CONTENTS

PREFACE

ACKNOWLEDGEMENT

INTRODUCTION …………………………………………………………..

SEZs: A brief overview …………………………………………………..

History of SEZ initiative in India ……………………………………………

Present SEZ initiative …………………………………………………….

Socio-Economic Implications of SEZ …………………………………….

Positive Impact of SEZ …………………………………………….

Negative Impacts of SEZ …………………………………………….

Recent examples of impact of SEZs in India ……………………………………..

Chirner Village, Maharashtra

Haryana

Nandigram and Singur

China‘s SEZ: Lessons to be learnt ……………………………………………..

India and China: Policy Comparision ………………………………………………

Conclusion ………………………………………………………………………

References ………………………………………………………………………

PREFACE

This report has been prepared as a part of the practice component of our course HS-

6101 titled ―Human Resource Management‖. The practice component has provided us

with an opportunity to research and explore a recent topic and we have tried to relate

it with what we have learnt in our course. The topic of our report is ―The socio-

economic implications of Special Economic Zones (SEZs) in India‖.

Through the topic has been discussed in news forums and various dailies for quite

some time but doe to its recency, there has not been much detailed research on it.

Lack of any such detailed work made the report preparation quite a challenging task

as we had to gather material from news articles, mafgazines, discussions forums, etc.

Most sources mentioned here provided a divided opinion of the impact of Special

Economic Zones and we had to mostly rely on our own ideas and opinions.

Inspite of these minor hurdles we have tried our best to come at a reasonable

conclusion. We have started with an introduction of SEZs covering the past and

present initiatives. Then some positive and negative aspects of SEZs have been given

and their impact on society has been analysed.

Next we have drawn examples of the recent disturbances arising due to SEZs and

their possible causes. We have also involved a comparision of China‘s SEZ model

and its lessons for India.

We sincerely hope that this report provides a better insight into the effect of SEZs in

India.

ACKNOWLEDGEMENT

We would like to acknowledge and thank our instructor Prof. P.K. Parida for

encouraging and guiding us in this endeavour and for giving us this opportunity to

relate our course content with a real world situation.

INTRODUCTION

After independence, Indian economic policy was a result of the nostalgia for

socialism from the pre-independence era which had driven and inspired our leaders.

Though a beautiful idea in its own right, our leaders did not realize that making

socialism the foundation of the economic policy of this vast country of 30 crores was

not befitting. The days of license raj, orthodox business practices, non-involvement of

foreign business and barriers on imports and exports ensured that for decades our

economic growth was pathetically slow and was stereotyped as the ‗Hindu Growth

Rate‘. Social and Economic development go hand-in-hand. The slow economic

growth cost India its social development also. The scenario of health, education and

social reforms remained dismal in most of the country, a direct implication and

indicator of the fact that social growth is not sustainable without economic

development.

The turning point came in the form of the grim economic and financial situation of the

1990‘s when the foreign reserves had almost depleted and our economy was on the

verge of bankruptcy. There was a major shift in the economic outlook as the

government started liberalizing and globalizing the economy and allowing private

sector participation. Since then, and fortunately enough, in spite of the regime

changes, liberalization has been going on in a phased manner. The positive impact of

liberalization has been evident. It is assumed that given their greater economic

efficiency, the private sector would not only help in increasing the rate of economic

growth in the country but also lessen the economic and financial liabilities and

burdens of the government. Since the introduction of ‗liberalization‘ the GDP growth

rate in the country has been relatively much higher than prior to liberalization years.

India has emerged as one of the major player in World Economic arena and is

attracting sizeable amounts of foreign capital in the country. Finding more

economic space, many private sector, companies and MNCs have taken up/set up

their Projects at places having locational advantage. Many capital intensive Projects

in heavy engineering, steel, power generation, fertilizer, infrastructure development,

etc. have also been taken up. These Projects certainly have enhanced the capital

resource of the nation and accrued economic gain to certain section of population.

Besides these infrastructural developments, the recent emergence of India in the

service sector, particularly in the software and IT industry has lead to a spur in the

economic growth in the last few years. Driven by the domestic market and the new

found spending power of the Indian consumer the economy is on the fast track. But

growing only in the service sector cannot help in realizing the goal of a developed

nation. Strong growth in industry, infrastructure and manufacturing sector is the next

main requirement along with a growth in exports to bring in the much needed foreign

currency. This is where the idea of SEZ comes in.

SPECIAL ECONOMIC ZONES

A Special Economic Zone (SEZ) is a geographical region that has economic laws

that are more liberal than a country's typical economic laws. The category 'SEZ'

covers a broad range of more specific zone types, including Free Trade Zones (FTZ),

Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports,

Urban Enterprise Zones and others. The objectives of setting SEZs are aimed at

boosting exports and attracting investments in various export-oriented

manufacturing and service sectors. Several fiscal incentives are offered to units setting

up operations in SEZs which coupled with a business friendly operating environment,

would result in increasing levels of productivity, with a resultant growth in

investments & exports.

A SEZ is also defined as

“A specifically delineated duty free enclave and deemed to be a foreign territory

for the purpose of trade operations and duties and tariffs”.

Goods going into the SEZ area from Domestic Tariff Area (DTA) are considered as

exports and goods coming from the SEZ area into DTA shall be treated as if the goods

are being imported. In any SEZ, goods may be imported or procured from DTA,

without payment of duty for the purpose of manufacture of goods and services,

production, processing, assembling, trading, repair, reconditioning, re-engineering,

packaging, etc.

Considering the need to enhance foreign investment and promote exports from the

country and realizing the need that a level playing field must be made available to the

domestic enterprises and manufacturers to be competitive globally, the Government

of India has encouraged exports and in year 2000 introduced a Special Economic

Zone (SEZ) scheme with a view to provide an internationally competitive and hassle-

free business environment. In January 2004, Government of India further announced

the following additional policy initiatives in respect of SEZs viz.

• Passing of a comprehensive Central SEZ Act, which would be the nodal

legislation in respect of all reliefs, concessions and incentives for SEZs and

SEZ developers

• Increasing the tax holiday period from 10 years to 20 years for SEZ units

• Location of an Internal Financial Services Centre in one of the SEZs.

• Establishing a National Infrastructure Development Fund with a corpus of

Rs. 50,000 crores for funding major infrastructure Projects at concessional rate

of interest.

Since then considerable progress have been made by both the Central and

State Governments towards enacting a Central and a State SEZ Act respectively. A

total of 309 SEZ‘s have been planned and some of them are already under

development with land allotments.

While SEZ‘s offer a plethora of relaxed laws and economic advantages to investors,

they also provide substantial problems for residents of the communities in which they

are located and people who comprise the labor force of SEZ industries. The socio-

economic impact are undoubtedly wide and far-reaching. This report intends to

analyze these socio-economic impacts with particular emphasis on the situation in

India.

Before embarking on the socio-economic consequences we need to see the reason that

why the government and the private investors are so eager for setting up of Special

Economic Zones. Special Economic Zones offer many advantages to investors

otherwise wary of dealing with an unfamiliar foreign regime and foreign business

environment. The promotion of SEZs is an attempt to deal with infrastructural

eficiencies, procedural complexities, bureaucratic hassles and barriers raised by

monetary, trade, fiscal, taxation, tariff and labour policies. These structural

bottlenecks affect the investment climate adversely by increasing production and

transaction costs. Since country-wide development of infrastructure is expensive and

implementation of structural reforms would require time, due to given socio-

economic and political institutions, the establishment of industrial enclaves

(SEZs/EPZs) is seen as an important strategic tool for expediting the process of

industrialization in these countries. The zones offer numerous benefits such as:

1. Tax incentives:

Income tax exemption for a block of 10 years in 15 years.

100% income tax exemption for a block of five years and an

additional 50% tax exemption for two years thereafter

100% FDI in the manufacturing sector permitted through automatic

route, barring a few sectors.

100% FDI permitted to SEZ franchisee in providing basic telephone

services in SEZs.

Exemption from Central Sales Tax and Service Tax.

Exemption from customs duties on import of capital goods, raw

materials, consumables, spares etc.

Exemption from Central Excise duties on procurement of capital

goods, raw materials, consumable spares etc., from the domestic

market.

2. Infrastructure and Utilities:

Roads with Street lighting, Signals and Signage

Water treatment plant, water supply lines (dedicated lines up to

source), sewage lines,

storm water drains and water channels of appropriate capacity

Sewage and garbage disposal plant, pipelines and other necessary

infrastructure for

sewage and garbage disposal, Sewage treatment plants

Electrical, Gas and Petroleum Natural Gas Distribution Network

including necessary sub-

stations of appropriate capacity, pipeline network etc

Security offices, police posts, etc, at entry, exit and other points

within and along the periphery of the site.

Effluent treatment plant and pipelines and other infrastructure for

Effluent treatment

Telecom and other communication facilities including internet

connectivity

Recreational facilities including club house, Indoor or Outdoor

games, gymnasium, employee welfare facilities like Automated

Teller Machines, Crèche, Medical center shopping arcade and/or

retail space and other such facilities.

3. Simplified procedures:

Exemption from industrial licensing requirements for items reserved

for the SSI sector.

No import licence requirements.

No routine examinations by Customs for export and import cargo.

Exemption from duties on import /procurement of goods for the

development, operation and maintenance of SEZ.

4. Provisions better suited for foreign investors than domestic economy:

External commercial borrowings by SEZ units up to US$500 million

in a year without any maturity restrictions through recognized

banking channels.

No cap on foreign investment for small scale sector reserved items.

Facilities to set up off-shore banking units in SEZs.

These benefits foster a conducive business environment to attract local and foreign

investment, which would not otherwise have been forthcoming. The competitive

advantages of zones may also be explained within the framework of the ―cluster

approach‖. Zones are industrial clusters where external economies of scale and other

advantages help the operating firms in reducing costs, developing competitive

production systems and attracting investment, in particular, FDI. As a result of these

benefits, many developing countries have been promoting zones with the expectation

that they will provide the engine of growth to propel industrialization.

HISTORY OF SEZ INITIATIVES IN INDIA

It‘s a little known fact that the present SEZ initiative is not the first of its kind in

India. The first such initiative was Kandla in 1965, SEEPZ in 1972. Based on these

experiences Cochin, Falta, Madras (Chennai) and NOIDA followed in 1984 and

Vizag in 1989.

A micro level analysis of the zones‘ contribution to industrialization efforts in India

reveals that EPZs have had a catalytic effect in promoting new production sectors,

exporting new products and in building up the country‘s image in certain products in

international markets. The foundation of the modern jewellery industry in India, for

instance, was laid in SEEPZ in Mumbai in 1987-88. It was there that the wax setting

technique‖ was introduced in jewellery production, which made mass scale

production possible and dramatically transformed the labour-intensive jewellery

industry from its cottage industry status into a highly mechanized modern industry.

SEZs accounted for over 55 per cent of total Indian jewellery exports in 2002-03.

Zones have also been instrumental in creating the base for the growth of the

electronics industry through technology transfers, spillovers and demonstration

effects. Until the early 1980s, electronic hardware exports were primarily originating

from EPZs. Even during 2000-02, the share of SEZs in total hardware exports was as

much as 26 per cent. The Indian software saga also really began in SEEPZ, Mumbai.

The first major breakthrough in India‘s software exports came in 1977 when the Tatas

established a unit in SEEPZ in partnership with Burroughs, an American company, to

export software and peripherals. A further breakthrough in the progress of the

industry occurred when, in 1985, Citibank established a 10 per cent foreign-owned,

export-oriented offshore software company in SEEPZ This company drew attention to

the possibilities available for offshore soft ware development in India. Soon after

Texas Instruments and Hewlett-Packard established subsidiaries in Bangalore, in 1986

and 1989, respectively and the rest is history. Most of these companies grew as firmly

established in the Indian market and have contributed towards employment generation

and growth.

The success stories notwithstanding, the economic contribution of SEZs remained

minuscule at the national level. Though India was the first Asian country to take the

free zone initiative, slipshod implementation made these initiatives in-effective. The

share of SEZs in exports was a mere 5 per cent in 2004-05. Furthermore, they

accounted for only 1 per cent of factory sector employment and 0.32 per cent of

factory investment in the same year. Their contribution to regional economies has also

been limited. Although they have had a positive impact on regional employment and

human development by creating economic opportunities, especially for those without

high levels of schooling, their potential in contributing to human development

has not been fully exploited due to their failure in attracting investment and promoting

economic activities in the region. All in all the SEZ initiatives barring a few Export

Processing Zones have not been successful.

PRESENT SEZ INITIATIVE

For a country like India which needs to hasten growth in the manufacturing sector, the

Special Economic Zones is a viable path towards phased and sustained growth. It is

generally agreed that the present Indian SEZ initiative has been motivated by the

partly successful Chinese model.

The rationale behind India's SEZ policy is quite straightforward. Inadequate

infrastructure continues to head the list of companies' woes in India, constraining

firms that compete overseas in export markets and deterring foreign companies

looking at India as a manufacturing base. Since establishing world-class industrial

infrastructure throughout India will be an extremely expensive, long-term endeavour,

the next best solution is to build pockets of excellent infrastructure in the form of

SEZs. By offering various incentives to private developers, the government is also

attracting private investment for setting up such zones, easing the financial burden of

a task that has traditionally been the responsibility of the state.

Proposals for SEZ projects in India have to be approved by a committee composed of

central government bureaucrats from various ministries. After a project is approved,

SEZ developers are entitled to a number of fiscal incentives, such as exemption from

income tax for ten years and from customs duties. The government also offers a host

of incentives to firms setting up units in SEZs. In bureaucracy-heavy India, where

regulations and required procedures create significant headaches, an important

incentive is ―single window‖ clearance from central and state government authorities.

Attracted by the commercial returns and incentives on offer, a large number of

entities—including Indian and foreign companies, real-estate developers and state

government agencies—have submitted project proposals for SEZs. In addition to the

339 SEZ projects that have been formally approved, another 170 proposed projects

have received in-principle approval.

The Ministry of Commerce and Industry, which is the architect and implementer of

the SEZ policy, views it as a major initiative for expanding exports, improving

infrastructure, attracting foreign and domestic investment, and providing employment.

The ministry estimates that the SEZs formally approved thus far could provide

investment of Rs3trillion (about US$74bn) and create around 4million jobs. The

Ministry also estimates that exports from SEZs set to become operational in the

2008/09 fiscal year (April-March) will exceed Rs1trillion in that year.

SEZs when operational are expected to offer high quality infrastructure facilities and

support services, besides allowing for the duty free import of capital goods and raw

materials. Additionally, attractive fiscal incentives and simpler customs, banking and

other procedures are offered in such zones. Setting up of SEZs is also treated as an

infrastructure development activity and offers same incentives.

In the Indian context the salient features of the Indian initiative are as follows:

• Unlike most of the international instances where zones are primarily

developed by Governments, the Indian SEZ policy provides for development

of these zones in the government, private or joint sector. This offers equal

opportunity to both Indian and international private developers.

• For Greenfield SEZs, the Government has specified a minimum preferable

area of 1,000 hectares. However, for sector specific SEZs, there is no

restriction of minimum area.

• 100 per cent FDI is permitted for all investments in SEZs, except for

activities under the negative list.

• SEZ units are required to be positive net foreign exchange earners and are

not subject to any minimum value addition norms or export obligations.

• Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be

treated as exports and goods coming from the SEZ area into DTA are treated

as imports.

For all of their apparent economic advantages, implementation of Special Economic

Zones is a very tricky issue, especially in a democratic and more importantly, diverse

country like India. Acquiring land for infrastructure projects has often been

problematic. People who are displaced by projects and receive inadequate

compensation can express their dissatisfaction openly through political participation

and protest. When land is acquired for use by private companies--as opposed to

infrastructure projects such as roads meant for public use--the level of dissatisfaction

is often higher. A common perception is that SEZ projects are mere land-grabbing

exercises, with real estate being acquired at unfairly low costs. This and many such

issues result in far reaching socio-economic consequences.

SOCIO-ECONOMIC IMPACTS OF SEZs

Special Economic Zones requires large parts of non-developed land. Availability of

such land near big cities is not possible which means that most of the planned SEZ‘s

have to be setup in rural or semi-rural areas. In such areas which mostly comprise

villages the main occupation is agriculture and the main source of income is land. The

dynamics involved in the tectonic changes that setting of these zones intend to bring

are very complex. In a democratic country like India with its multi-party system

ensures that the only stakeholders during acquisition and rehabilitation are not just the

people involved but the various political parties as well.

In order to look deeper we need to look at the various aspects of Special Economic

Zones.

POSITIVE IMPACT OF SEZs

Setting up SEZs in such areas can have many positive effects on these situations as

listed below:

1. CHANGING THE CURRENT OCCUPATION PATTERN:

Most of the people in villages live in poverty not only due to lack of

employment but also poor size of land per capita/per household. Due to

shortage of fodder, livestock or animal rearing can not be practiced on a large

scale in these regions. It appears that the present pattern/kind of land use in the

villages is reaching to its carrying capacity and there is a felt need to change

the land use. More intensive and profitable activities like secondary and

tertiary activities can be developed for sustained economic development of the

area. However, development must be of such nature that can employ the local

people of the area/villages and ensure sustainable source of livelihood to them.

2. NEW EMPLOYMENT OPPORTUNITIES (LOCAL RECRUITMENT):

Land being a permanent asset is a traditional source of livelihood, but

this cannot continue forever. There is an urgent need to shift more of our

population from agriculture based jobs to skill intensive industrial jobs. With

the setting of industries within these regions there will be an urgent need of

skilled and semi-skilled workforce. We know that the recruiters will look to

derive these low-skill workforces from the local population. Giving regular

employment in the project to the persons of affected households would

provide them regular source of income. This will be beneficial for the

recruiters as well as the recruits.

For example; There are large number of educated unemployed youths in these

regions with either graduation degree or 10+2 (HSC) or some schooling.

These people can be given training in computer typing, driving heavy vehicles

or can be trained as electricians, welders, fitters, plumbers, etc. Older people

can be employed as security personnel, watchman, etc., and unskilled women

in gardening, cleaning, etc. In villages, traditional skilled laborers comprise

of carpenter, mason, blacksmith, etc. These skilled laborers from among the

Project Affected People can be utilized in the project and subsequently

absorbed in its workshops wherever possible. If needed, some training can

also be imparted for improvement of skills.

3. SELF-EMPLOYMENT WITH THE COMPENSATION MONEY:

Most of the villager families will receive compensation money for the loss of

their lands. This will provide families with some capital that they can

invest.but one very important thing to be seen is that it should be the

responsibility of the company involved to make the people awre of such

opportunities. As the Special Economic Zones would develop they will have a

number of townships with large number of employees comprising the skilled

workforce of the company.Emerging township and development of the area

will lead wide and diversified self-employment opportunities especially suited

to villagers.Aspirants of self-employment can be provided with easy term

credit facilities to undertake poultry farm, dairy development,horticulture,

transportation, communication, food and beverages, machine-works and

repairs, computer typing, photocopying, etc. Besides providing easy term

loans to Project Affected People (PAPs) and training them, the project agency

may utilize various rural and urban development programmes for the

purpose.

4. BETTER INFRASTRUCTURE AND LIVING CONDITIONS:

There is no doubt that the present infrastructure and living conditions in most

rural areas is pathetic. Most of them are not well connected through roads and

there is no reliable transportation system in place. The medical and

educational facilities are not something to be boasted of. People still suffer

from diseases like jaundice, malaria, stomach problems etc. which would

otherwise be easily cured in cities with modern medical facilities. Water

supply and sanitation are equally bad if not worse. Literacy rates are a bare

minimum. All these factors have also lead to large scale emigration of

villagers, especially men, from these areas to cities where they have to work as

labourers in sub-human conditions.

The setting of these new projects would ensure that new transportation

facilities, water supply facilities, medical facilities will be setup in these

regions. Need to bring in the raw construction material will ensure better roads

right from the beginning. Other amenities would follow with further

development of the region. But again it all depends on the proper

implementation of these projects and the considerate behaviour of the

developmental authorities towards the people.

5. CONTRACT OPPORTUNITIES FOR LOCAL POPULATION:

Though it is obvious that most of the construction work would be carried out

by big real-estate contractors but the local population may be provided with an

opportunity for the supply of lower level materials such as sand, stone etc.

Also the labour force that will be needed in the beginning of these projects can

be derived from the local population. Such measures on the part of company

would go a long way in ensuring trust and goodwill amongst the local

population for the developmental authority

Any Human Resource Planner can easily gauge the importance of this

favorable condition for the company in the long run, or, more importantly, the

vastly negative effects that its absence can have for the company‘s fortunes.

6. FURTHER SELF EMPLOYMENT OPPORTUINITIES THROUGH

TRAINING:

If the developmental authorities ensure that they work with the local

population for mutual benefits then they can be given training for self

employment. The scope for training people for various kind of jobs depends

on the kinds of job which are going to emerge from the Project. However, for

self-employment training for men and women can be in areas of:

For Men

1. Driving (heavy and light vehicle)

2. Mechanics & Repairs

3. Electrician

4. Computer operator

5. Welding & Fitting

6. Plumbing

7. Hotel Management & Catering

8. Typing & Photocopying

9. Tailoring and embroidery

10. Jhadoo making

11. Packaging

12. Papad making

13. Dairying

14. Salesmen

15. Security men

16. Modern method of fishing with mechanised boats in coastal areas.

For Women :

1. Computer Operation

2. Hotel Management & Catering

3. Typing & Photocopying

4. Tailoring, knitting and embroidery

5. Jhadoo making

6. Packaging

7. Papad making

8. Dairying

9. Cleaning

10. Masala Making, etc.

7. BRINGING THE RURAL SOCIETY IN THE MAINSTREAM:

A constant failure of the Indian economic policy for decades has been its

inability to bring everyone under the umbrella of development. While the big

industrial houses and middle classes have thrived, the gap between the rich

and the poor has constantly widened. The SEZ initiative seeks to address this

fundamental problem by ensuring that the rural population does not has to wait

for the ‗trickle effect‘ to come into play this time.

They will be directly addressed as the development is directly in their

geographical regions. This will ensure that slowly but surely they get a better

chance to be integrated into the mainstream.

The above discussion mostly summarizes the expected positive effects that the

development of Special Economic Zones can have on the society under the ideal

conditions of human consideration by the government as well as the developmental

authority. But past experiences with policy implementation make it hard to believe

that things can remain ideal. Under this pretext there have been valid concerns over

the negative effects of Special Economic Zones. The further discussion now

emphasizes on the negative aspects of SEZs.

NEGATIVE IMPACT OF SEZs

Implementation of such a large scale venture will most definitely have negative

effects as well. These negative impacts are of economic as well as social nature. We

now list the possible negative effects that they can have:

1. FINANCIAL LOSSES TO GOVERNMENT:

Up to now government has approved around 339 Special Economic Zones,

each of which will have more than one industrial firms working with the

heavily reduced taxes, tariffs and custom duties. As stated before in the

various benefits given by SEZs to the developers, the manufacturers are

obliged to export only 1% of their total output. This means that the primary

objective of increasing exports may or may not be fulfilled by them. But the

huge tax exemptions that they will be enjoying will cost the finance ministry

an estimated 1,50,000 crores by the year 2010. These are huge losses by any

standards and the SEZs need to validate their importance to justify this.

2. LAND GRABBING:

Human displacement, whether in response to war (civil and ethnic), natural

disaster, economic opportunity, or building of infrastructure within countries,

is the key issue in contemporary discussions of population movements. These

movements include displaced, political and economic refugees, migrants, and

exiles who move across and within national boundaries, as well as those

forced to relocate in response to infrastructural development such as economic

zones, power projects, dam construction or conservation projects. Such

movements mean that thousands are rendered landless, jobless, homeless,

income less, rootless, displaced making way for gargantuan projects

christened as epitomes of economic development. In India the battle-lines

have been drawn between the paupers and the prosperous over the issue of

displacement and (forceful) acquisition of land for development of Special

Economic Zones (SEZ). The idea of private companies‘ directly buying land

from the farmers would spell a disaster for agriculture. Land mafia will rule

the prices and force the farmers to sell land to big companies at throw- away

prices. SEZ policy is described by some as the ―biggest land grab movement

in the history of modern India. Where earlier movements were led by the poor

to acquire land, this time round it is the rich that want to ‗grab‘ land belonging

to poor farmers. It is likely that the policy maybe misused for real estate

development rather than for industry and generating exports. ‖Developers and

promoters of SEZs get land cheaply—almost one-fourth or less than that of the

market price. With the minimum required processing area being 35 percent,

the rest will be used for residential, recreational facilities and the promoters

will make their fortune out of real estate development and speculation

indiscriminately. The boom in real estate sector too is fuelling the fire. In the

name of SEZs developers hope to acquire land easily at nominal prices, put up

basic infrastructure incurring minimum cost and sell it at huge profit margins.

3. ENVIRONMENTAL IMPACT:

huge tracts of agricultural as well as forested land will be converted for

industrial purposes for the setting up of SEZs. This can have grave effect on

the ecosystem. Besides, this it is unfortunate that the minimum environmental

guidelines set by the United Nations for Special Economic Zones the world

over, are not necessarily followed in our country. The developers are also

given the freedom to develop 50-60 percent of the land according to their

liking. The blatant replacement of such forested or agricultural land can lead

to severe environmental problems

4. CLUSTERS OF DEVELOPMENT:

Rather than promoting overall economic development, SEZs will result into

clusters of heightened economic activity widening the already existing chasm

between selective areas witnessing rapid development vis-à-vis the

impoverished surroundings. Critics term SEZs as ‗islands of affluence‘ amidst

the sea of deprivation. India has already witnessed the ill-effects of such

spatial dissimilarities in the form of increasing secessionist and separatist

activities. Continuing this inequity will lead to more dissatisfaction among the

rural poor.

5. EMPLOYEE WORKING CONDITIONS:

Generation of employment is being counted as a big advantage of SEZs. An

estimated one million jobs will be created. Whether these promises are illusory

or not cannot be said but one thing is sure that the employee working

conditions in SEZs will be far from normal. no labor laws will apply to SEZs.

Workers will enjoy no rights, including he fundamental rights of association

and protest. It has also been noted that SEZs are a devious way of attacking

the rights of the working class. They serve to exempt capitalists from existing

labor laws and regulations,– including limits on the length of the working day,

right not to be dismissed without adequate cause, right to form unions and go

on strike, to retirement benefits, maternity leave, etc.

LOSS TO FARMERS DUE TO LACK OF AWARENESS:

The people that developmental authorities are dealing with for land

acquisitions are generally poor farmers who are not literate enough to have the

awareness about the proper prices of their lands and the compensation that

they deserve. In many places it has been seen that some unscrupulous real

estate agents are buying land from villagers in the expectation that they will

finally sell it back to the Project by earning huge margins. The farmers in this

way are set to suffer heavy injustice if proper steps are not taken to ensure

their awareness. Even in cases when farmers are receiving roper

compensation, they have no knowledge about how to utilize that money to

ensure future income for their families.

It is clearly seen that there are far reaching positive as well as negative

consequences of the development of Special Economic Zones. Though nothing

concrete can be said about the possible outcomes of their implementation, we can

gain a better insight by considering some of the problems that have been caused

by the introduction of SEZ plans. The report now deals with a few such examples.

RECENT EXAMPLES OF IMPACTS OF SEZs

1. CHIRNER VILLAGE, RAIGARH, MAHARASHTRA:

The place is famous for the ―Chirner Jungle Satyagraha‖. During the independence

struggle, on September25, 1930 eight martyrs were killed here. Maharashtra has 48

out of the 234 SEZs approved by the Union Government. Opposition against the SEZ

has started in Pen, Uran and Panvel talukas of Raigad district, where over10,000

hectares in 45 villages will be acquired for the Reliance Group‘s Mumbai Special

Economic Zone project(earlier called Mahamumbai SEZ). The notification for

acquisition of land for the projectt was first announced through a notice in a local

paper on June19 stating that the land is being acquired under the Land Acquisition

Act, 1894, for a public project, namely, the SEZ. The notice says that the State intends

to acquire land for a ―public purpose‖, and asks land owners to file their responses.

Acquisition notices have been issued to over one lakh small and big land owners.

Land owners and farmers have started filing objections to the acquisition notices sent

under Section 4(1) of the Land Acquisition Act. Over 17,000 objections have come

from 45 villages in the Raigad district. Chirner is worst hit, as over 1400 hectares

would be acquired. Yeshwant Narangikar one of the anti-SEZ activists stated:

“We sent the British packing, but they seem to have come back in the guise of

Reliance.” Another activist Santaji Gondhali expressed.

“What’s wrong with our area. We have two crops every year, education, plenty

of water. Since the city is close, we do get jobs too. Why does the government

want to take all this away?”

Over the last few months the voices of resentment have grown higher. Farmers claim

that

"If we give up our land, what we will eat? They will not give us any jobs, and

finally we will have to give up our homes. People are willing to sacrifice their

lives to oppose these SEZs. Our land is productive and fertile, why should we

give it up for a private company?" The villagers have formed a Farmers' Action Committee to oppose forceful

acquisition of land on the name of public interest. With discontent growing out of

proportion the central and the state governments acting defensively put forward that

they want to strike a balance between farmers' interests and industrial development.

But is it really the case? What sort of public interest such acquisitions would serve is

highly debatable.

2. HARYANA

Voices of protest are intensifying through- out the State of Haryana . `Aam Aadmi

Adhikar Andolan', the movement started by the Congress MP from Bhiwani, Kuldeep

Bishnoi, raised the issue of forcible acquisition of farmland for SEZs. Protesting

against the acquisition of land on the name of public interest to setup SEZ Bishnoi

said that

"it has become another reason for sophisticated land grab by big industrial

houses aided and abetted by the state governments. If we industrialise large

chunks of fertile cultivable agriculture land, how will we maintain a balanced

ratio as we will become a food grain deficient state from being food grain surplus

due to growing population? The SEZs are a tool to rob farmers of their land.

Since Haryana is landlocked and the SEZs in Haryana would not have access to

any port, the zones were not going to be a feasible idea to industrialise Haryana

in such a big way."

In Haryana too Reliance Industries Limited has signed an agreement to build India's

largest industrial infrastructure project. The $ 8 billion SEZ will cover over 12,500

hectares neighbouring Delhi, falling in the territory of the state of Haryana. The

proposed zone will include cargo airport, power station, residential complexes,

shopping malls, commercial and sports complexes. The zone is slated to compete with

top Asian hubs in China, Indonesia and Malaysia. The state government of Haryana is

giving full support to Reliance industries. Land in Haryana is very fertile and giving

away fertile land for industrial activity would ruin agriculture and farmers. The

question that arises is if large chunks of fertile agricultural land would be given to big

industrial houses where will this ultimately lead us to? What would happen to

agriculture? What about the issue of food security? Such industrial activities on

agricultural land would have serious implications on the status of food self-

sufficiency in future. A nation with billions of population and half of them living in

conditions of subsistence will starve after some time.

3. NANDIGRAM, WEST BENGAL AND SINGUR, UTTAR

PRADESH

What were mere voices of protest in other States became bloody battles in West

Bengal. The controversy started when the West Bengal Government decided that the

Salim group of Indonesia would develop a special economic zone at Nandigram, a

rural area in the district of Purba Medinipur, by acquiring 14,000 hectares of land for

the purpose. The zone was slated to be spread over 29 villages of which 27 are in

Nandigram. Most of the land under acquisition was multi- crop and would have

affected over 40,000 people in the areas. The protest turned violent and at least 14

people were killed in police firing at Nandigram creating national uproar. Amidst the

mayhem Chief Minister of West Bengal Buddhadeb Bhattacharjee announced that the

proposed Special Economic Zone is scrapped and it would be shifted elsewhere.

Similarly, public outcry and discontent was expressed over the Tata Motors' car

project in Singur. There was controversy over the acquisition of agricultural land and

allegations of forcible eviction of farmers from the area. In protest Trinamul Congress

leader Mamata Banerjee went on a hunger strike for 25 days. According to one

survey, more than 10,000 families live on the 1000 acres in Singur. They include

about 6000 landholders, 1200 registered sharecroppers, and 100 unregistered share-

croppers. Others living in the area since generations are landless labourers, artisans,

small traders. There are thousands of regular, seasonal migrant workers who live on

the same resources. Tata Motors has now begun construction work on a new assembly

plant factory in which it plans to employ 10,000 people producing the `1-lakh car'

(100,000 rupees).

AN INFERENCE

A simple inference can be drawn from the above examples.

By taking land away from peasants, the government is clearly depriving the farmers

of their basic and traditional source of income. The most basic need of human beings

is the PHYSIOLOGICAL NEED and taking away their occupation amounts to

depriving them of this need which is bound to arouse a negative response.

Not only this but taking their lands which have given them relief for decades is like

violating the SECURITY NEEDS of the farmers. Besides, a farmer who has tilled the

same land at the same place for generations cannot break his close emotional ties with

the place so easily. When it comes to this high level SOCIAL NEED of

belongingness, then the money given as compensation is too weak a motivational

factor to assure them to leave the place as is evident in their readiness to sacrifice their

lives for the lands.

Though it cannot be completely denied that violent incidents like Nandigram and

Singur don‘t have a political connotation, they still have an element of actual anger

among the farmers and project affected people.

CHINA’S SEZs: LESSONS TO BE LEARNT

China's record economic growth rate fuelled by the Special Economic Zones (SEZ) is

often advocated as the reason for India to adopt this approach. Since the 1980s, China

implemented a series of measures and policies with the sole purpose of achieving

rapid economic growth. As evidence over the years has shown, this single-minded

pursuit of growth has lowered the efficiency and effectiveness of economic policies,

besides incurring huge resource and environmental costs. The Chinese experience

offers valuable lessons for India.

China has to feed 22 percent of the world's population on only 7 percent of land. In

July 2005, China's countryside had over 26.1 million people living in absolute poverty

and was home to 18 percent of the world's poor, according to Chinese Minister Li

Xuju quoted in the People's Daily. Every year, an additional 10 million people have to

be fed. Despite this daunting target, between 1996-2005, "development" caused

diversion of more than 21 percent of arable land to non-agricultural uses, chiefly

highways, industries and SEZs. Per capita land holding now stands at a meager 0.094

hectares. In just thirteen years, between 1992 and 2005, twenty million farmers were

laid off agriculture due to land acquisition.As more arable land is taken over for

urbanization and industrialisation, issues related to changes in land use have become a

major source of dispute between the public and the government. Protests against land

acquisition and deprivation have become a common feature of rural life in China,

especially in the provinces of Guangdong (south), Sichuan, Hebei (north), and Henan

province. Guangdong has been worst affected. Social instability has become an issue

of concern. In 2004, the government admitted to 74,000 riots in the countryside, a

seven-fold jump in ten years. Whereas a few years ago, excessive and arbitrary

taxation was the peasants' foremost complaint, resentment over the loss of farmland,

corruption, worsening pollution and arbitrary evictions by property developers are the

main reasons for farmers' unrest now. While rural China is up in arms against

acquisition of land, SEZs like Shenzen in Guangdong showcasing the economic

miracle of China, are beset with problems. After growing at a phenomenal rate of

around 28 percent for the last 25 years, Shenzen is now paying a huge cost in terms of

environment destruction, soaring crime rate and exploitation of its working class,

mainly migrants. Foreign investors were lured to Shenzen by cheap land, compliant

labour laws and lax or ineffective environmental rules. In 2006, the United Nations

Environment Programme designated Shenzen as a 'global environmental hotspot',

meaning a region that had suffered rapid environmental destruction. There's more.

According to Howard French, the New York Times bureau chief, most of the year, the

Shenzen sky is thick with choking smoke, while the crime rate is almost nine-fold

higher than Shanghai. The working class earns US$ 80 every month in the sweatshops

and the turnover rate is 10 percent ­ many turn to prostitution after being laid off.

Further, real-estate sharks have stockpiled houses which have caused prices to spiral

and have created a new generation of people French calls "mortgage slaves" in an

article in the International Herald Tribune on 17 December 2006.

The mindless pursuit of growth following the mode of high input, high consumption

and low output has seriously impacted the environment. In 2004, China consumed 4.3

times as much coal and electricity as the United States and 11.5 times as much as

Japan to generate each US$1 worth of GNP, according to the The Taipei Times. Some

20 per cent of the population lives in severely polluted areas (Science in Society) and

70 percent of the rivers and lakes are in a grim shape (People's Daily). Around 60 per

cent of companies that have set up industries in the country violate emission rules.

According to the World Bank, environmental problems are the cause of some 300,000

people dying each year. The Chinese government has admitted that pollution costs the

country a staggering $200 billion a year - about 10 per cent of its GDP. While export-

driven policy for economic growth has helped China touch record growth figures, the

income gap is widening and rapidly approaching the levels of some Latin American

countries. Going by a recent report by the Chinese Academy of Social Sciences,

China's Gini coefficient ­ a measure of income distribution where zero means perfect

equality and 1 is maximum inequality ­ touched 0.496 in the year 2006. In

comparison, income inequality figures are 0.33 in India, 0.41 in the US and 0.54 in

Brazil. Further, the rural-urban income divide is staggering ­ annual income of city

dwellers in China is around US $1,000 which is more than three times that of their

rural counterparts. It is in this backdrop that India's SEZ thrust must be seen.

Following China, India is replicating a similar model where vast tracts of agricultural

land are being acquired for creating SEZs and other industries. The September 2005

notification on Environment Impact Assessment is lax for industrial estates, including

SEZs, and apprehensions of dirty industries coming up in these zones are quite real.

Further, with drastic changes in labour laws favouring industry being considered, the

plight of workers in these SEZs will be similar to those in China. Such a mode of

development is environmentally unsustainable and socially undesirable. Further, it is

now widely acknowledged that Chinese exports have also been boosted by its

undervalued currency, something which Ben Bernanke, chairman of the US Federal

Reserve, terms as an "effective subsidy". This is a luxury that Indian exporters do not

enjoy. The argument for setting up SEZs to emulate China's export-led growth is

therefore questionable.

There is no doubt that exports play a significant role in boosting GDP. However in the

case of a country with a sizeable domestic market, the choice lies with the producer to

either export or supply to the domestic market. Household consumption in India at 68

percent of the GDP is much higher that that of China at 38 percent, Europe at 58

percent and Japan at 55 percent. This is an important source of strength for the

domestic manufacturing industry of India. Given the high level of consumption of

Indian households, it is quite possible that this rush is fuelled not by the desire to

export out of the country but by the possibility of exporting from SEZs into the

Domestic Tariff Area (DTA). The SEZ Act is also designed to facilitate this. Any unit

within the SEZ can export to the DTA, after paying the prevailing duty, as long as it

is a net foreign exchange earner for three years. It is therefore a win-win situation for

these units.

The above section clearly highlights the fact that china has made many compromises

with regard to its people and environment in the run-up to its fast growth. But as a

democratic country India will be less assured of following the exact pattern.

Next we make some comparisons between the Chinese and Indian situation.

INDIA AND CHINA:POLICY COMPARISON

India has more or less adopted the same China model of SEZ development and

expecting the similar results. However, the government is missing out on few vital

differences:

(i) Free zones in countries like China, UAE were mostly public funded in which

economic gains prospects assumed far more significance than financial viability

considerations. Thus the responsibility of market to promote zones & to attract tenant

industries was primarily shouldered by governments. The Indian model, on the

contrary, envisages ‗private sector led‘ development of such zones. Thus, the

responsibility or risk of financing, marketing & promotion has been vested with

private players, who have very little or no experience in these areas.

(ii) India is not a command economy i.e. foreign investors are not confined to SEZs

only, which make these zones little special than were China‘s where SEZs used to be

the only route through which foreign investors could enter the country. Besides,

Indian has no equivalent to Hong Kong or Taiwan where industries had a pressing

need to relocate and China served as a ready relocation base.

(iii) China continues to score because it has bundled an attractive tax environment

with world-class infrastructure and a liberal labour environment. In India, on the other

hand, buckling under the pressure from Left parties, the government has axed the

Section 50(b) from the central SEZ bill, which would have empowered states to ease

labour laws in SEZs. Democratic India has strong labour unions organically linked to

political parties. Authoritarian China, conversely, has very pliant unions. Here India

has lost a crucial edge in the global environment marketplace.

(iv) India has also some advantages over countries like China. It has significantly

larger English-speaking workforce than does China. India also has an edge in a

number of key knowledge based industries like software, IT-enabled services, medical

services, drugs & pharmaceuticals & agro-based industries. Hence India‘s SEZs are

therefore likely to develop along quite different lines from China‘s. Indian zones will

more likely attract investments in high-end human skill based industries & services

sector.

(v) Also in the light of the increasing economic engagement of India with the ASEAN

& China, it is more likely that a greater proportion of investment into Indian zones

could come from these countries than from US or Europe.

CONCLUSION

Like all ideas, the idea for Special Economic Zones, in its originality, is a very

attractive one. If implemented according to proper rules and regulations and most

importantly, with proper consideration for farmers and project affected people

(PAPs), the SEZ s provide a win-win situation for the company and the PAPs as well.

In the ideal condition, the Project Affected People benefit by getting better

occupation, better living conditions and better income while the involved developers

and company get the benefits of tax-exempt production centers along with a dedicated

workforce derived from amongst the PAPs.

Claearly, if the PAPs are satisfied with the policies of the company and their

Rehabilitation and Relocation programmes, they will have trust and goodwill as

employees while working for the company