Column by Jayprkash Narayan SEZs and stakes for all
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The government＊s announcement of a review of the policy on rehabilitation
of land-losers in SEZs indicates the complexity and contention involved in
land utilisation and industrialisation in a densely-populated, poor country
like India.
Two major criticisms have been levelled about the prevalent SEZ policy. By
the first, the government should change the overall policy and legal
environment to promote economic activity, instead of creating islands free
from regulatory obstacles. This is a valid point in principle. But in a vast
and diverse democracy, changing the policy and legal environment for the
whole country is easier said than done. Such far-reaching changes, however
desirable, are time-consuming, and involve painstaking negotiations and
long-term engagement to build a consensus. Therefore, using the investment
in SEZs as a short-term economic booster is a sensible policy tool, provided
it presages a long-term change in the investment climate.



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The second criticism is that the incentives offered are excessive and
inequitable, and will entail revenue losses. A closer examination shows that
SEZ incentives are largely the same as those available to export-oriented
units. The one exception is that SEZ units can participate in trading
activities. It makes sense that these economic incentives should be uniform
throughout the country, while other policy/regulatory incentives will, of
necessity, be applicable to notified SEZs for the time being. The loss of
revenue on tax-incentives is notional, and the argument that the additional
investment growth and jobs will more than offset this loss is reasonable.

In addition to these, there are five operational issues which need to be
addressed. First, what kind of land should be acquired for SEZs? The
government policy is both fair and reasonable. The government says that
mainly waste land and, if necessary, single crop agricultural land alone
should be acquired. Location-specific industries (port-based, for example)
may sometimes require valuable agricultural land. Otherwise, the stated
policy should be strictly enforced. The claim that loss of cultivable land
will undermine food security is exaggerated. Conversion of 100,000 hectares
of land, or even more, would reduce farm land by less that 0.1%. With the
decline in share of agriculture in GDP, greater industrialisation and shift
of occupations are both necessary and inevitable. India cannot continue to
be a largely agrarian economy if we harbour ambitions of rapid economic
growth and global power status.

Second, should land for SEZs be bought on market principles or acquired by
compulsion through state power? The land acquisition law and past precedents
do permit the state to acquire land for a company for a ＆public purpose＊,
and industrial growth does qualify as such. But it is preferable to
encourage private purchase through market mechanisms including negotiations
and bidding. However, there are occasions which warrant state intervention.
For instance, a recalcitrant owner of one critical but small piece of land
can thwart the whole project by demanding an abnormal price or refusing to
sell. In such cases, land acquisition may be the last resort, and even then,
the price should be fixed through negotiations rather than depending on
earlier registered sales deeds (declared sale prices are often undervalued).

Third, how do we ensure that land losers have stakes in SEZs?


With the huge real estate boom, even 10-20% of the land would fetch the
owner multiple returns relative to the original compensation

Mere ＆compensation＊ at current market prices is insufficient if the asset
value could appreciate significantly. Land losers suffer the heartburn of
relative deprivation as values skyrocket, and their neighbours benefit from
their sacrifice.

One elegant and equitable solution would be to treat part of the land as
equity in the project. In addition to the normal compensation, the land
owner could have right of owning a part of the developed land in the SEZ.
This could be about 10% in industrial projects, and 20% in infrastructure
projects. With the huge real estate boom, even 10-20% of the land would
fetch the owner multiple returns relative to the original compensation. Such
equity stakes will make SEZs attractive to the land losers.

Fourth, displaced people need to be imparted with skills that could have
them absorbed in these SEZ projects. There exist successful precedents. In
1985-86, a massive project was undertaken to train 8,000 youngsters from the
displaced families of the Visakhapatnam Steel Project, and all of them are
now productively employed. It took some effort, of course. A national
programme of training unemployed youth in India is overdue in any case, and
SEZs should be the starting point. Once SEZs provide local employment, much
of the resistance will disappear.

Finally, how do we integrate SEZs in the local governments, even as their
autonomy is assured? In AP, in 1996, the industrial infrastructure
corporation created a viable and successful model. Local entrepreneurs were
handed over the management of the industrial estate, and were given the
authority to raise service charges (＆taxes＊) from the units/plots in the
area. An agreement that was struck between the local government and the
industrial estate transferred 30% of the taxes raised to the municipality.
In effect, the industrial township subsidised the municipality, while
quality of services and local autonomy stayed intact. Such an innovation
would be ideal for SEZs.

There are bound to be some losers in any growth process. But with
sensitivity, openness and innovation, we can grant stakes in growth to all.

〞The author is coordinator of Voteindia; Email: loksatta@satyam.net.in