The Hindu Business Line : SEZs without land acquisition

No one, not even the National Commission on Farmers, disagrees with the principal approach to the creation of SEZs. No one questions the governments' right to acquire land. But land does not have to be acquired. Farmers can pool their land and offer them to the promoters of SEZs in a Dutch auction, with terms spelt out in the best interests of both parties, says G. RAMACHANDRAN.

India is about to create numerous special economic zones from land that are most probably owned by farmers. The principal approach to the creation of the SEZs envisages the acquisition of land from farmers by the Central and the State governments. Their enormous and unquestionably unilateral power will be put to use in acquiring these land.

The governments will invoke the Land Acquisition Act. Or, they may enact new legislation towards acquiring land. The land will then be transferred — at a price or otherwise — to promoters and developers authorised to set up SEZs. Farmers will be bought out and packed off.

There have been loud murmurs of opposition, caution, dissent and advice from political parties and industry associations. They are concerned that the compensation paid to farmers may be inadequate. The Communist Party of India (Marxist) thinks that developers and promoters of SEZs will make huge fortunes at the expense of farmers.

The Confederation of Indian Industry (CII) President has two suggestions. First, compensation should be close to market rates. Second, landowners should be given a share of up to 15 per cent in the appreciated value of the land acquired. The CII sees the whole issue as one of compensation. It does not see any possession and dispossession issues. That is because it is possessed by China. The CII thinks that SEZs offer `the only way forward' in bridging the gap in manufacturing and employment between India and South-East Asia, including China.

India, China, industrialisation and massive SEZs together create a heady feeling. No one has time or a thought for the farmer as an individual. Consider this. The National Commission on Farmers (NCF) Chairman has merely suggested that there should be some form of zoning that puts to use wasteland and land with salinity and acidity for construction and industrial activities. Once zoning is done, the farmer can be bought out and packed off.

Buy-buy, bye-bye

No one, including the NCF, disagrees with the principal approach to the creation of the SEZs. No one questions the governments' right to acquire land. Land can be bought from farmers. The right of the farmer to hold on to land is subordinate to the governments' right to acquire land. The residual issue is compensation.

Worse, no one has asked if land should indeed be acquired from farmers. No one, including the NCF and CII, has suggested that farmers should continue to be owners of their land even as their land is put to better use in the SEZs. The CII, India's prestigious industry body, does not think that land is capital and that companies should treat land on a par with debt, equity, technology and human resources. No one thinks it is outrageous and horrendous to treat land like a consumable or as a length of steel piping.

Wholesale hypocrisy

Farmers in India are among the world's most vulnerable inhabitants. Nothing that is theirs is really theirs. Their pride, livelihoods, habitats and land can be taken over with force, without force, within the law and unlawfully as well. The approach to the creation of SEZs is an example of the systematic disadvantages and discrimination that farmers face.

Let us consider equity and debt. Will the CII accept a proposal that envisages the mandatory one-way and permanent transfer of cash surpluses from companies at a rate of return that is close to market and with a 15 per cent share in the abnormal positive returns of, say, a hedge fund?

The CII will call this a horrendous proposal. It would argue that each company's right to use its cash to pursue its proprietary plans should not be circumscribed. It would assert that the larger interests of the country are best served when each company pursues its goals without being separated from its cash. It would assert that compensation is not the issue. It would argue that the issue is volition. It would shriek if there were any violation of volition.

Let us consider physical and knowledge assets next. Will the CII accept a proposal that envisages the mandatory sell-off and a permanent one-way transfer of telecom networks and crude refining capacity at a price that is close to market and with a 15 per cent premium over market? The CII would be outraged. It would argue that each company's right to own and use its physical and knowledge assets should not be circumscribed. It would argue that compensation is not the issue. It would say that it is a question of principle.

What principle?

Partnerships, empowerment and co-ownership are buzzing buzzwords that are used by leaders in business, government and politics at seminars and at Davos in Switzerland. Those who lead non-government organisations use the same words, perhaps more frequently and fervently. The three words are powerful. They stir images of multilaterally accepted action plans with collateral gains that spread in all directions.

But there are no proposals from the NFC, the Central Government or the State Governments that involve partnerships, empowerment and co-ownership in the context of SEZs. There are no plans from the Communist Party of India (Marxist) that envisage the presence of farmers in SEZs as equity owners in a co-operative structure to which they bring land in lieu of financial capital.

The CII has no plan that envisages an unlimited but not unequal share of the upside from the future profits that SEZs will generate. It is likely that the CII does not regard land as the most fundamental part of the capital that will be deployed by the SEZs. The SEZs cannot be built in the air. Without land, there is nothing special and nothing competitive. There is no zone. Forget the factories, the silos, the runways, the hangars, the warehouses, the roads, the golf links and the water treatment plants.

But it is perfectly acceptable to buy off farmers and pack them off because it is legal or will be made legal. In any case, the State Governments will carry out the jobs of zoning, marking, buying and evicting. Payment will come after eviction, if at all.

The partnership principle

The SEZs will indeed have to be built on land. But land does not have to be acquired. Farmers can pool their lands and offer them to promoters and developers of SEZs in a Dutch auction. (This author wrote about Dutch auctions in this newspaper on May 18, 1994.)

An SEZ — or a State government acting as its agent — can make a bid for a tract of land that is compliant with the system of zones configured by the NFC. First, the Dutch auction bid will state the period over which the land will be in the possession of that SEZ. Second, the bid will state the structure of guaranteed cash payouts per hectare that will be made over the contracted period by the SEZ to farmers.

Third, the bid will also state the share in the SEZ's aggregate upside per hectare that will accrue to farmers. Fourth, the bid will state how the SEZ will gainfully employ farmers in the SEZ. Fifth, the bid will outline the legal recourse available to farmers when the SEZ defaults. Sixth, and most important, farmers will be free to accept the cumulatively best Dutch auction bid and thereby become volitional partners in the SEZ. But there are three questions. First, does India respect and trust volitional partnerships?

Second, will State Governments act only as agents of SEZs or will they also act in the interests of farmers? Third, will the terms of the winning bid made by a defaulting SEZ be enforceable by farmers and others offering their land?

(The author is a financial analyst. Feedback may be sent to indiagrow@yahoo.com and pari@thehindu.co.in)

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