to
industrialization and export promotion. The Finance Minister and the Reserve
Bank of India do not see any justification in having a system of differential taxation in SEZ and non – SEZ
areas causing an erosion of tax revenues ranging from Rs 1,00,000 crores to
Rs 1,75,000 crores according to different estimates. Moreover, the earlier
policy of exempting tax revenues if new industrial units in the hinterland are
set up to mitigate the additional costs required was justified. But most of the
SEZ units are planned around the metropolitan towns. For instance, Reliance
wants to set up Maha Mumbai SEZ, the second largest SEZ in the world – after
Shenzhen in China – spread over an area of 35,000 acres. Nearly 100 villages
covering 1.5 lakh families face eviction in view of the notices served by the
Maharashtra Government. A government official admitted: “The entire region is
the states’ rice bowl. Almost every family in these villages cultivates paddy
though majority of them are small and marginal formers making land acquiring
process more complicated.” (Report in Economic
Times, 2nd October 2006).
Reliance has also proposed another multi – product SEZ in Haryana spread
over 25,000 acres. Similar proposals of setting up SEZs in the vicinity of
major metropolitan towns are also under consideration of state governments. Why should the government subsidise the big
business houses – both Indian and foreign – at the cost of the farmers, is the moot question.
Earlier
the poor villagers have been suffering due to big power dams and Narmada Bachao
Andolan (NBA) took up the cause of their rehabilitation. Social reformers have
now taken up the cause of displacement
of poor farmers by providing very low rates of compensation for acquiring
their land. For instance, jagatsinghpur steel project by POSCO has already been
allotted 1,100 acres of agricultural land for Rs 25,000 per acre falling within
the fertile delta of Mahanadi by the Government of Orissa. This is a very low
rate of compensation for the ousted farmers.
Moreover,
the experience of China suggests that the Chinese
hinterland is still lagging, now even more so against the glamorous coastal
regions. The Chinese have, therefore, decided to have a course correction in
Eleventh Five Year Plan.
While in
the Approach Paper of the 11th
Five Year Plan, India set up as its primary goal “Towards Faster and More
Inclusive Growth,” in practice through the policy on SEZ we are setting up
“iniquitous enclaves” of development which will result in “exclusive growth.” Bringing out the flaws in SEZ Policy, Business
Line in its editorial states: “The history of discrete or locational tax
exemptions suggests a shift in investments not an addition; firms tend to move
productive capacities to low-tax regions instead of adding fresh
investments.... But even if that were not the case, the SEZ concept is still faulty because it creates opportunities for
the few....Historically, the export processing zones have been poor
exporters and even poorer foreign exchange earners compared to domestic tariff
area; now, the SEZs are required to perform even less in terms of forex earning
while being given more, precisely at a time when the overall economy with all
its constraints and bottlenecks is performing excellently.” (Business Line editorial, September 26,
2006 titled Iniquitous Enclaves). On the one hand, India intends to emerge as a first – rate super – economic power by
2020, but on the other hand, it will
have third – rate labour with deteriorating economic conditions with no
income security or employment security or social security in SEZs which are
destined to become industrial enclaves with super – profits. Does this all
match with our concept of so – called inclusive growth? Whereas the ILO has set
‘decent work’ as their goal, we are
generating forces which lead to ‘indecent
work’ as their goal. It may be noted that the Second National Commission on
Labour in its Report (2002) clearly stated that it was not in favour of
granting any exemption from labour laws in respect of establishment in export
promotion zones or special economic zones.
Mr.
Rahul Bajaj, Chairman, Bajaj Auto Ltd. Criticizing the SEZ policy mentions: “I
believe that on the balance the SEZ Act and rules currently in force may not
ensure that the nation would gain significantly. As they stand, they are
possibly providing incentives to units in SEZs disproportionate to the
incremental benefits that may accrue to the nation.” (Some straight talk on
SEZs, Economic Times, October 4,
2006). There is a need to impose stiffer obligations on SEZs so as to justify
the incentives. “with a stiffer export obligation of 60-75% of production, 60 –
75% reservation of land for production units and logical and fairer land
acquisition process, SEZs may serve the ends that they should serve.”
To sum
up: India has been carrying forward the process of industrialization since the
Second Five Year Plan started in 1956. Big
industrial units were established in steel, fertilizers, shipbuilding, aircraft
manufacture and several other basic and heavy industries related to
infrastructure, and large tracts of land were acquired. But Government had established
a relation of trust and thus, the process moved on smoothly, because it was
motivated by ‘public purpose’. Moreover, for industrial units to be established
in backward areas, Government provided incentives and tax concessions.
Consequently, there was enthusiasm about industrialization of the country.
Private sector also got strengthened to set up units, once basic infrastructure
was made available.
The Government has failed to create a sense of enthusiasm and motivation among the people about SEZs as the major
vehicles of industrialization. Rather they are seen as promoting ‘crony capitalism’ in the country, as
symbols of generating inequalities and totally inclined towards MNCs and big
Business Houses to earn huge profits. There is, therefore, a need for course
correction. SEZ alone cannot be the answer for rapid growth. They can only be
supplements in the process of growth. If this view is acceptable, there is a
need to bring about a balance between SEZ and non-SEZ units and thus,
rationalization of incentives and tax concessions has to be undertaken, rather
than tilting the balance only in favour of SEZ units. The basic difference
between China and India is that whereas china operates under a single party
rule, India has a vibrant multi-party democracy. In this political structure,
the Government cannot ignore the
perceptions of the people towards ‘welfare’ and ‘public purpose’.
Consequently, it would be prudent to develop a unique SEZ model within the
socio – political framework of the country, rather than blindly imitating
China.
