The Hindu Business Line : SEZs: How to land a good deal

If SEZ developers plan large, comprehensive settlements, of a thousand hectare or more, on uncultivable or degraded land, and introduce quality transport services, build hospitals, schools, and offer such other services, they will be welcomed with open arms, says P. V. INDIRESAN.

The previous article ended with two observations: (a) Proposed Special Economic Zones do not cultivate the poor. (b) They will not do so until it becomes profitable to do so.

F. W. Taylor, the Time and Motion Study pioneer, measured how much time he could save by using both hands to shave. He found that to be 1.2 minutes. However, that saving was offset by the more than two minutes he had to spend patching up the nicks and cuts he suffered. Our business plans are of the same kind: Businessmen calculate how large a Return on Investment they get by concentrating on the well-to-do. They do not calculate how much they lose by neglecting the poor, how much they suffer from the violence that erupts thereby.

The true losses

For instance, the true losses incurred by the anti-Narmada agitation are hundreds of times what it would have cost to rehabilitate displaced families to their satisfaction. The true cost incurred in Orissa and West Bengal because of political opposition by industrial groups and others in Orissa are several times what it would have cost to accommodate the poor. It appears that every time a high-wage job is created in SEZs and other capital-intensive schemes, one Naxalite is born. As a rule, the poor do not object to poverty but they become bitter, even violent, when confronted with increasing disparity. SEZs are planned the same way Taylor used both hands to save time. On the one hand, State governments try to garner windfall profits by charging astronomical prices for land. On the other, they accept losses by extending tax concessions. State governments would have been wiser and richer too had they done neither; acted neither as greedy middlemen, nor as patrons of the rich. Likewise, promoters of SEZs would emerge richer if they take over (and develop) even ten times more land than they do now at reasonable prices than by paying the astronomical sums governments are demanding.

At first sight, this proposition that SEZs acquire ten times more land than they do now will appear strange, even absurd. It is pertinent to ask what logic is there to attempt acquiring 10,000 acres when farmers will not part with even a thousand acres. This counter-intuitive proposition becomes clear when SEZs are organised not — as their name implies — as pure economic enterprises but as comprehensive habitats.

Consider two alternatives: One, SEZs confine themselves to economic needs of businesses.

Two, they leverage the business opportunity SEZs offer; cater to the physical, psychological, social, political, environmental and cultural demands of the increased population. In the former case, SEZs will look like exploiters. In the latter case, they will look like angels. The way SEZs are organised now, a few lucky farmers get a bonanza of unearned profits; their neighbours get nothing.

The system increases disparity in two ways: Among long-standing neighbours and between newcomers who capture high-wage employment created by the SEZs and original inhabitants who get no jobs. Both ways, the process is politically disruptive; both ways, unintended losses mount. Both the critics and the supporters of the SEZs have overlooked one fact: The country is getting urbanised and the process is irreversible. Urban expansion is necessary too because agriculture cannot create the kind of employment, pay the level of wages that modern youth demand and deserve. Ultimately, the urban population will increase by almost one billion. To house that many people, to accommodate the enterprises that will employ them, to provide modern amenities that they will demand, we will need to convert at least another five to ten million hectares of rural space into urban settlements.

Whether we like it or not, this conversion of rural space into urban habitats will happen. If we plan it systematically, it will happen efficiently, painlessly and economically. If we let urban space grow haphazard, we will end up with economic waste, environmental disaster and political disruption. Both critics and supporters of SEZs have overlooked also that the country has plenty of barren land to spare. It is estimated that agriculture will not extend beyond 150-180 million hectares and forests not beyond 70-80 million hectares. That still leaves 50-70 million hectares of unusable land for urban expansion. Unfortunately, all that unusable space is not available in large contiguous chunks but dispersed all over.

Two-part plan

Traditionally, land developers look for contiguous space. Left to grow in an unplanned manner, urban settlements expand as strips alongside highways. Both processes are costly and inefficient.

The ideal is a two-part perspective plan for the next 50 years: One, identify a minimum ten million hectares of uncultivable land that can be converted into urban habitats with least disruption to agriculture. Two, install transport links to connect bits and pieces of (otherwise unusable) land into clusters of thousand hectares or more. Currently, critics of SEZs are worried that the promoters will make unwarranted speculative profits. Such profits emerge only when the supply of land is limited. When the supply is well in excess of demand, there can be no speculation. Our governments have been releasing land in driblets, keeping supply always short of demand. That is standard economic recipe for speculation. That is what happened when production of cars was controlled, when telephones were in short supply. Liberate land for urban habitats, there will be no speculation; urban land prices will tumble the same way telephone prices have.

Critics will counter that telephones and land are not the same: People will buy all sorts of telephones but they will insist on specific pieces of land. That is true but only partially: People value urban land only, but there are takers of such land anywhere provided the connected population is large enough.

Linked clusters

Suppose we prepare a map of the entire uncultivable/degraded land of the country. Suppose we install mass transport to link bits and pieces of such land to form clusters of a thousand hectares or more. Such clusters can accommodate large city-size populations — large enough to attract financial and human capital.

If the total area of those planned clusters is several times the area needed to accommodate the expected urban expansion of a billion, there will be no scope for speculation. The trick is to plan large settlements of a thousand hectare or more in one go, not start with small bits and then try to expand. The trick is to plan for a comprehensive habitat located (except when unavoidable) on uncultivable or degraded land. The trick is to maintain supply of urban land several times higher than current demand. The trick is to impose penal tax on expensive land to induce investors to take up low-cost land.

Economical plan

That plan will be economical because urban expansion is confined to low-value land. It will be politically acceptable too because only the rich are taxed, and the rural poor will get new benefits they never dreamt of.

Imagine a developer offering to take over only degraded land; introduce quality transport services; take ten times the space needed for his business and use the extra space (and the savings from the low-priced land) to install hospitals, schools, and such other services; offer affordable housing plots for all. I guarantee such developers will be welcomed with open arms, and that they will profit more from the expanded markets they realise thereby.

(Concluded)

(The author is a former Director of IIT Madras. Response may be sent to: indiresan@gmail.com)

(This is 185th in the Vision 2020 series. The previous article was published on September 18.)

More Stories on : Infrastructure | Real Estate & Construction | Vision 2020

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

Stories in this Section
Mega prize for micro banker

Thinking out of the fiscal box

State of the India-EU dialogue

SEZs: How to land a good deal

Public Services Bill

When HP lost its Way

Farmers and SEZs