“While farmers at Nandigram and at many other places have opposed SEZs, a news report says that at about 40 km from Pune, in Avasari Khurd village, it is a different story,” he narrates. “Around 1,500 farmers from the village passed an unanimous resolution on July 5, seeking SEZ status for their village which is located 20 km from the proposed international airport at Rajgurunagar. The agriculturists from the village have decided to form a company: Avasari Khurd Industrial Development Pvt. Ltd, using 3,550 acres of land out of 6,250 acres of their total land.”

Mr Ashar and Mr Doshi, both chartered accountants, are associated with Welingkar Institute of Management, Mumbai, as faculty. Business Line interacted with the authors for their views on some of the current issues relating to SEZ. Here are excerpts from an email interview.

While China has only 5 SEZs, does India need 300? (341 SEZs were granted formal approval of which 130 have been notified and 200 proposals are pending with the State governments.)

Kanu Doshi: China and India have different SEZ models. The geographical spread of SEZs and the difference in the number of SEZs in the two countries may be attributed to distinct local conditions and the nature of their respective polity.

Having said that, the small number of SEZs in the Chinese model goes with the large size of their SEZs. The area under each one of the five SEZs in China is large enough to form a mid-sized city. Whereas the area under SEZ in India for 132 formally approved SEZs (up to July 23, 2007) is a mere 17,800 hectares. India’s industrial growth is committed to balanced regional spread. So the geographical dispersal is obvious. In the Indian model, land acquisition is virtually without Government’s patronage. Hence in India, very large-sized SEZs are ruled out for all practical purposes.

In India, if you see the state-wise spread of SEZs, the coastal regions (which are also perceived as investor-friendly States) such as Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu and Karnataka have got 92 per cent of formal approvals, and the other States get the remaining.

Huge but fewer SEZs, or smaller and numerous SEZs: Which do you think suits India more?

Yogesh Ashar: Numbers versus size may not be as relevant after all. What is more crucial is the ability of the SEZ Policy to deliver in terms of setting up better infrastructure, attracting more investments within the country, making India the manufacturing/service hub, generating employment and generally benefiting from the forces of globalisation. This is what China has also done. But it must also be conceded that in the case of too small SEZs, they may do more for their promoters than for India.

Should the SEZ projects in India be driven by Government or private sector, or be joint ventures?

KD: The SEZ Policy is an initiative of Government of India. The policy is meant to work in public-private partnership.

The Central Government or the State Governments may set up the SEZ on its own or jointly with any private party. So far as development of SEZs by the private sector is concerned, the monitoring mechanism under the SEZ Law is robust enough to prevent misuse of the policy. And if along the way, any leakages are noticed, and most certainly there will be some, they shall have to be plugged with open mind. On the whole, the scheme is pragmatic and free of isms.

Do the current land acquisition laws provide scope for exploitation of farmers?

YA: The litmus test of India’s SEZ policy would be its handling of land acquisition process. It is a matter between the SEZ developer and the owner of the land to strike the deal at the market price of the land. The real issue is: Giving a fair deal to the farmers.

In practical terms, the decision to give one’s land for SEZ development would largely be a collective or community-based decision. The dynamics of this process is just unfolding in India. If farmers do not want SEZ on their land, they would certainly refuse. Getting viable price for their land may largely be ensured by collective bargaining and weighing of all the issues involved.

The need is for the law to institutionalise a transparent mechanism for the transfer of land for SEZ. It shall include organising the body of land owners to ensure speedy determination of the will of the land owners to give their land for SEZ development, negotiations for better deal for farmers, obtaining consent of the farmers without coercion, individually or collectively leading to fixing up the land prices and final payment to the land owners.

The process may also include giving choice to farmers to receive compensation upfront or in deferred manner, protection of land of the owners who opt not to sell their holding etc.

The entire process shall also be entitled to adequate publicity. All this can go to ensure against exploitation of farmers.

Would the benefits outweigh the revenue loss (estimated to be Rs one lakh crore in next five years due to setting up of SEZ)?

KD: Revenue loss is a legitimate concern but equally eminent concerns are of job creation, having world-class infrastructure and sustaining export thrust.

The trade-off is simple. In our view, the proponents of revenue loss theory have come to see the benefits of alternate view and conceded that the existing resources of the Government would not be in a position to bring forth what the SEZ policy promises. For now, it appears that this issue is on the back burners.

Your thoughts on the argument that “the SEZ policy will make industrialists rich as 75 per cent of land acquired under SEZ will be used for construction of houses, airport, trading and business houses, hospitals under which they would exploit the people for earning huge profits”.

YA: A developer of SEZ with the mindset of a real-estate developer is destined to fail. The system as created by Special Economic Zones Act, 2005 is bound to strike back at such attempts. Your concern is very legitimate.

Many developers of SEZs are afflicted with real estate syndrome. But SEZ under the present regime shall have to be a business venture in infrastructure development (as against real estate venture) with its own dynamics, if it is to succeed.

If you conspire to profit by converting the world-class infrastructure within non-processing area of SEZ in to a real-estate scam, the whole exercise is bound to collapse under its own weight.

The non-processing area by default is meant to serve the legitimate needs of the processing area of the SEZ. If this does not happen, the viability of the SEZ shall be defeated. And the first hit shall have to be taken by the developer himself.

The checks and balances under the law are bound to defeat such attempts and deny the benefit of concessions and tax exemptions to clever developers.

How far is it equitable to have tax incentives and concessions, with no implementation of labour laws in SEZ?

YA: Some clarity is needed in this respect. The law of Special Economic Zones Act, 2005 unequivocally prevents the Central Government from modifying any law relating to trade unions, industrial and labour disputes, welfare of labour, c onditions of work, provident funds, employers’ liability, workmen’s compensation, invalidity and old age pensions, maternity benefits etc. as applicable to workers in any Special Economic Zones.

Only the powers normally vested in Labour Commissioner are vested in the Development Commissioner of the SEZ so far as they pertain to activities within SEZs. All legitimate rights of workers must be protected.

Your comment on the proposal that “SEZ policy should allow industrialists to get tax benefits even after 2009 when they will not be allowed to get any kind of tax concessions for setting up of industrial units in industrial estates.

KD: SEZ policy has aimed to get substantial FDI, to build up better infrastructure, and have export thrust. As an incentive for this, tax concessions are given to industries. For the industries outside SEZs, this is not the case.

Moreover, the facilities within SEZs have to be all new and shall not be put in place by transfer or shifting of existing facilities. Hence the tax concessions. SEZ rules do not provide any scope for relocation of existing firms to claim tax benefits.

While the Chinese SEZs are located more towards the coastline, in India they are located in major cities. Will the demographic issues like these have an impact on the outcome of the projects?

KD: Urbanisation (at least provision of urban infrastructure and facilities) is taken as important manifestation of national growth. With coming up of SEZs near Tier-II and Tier-III cities, the pressure on major metros should at least ease for the reason that employment opportunities would increase near smaller cities.

The non-coastal urban centres can now aspire for faster growth and infrastructure development if SEZ policy succeeds there. SEZs developed in such areas should ideally be those with smaller incidence of physical-bulk transport such as IT-ITES industries etc. Therefore, any major adverse demographic change may not happen.

Would FDI come into India “even otherwise”?

YA: FDI needs good enough reason to come. Hopefully, SEZs offer that reason. The first phase of luring FDI that liberalisation brought along is by now over. They would come “even otherwise” if they have no other place to go . Other investment destinations in Asia do not offer such complacency for India.

Do the State governments have enough directions from the Centre on how to deal with the land acquisition and related issues?

KD: It appears there is adequate communication on the issues involved between the Centre and the State Governments. However, some State Governments are more pro-active than others in this matter.

D. MURALI

V. R. VINOD KUMAR

More Stories on : Interview | Infrastructure | Books

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page