SEZ

Special Economy Zone: Chaos and Controversy

The first special zone with any semblance to the present day economy zone dates back to 1929. It was set up in Spain with the intention of increasing exports by value addition to the raw materials available in that country. It was also the time when an unprecedented depression was stalking the economies of the West.

In 1960s International Monitory Funds (IMF) and the World Bank identified the special zones as a tool for penetrating the third world economies. Special zones came to existence in many third world countries there after. China's Shenzhen is considered to be the most successful one. Shenzhen was the first Special Economy Zone established by china in 1979, a small village before 1979 is now a city of population over 6 million. Today China has six Special Economy Zone (SEZ) and it has largely contributed for the nations export and economy.

Government of India decided to introduce Special Economic Zone (SEZ) concept in India in the year 2000 (model closely follows that of China). As a first step, the seven existing Export Processing Zones (EPZ) at Kandla, Surat, Cochin, Santa Cruz, Falta, Chennai, Visakhapatnam and Noida were converted to SEZ. Three new establishments at Indore, Manikanchan (Kolkata) and Jaipur have commenced operations.

In addition to the above, approval has already been given for about 200 SEZ at various parts of the country in the private/joint sectors or by the state government. There has been plan for more than 500 SEZs. Due to confusion on treating bank financing of SEZ projects in India the freeze orders on notification and fresh approvals are issued. The Prime Minister’s office (PMO) has asked the empowered group of ministers (eGoM) on SEZs to look into the matter.

Foreign Minister Pranab Mukherjee, head of the eGoM on SEZ is expected to call a meeting this month to decide on the changes to be made in the SEZ policy and put an end to the freeze.

What is SEZ? Do we need so many SEZ?

Indian government defines the SEZ as:

SEZs are specifically delineated duty-free enclaves treated as a foreign territory for the purpose of industrial, service and trade operations, with exemption from customs duties and a more liberal regime in respect of other levies. To promote foreign investment and other transactions, domestic regulations, restrictions and infrastructure inadequacies are sought to be eliminated in the SEZs for creating a hassle-free environment. The SEZ scheme seeks to create a simple and transparent system and procedures for enhancing productivity and the ease of doing business.

SEZs can be developed in the public, private or joint sectors or by the State Governments. They are expected to promote the establishment of large, self-contained areas supported by world class infrastructure oriented towards export production. Exploiting the full potential of the concept of SEZs would bring large dividends in terms of economic and industrial development and the generation of new employment opportunities.

This sounds very promising for the countries economy growth, employment opportunities. Then, why are the Chaos and so much controversy around SEZ?

It is estimated that about, 50,000 farmers (even more at some places) go landless (per SEZ), destroying livelihood sources for a much larger number of people. The owners of the land (farmers) are forced to become labourers where their lives will be controlled by the private agencies. The farmer and farmland workers will be forced to learn the skill they are not familiar with and the failure to pick up the skill in fixed time will see them jobless.

Has the Indian administration worked out any protocal to make sure that these problems and many more like this does not arise?

Firstly, the government of India did not set up proper law for acquisition of land for SEZ. The Land acquisition Act of 1894 to protect land losers, tenants and agricultural workers displaced by any industrial activity is still followed. Land acquisition for SEZ should be treated under new law as SEZ it is not any other industrial activity.

Only after facing the warmth of the farmers the Industries minister and agricultural minister declared that the farmlands should not be acquired for SEZs in September 2006. But some state government, for example, West Bengal government for chemicals SEZ at Nandigram for Salim group of Indonesia and Maharastra government for Mukesh Ambani's Reliance Industries limited went on issuing notices to acquire the farmland following the acquisition act of 1894.

After stiff and prolonged resistance Buddhadeb Bhattacharjee in February 2007 decided to withdraw Special Economic Zone project at Nandigram and has asked his party and his officials to find an alternative site.

At Nandigram agriculture and estuarine fishing forms the backbone of the economy. Most of the population are poor or middle class farmers. In some areas, the same plot of agricultural land is used as fishing pond at other times in the year. About 14,000 hectare chemicals SEZ were planned (with expansion plans for further 35,000 hectare). About 29 villages in the region were under threat.

Reliance attempts to acquiring 10,000 hectares of land in 45 villages by paying as low as Rs.4 lakh per hectare on the outskirts of Mumbai failed. Later it was announced that farmers were refusing to part with their land, and now the land is being acquired 'officially' through government, the Maharashtra Industrial Development Corporation (MIDC) to be precise. The state machinery tried to play a role of real estate agents for the big business house and was again not successful. What a tactics, for the land being acquired by the MIDC, the compensation will be paid by Reliance. It went on for months and the huge protest by the Maharastra farmers has made Reliance to come up with fresh offers.

The company is now offering a whopping amount of Rs. 25 lakh a hectare for a single crop land and a land at an adjacent site. If the farmer does not want land in an adjacent site an addition of Rs. 12.5 lakh per hectare (Rs 37.5 lakh a hectare to acquire single crop land).

Apart from this, a member of each 17,000 families, whose land is acquired will be given free vocational and technical education. A minimum of Rs. 60 per day will be offered as stipend to the trainee. In case, the land owner does not opt for the training, he will be entitled to Rs. 3 lakh as one time compensation. Will this prompt farmers to give up their lands?

At various other places the farmers are losing out on good deals in selling their properties to real estate developers.

Reliance Industries, for instance, bought land from local farmers at Rs. 20 lakh per hectare for its SEZ in Haryana, when the prevailing market price is around Rs. 28 to 30 lakh per hectare. Landlords in Dadri and Ghaziabad are even worse off, selling land at Rs. 10 -12 lakh per hectare, when current rates hover around Rs. 25 lakh per hectare.

At places government has tied up with private developers and at many other places the private developers are operating separately. Due to low circle rate fixed by the state governments compared to market rates the real estate developers are getting away by paying less.

What should be (should have been) done?

1. A clear affirmation on paper that the fertile land for double crop will not be given for SEZ.

2. Along with jobs and compensation, the farmers should be given stakes (land acquisition for SEZ should not be treated in par with acquisition for other purpose, public utility or industrial activity).

3. Land acquisition should be done only after the complete approval of the plan of SEZ (to stop private developers from grabbing more than required). This should also make sure of not acquiring more than required land from farmers.

The present state of the workers in the already functioning SEZs is pathetic.

In Cochin SEZ violating Contract Labour Act of 1970, the workers are employed on a contract basis for as low as Rs. 35 - 75 per day for jobs which are "permanent and perpetual" in nature. On top of it they have to pay commission of Rs. 10-15 a day for contractor.

Once the worker enters the premises they do not have any contact with the outside world. The work atmosphere is oppressive and most of the units in force the worker to work for 10-12 hours a day with a very meagre break for lunch and even to use toilets.

The Indian government SEZ website boosts of number of women workers.
Despite employing more than 3500 women, the zone does not provide accommodation facilities nor are there any crèches. Transportation facilities are inadequate. The workers are taken by vehicles to the factories for the morning shift, but they are left in the lurch once the shift is over. The lofty ideals of each zone developing into townships catering to all the needs of the work force including housing, education, and Medicare remain only on paper.

Not just people working in ceramic, ready made garments and most other blue collared jobs, even the sophisticated Information Technology jobs is not spared from exploitation. Employees are appointed as trainees for eleven months on meagre wages, and then their employment is terminated. They are then reappointed again as trainees after a reasonable lapse of time and the trainee cycle continues for any period of time you are willing to let yourself be 'trained'. Even the Kerala's trade unionism has failed to protect rights of the workers in the zone. The labour rights of workers in SEZ come under Development Commission unlike Labour Department for other industries. The Development Commission has failed to check the conditions of the workers. The workers are forced to put a false front when Women Commission and Labour Commission officers visit zone (else it would cost them their job).

Only about 35% of units in Cochin SEZ is reported to pay salary and treat their employees decently.

4. The Labour act for workers in SEZ should be formed so that they get to lead a decent life and some freedom at work.

5. The government has not sorted out the financial obligations from taxes due to SEZ, the Finance ministry (FM) and Industry Ministry (IM) still have confusion among themselves.

Few months back the Finance ministry claimed that it’s going to face a revenue loss of Rs. 1, 60,000 crores by 2010. Industrial ministry claimed that it brings in investments of Rs. 1, 00,000 crores by end of 2007 and creation of five lakh additional jobs with new revenue gain of Rs. 44,000 crores.

6. FM, RBI and IM should resolve the confusion in treating the bank finaicking of SEZ projects along with other pointed before they revoke the freeze and start issuing fresh notices and approval.

India Together, Frontline, sezindia.nic.in and various other resources have helped me with facts to write this article.