SEZs Or, Industrial Dharavis in the Making?

“Wealth, like knowledge, grows in spots and spreads out,” so postulated William James, the philosopher. And Deng Xiaoping—the Chinese statesman for whom “It does not matter what color is the cat, so long as it catches the mouse” —proved William James right by establishing SEZs at Shenzhen, Xiamen, Zhuhai, and Shantou that have today become economic powerhouses, besides acquiring a place among the largest manufacturing bases in the world and turning China into a global economic power next only to the US and Japan.

Enthused by the success of the Chinese experiment with SEZs, we deliberated upon them, debated on their pros and cons for a couple of years, and finally decided to put in place an appropriate law for establishing SEZs 15 years after we started the liberalization process—which is, of course, in stark contrast with China, which started its liberalization with the establishment of SEZs.  And, thus began all our woes.  As a race, being highly possessive of the ‘sovereignty of reason’, we—‘pregnant’ with ‘thoughts’ that are ‘disjoint and out of prime’—took to the fancy of ‘reasoning out’ the good and bad of SEZs—whose capability to develop agglomeration economies, to make socio-political control of foreign involvement easier, and create better infrastructure and links with the external world, has been proved beyond doubt in China and elsewhere  —and have become perplexed by the problems it has created. The net result is pandemonium across the country.

Reacting to the violence and police firings, the empowered group of ministers has come up with revised policy guidelines: one, the size of multi-product SEZs is caped at 5,000 hectares; two, state governments will not acquire land for SEZs; three, at least, half the area of the SEZ should be earmarked for processing unit; and four, SEZs cannot merely be net foreign exchange earners but their exports must equal their purchases from the domestic tariff areas.

Now, what does all this mean? It means:  on the one hand, the government wants to create industrial cities of world-class standard with their own ports, airports, power stations, offshore banking, water supply, and other essential social infrastructure, so that they could become ‘global centers’ of growth; and on the other hand, it wants them to confine to a miniscule size of 5,000 hectares. India cannot have SEZs of the size anywhere nearer to that of Shenzhen which is spread over an area of 20,000 hectares with all the supporting infrastructure of world-class, and hence, it is feared that they would not be able to generate the ‘driving force’ that is required to really transform the economy as envisioned. Some have, therefore, dubbed it as an act of government’s continued lack of a long-term vision.

Secondly, it is palpable that the government has resorted to such capping of SEZs across the board only to placate the political forces that are opposing the acquisition of agricultural land for establishing SEZs. But what is enigmatic here is why the government should prescribe the size for SEZs when acquisition of land is no longer by the state governments but only by the respective promoters of SEZs. The revised policy prescription of land acquisition through ‘voluntarism’ between the acquirer and the seller raises a question: why should government cap it? Such half-hearted attempts at promoting SEZs would only result in the mushroom growth of small-sized SEZs which, instead of creating world-class infrastructure, are sure to become a drag on the existing infrastructure in and around them. Further, as the laws permit establishment of sector-specific SEZs with as low as 10 hectares, many such may sprout all around cities causing further strain on the already fragile urban infrastructure, and gain exorbitant tax benefits for breaking down the existing infrastructure. Unfair, isn’t it?

That is not the end of the story, for it raises another important question: How would the withdrawal of state governments from land acquisition help farmers? Whether land is acquired by the government or by the SEZ promoter, the sufferings of the farmer will not change. In either case, he needs to rehabilitate himself. That being the reality, withdrawal of the government from the scenario with a modification of policy guidelines is nothing short of abdication of its responsibility towards the welfare of citizens. That aside, what would happen, if, say, a small group of ‘no-saying’ farmers hold the rest to ransom?  Such predicaments will only hasten the process of small SEZs mushrooming around cities. In that context, wouldn’t they do more harm than good to the nation?

Amidst these unanswered questions, there emerges a ray of hope: Commerce Minister has announced that the government is open to lift the land ceiling on SEZs. “In future, should a proposal come that looks at an area that may be larger, we are willing to look at it”, said Kamal Nath. That must have cheered many, but this dilly-dallying is what is ailing the country for decades, which could, perhaps be more due to our “tendency to give ourselves the fullest benefit of every possible doubt…” 

“To be or not to be”: but how long?

(May, 2007)