War zones. The present and future of India’s SEZs

The summer of 2005 saw a major shift in India's economic policy, when Parliament passed the Special Economic Zones Act without even the semblance of a debate. Since then, widespread resistance notwithstanding, over 250 Special Economic Zones (SEZs) have received formal approval, and the government has made the final announcement of the creation of 80-odd SEZs. There are several hundred applications in the queue.

The notifications of SEZs have followed a particular pattern in India, whereby major shifts in the country's economic policy are effected through stealth. In 1991, a crisis regarding short-term balance of payments in the country's external accounts was manipulated by the country's policymaking elite, to quietly usher in major changes in the way the national economy was to be run. These far-reaching changes included the liberalisation of the import regime, which had a special significance for agriculture; becoming more open to foreign investment in various areas of industry and services; allowing more foreign investment in finance; and privatisation of public sector assets. There was no public discussion of these changes, no debate befitting a democracy. The role of the International Monetary Fund and the World Bank in this process was hardly incidental. Much of underprivileged rural India continues to reel under the impact of the structural-adjustment policies that the two Bretton-Woods institutions brought to the country 1991. If we also take into account the role of trade concessions made by New Delhi to the World Trade Organisation after 1995, we can understand the origins of perhaps the most prominent consequence of this remote-control management of India's economic policies: the rapidly rising pile of corpses of bankrupted Indian farmers who have committed suicide.

What is a Special Economic Zone? It is a specially demarcated area of land, owned and operated by a private developer, deemed to be foreign territory for the purposes of trade, duties and tariffs. With the intent of increasing exports, within the SEZ production can be carried out by investing companies utilising a large number of concessions – tax exemptions, guaranteed infrastructure and the relaxation of labour and environmental standards. These last are what make SEZs particularly 'special'.

It is worth noting that India may be the first country in the world to be experimenting with privately owned Special Economic Zones; in China, even when they have been developed by the private sector, SEZs are ultimately owned by the state. And SEZs are not new to the Subcontinent. Their predecessor was the Export Processing Zone (EPZ), the first of which was created in Gujarat in India in 1965. The Colombo and Dhaka governments have also been experimenting with SEZs. According to the International Labour Organisation, by 2002 over a hundred countries around the world were doing so.

The Shenzhen syndrome
New Delhi's recent enchantment with Special Economic Zones is a direct consequence of the perceived success of the Chinese model. Beijing experimented with SEZs over a period of two decades, beginning in the early 1980s, with the liberaliser Deng Xiaoping at the helm. They were initially introduced in the coastal areas of the southeastern part of the country, as a pilot experiment during the early phases of the post-Mao opening up. Despite at least one case of notable 'success', in Shenzhen in Guangdong Province, the SEZ model of economic growth has stood discredited in China for nearly a decade due to the outcry regarding unacceptable working conditions for the majority of workers and the devastation of local ecologies as a result of the Special Economic Zones.

Much of India's move towards SEZs can be traced to a 2000 visit to China by former Union Commerce Minister Murasoli Maran, who became enchanted by the success of the showpiece SEZ at Shenzhen. Shenzhen's annual rate of growth has been 20-30 percent for the past quarter century, and over 10 million people have found employment in an area the size of the Jaipur metropolitan area. The city continues to generate 14 percent of China's exports.

And yet, drawbacks abound. As a New York Times reporter wrote in December 2006, few cities anywhere have created wealth faster than Shenzhen, but the costs of its phenomenal success were "environmental destruction, soaring crime rates and the disillusionment and degradation of its vast force of migrant workers."

The SEZ model that has taken New Delhi's fancy – and which it is systematically attempting to implement – is one whose time has long ago lapsed. This fact can be understood from a look at the peculiarities of the Indian situation, and the odd world in which its corporate and policymaking elites find themselves today. The Indian economy has been growing at an impressive 8-9 percent for about five years now. The country's corporations have become globally mobile units, locating themselves as far afield as eastern Europe and China, Bolivia and Equatorial Guinea; acquiring companies in Europe and North America, and mines and oilfields in Africa, Latin America and Australia.

However, there remains immense corporate frustration within India itself. Some of the cheapest labour in the world is at their command and yet, because of the 'inconvenience' of democracy, Indian companies find themselves hamstrung to hire and fire in sync with the business cycle – as happens in China. Some of the most readily accessible natural resources are at the disposal of Indian businesses, but there is the nuisance of bureaucracy, in the shape regulations and pollution-control boards and the Union Ministry of Environment and Forests. While Indian businessmen may have firm control over the hearts and minds of politicians, they still feel encumbered by regulations and by being made to pay too many taxes. There is infrastructure in India, but it is either in the city and already burdened, or adjacent to agricultural land and a pain to acquire. The list of grievances goes on and on.

Special Economic Zones offer relief from this bramble of hurdles. Much that could never be attempted outside their boundaries is the norm within the safe confines of the SEZs. American corporations routinely abuse both labour and the environment in Shenzhen in ways unacceptable back home – though few seem to mind the cheap goods and clothing. In India, SEZs will provide a profitable refuge from the Indian Constitution, an effective waiver from democracy. The Development Commissioner and SEZ Authority are to have overwhelming powers, making local, provincial, national and international laws all but irrelevant. Nandigrams and Kalinganagars will happen from time to time, but so long as they do not all take place simultaneously, or too close to any given election, there is little worry.

This is the plan, at any rate. But is it working?

Adjust kar lenge
After a series of protests in Raigad, Maharashtra – where the Reliance conglomerate wants to build a massive SEZ, equal to a third of the area of Bombay city – and the fierce uprisings in West Bengal (to name only the most prominent anti-SEZ protests), the central government has been forced to flip-flop on the issue. When, in 2006, the new SEZ rules went into effect, at one stage the Board of Approvals was clearing SEZ proposals at the rate of one a day. This past January, however, the government halted the process, following the first massive protest in Nandigram against the huge SEZ project that the Indonesian Salim group had planned to construct there, in which half a dozen people lost their lives. In the middle of March, Nandigram erupted again, forcing the West Bengal government to scrap the project altogether.

Following some new restrictions, however, New Delhi has lifted the freeze on Special Economic Zones. In early June, final approval was given for the construction of 24 new SEZs, with nine more pending the authorisation of individual states. This took place following the announcement of some possibly significant changes in policy in April. For instance, the government has now placed a ceiling of 5000 hectares on any SEZ; earlier, there was no cap. More importantly, state governments can no longer acquire land for an SEZ on behalf of private developers. Nor can state governments form joint ventures with private developers if the developers do not already have land in hand to offer the project. States can acquire land to develop SEZs on their own, provided they abide by the rules of a new relief and rehabilitation package, to be announced soon. Moreover, at least half of an SEZ's total area is to be earmarked for processing units or areas within an SEZ reserved for industrial activities like mining, manufacture, or fabrication. Earlier, the norm was 35 percent for multi-product SEZs.

If actually implemented, these changes would be significant. For instance, the new policy implies that private developers would have to deal directly with farmers and landowners to acquire land for SEZs. While this means that the state will not interfere in such processes, it will remain to be seen whether land mafias will be restrained from snatching land from peasants for companies. In a country such as India, where the acquisition of large chunks of contiguous land in a farmed area is complicated by the number of different owners the acquiring company has to deal with, the transaction costs for an interested company are substantial.

There is also the risk that a company may fall short of the minimum land required for the industry in question, due to the unwillingness of one or a few owners to sell their property. This was the very reason that the Land Acquisition Act of 1894 was originally invoked to acquire land for SEZs, allowing the state to act as a broker for private companies – hardly a role behoving of a democracy. The conflicts and protests of the last year in West Bengal, Maharashtra, Punjab and elsewhere have revealed the moral folly of such an approach.

The likelihood is that the recently announced amendments can be easily circumvented by businesses, with help from politicians. When pressed recently by the media about whether he would listen to Reliance's urgings that the 5000-hectares cap should be relaxed, Union Minister for Commerce Kamal Nath gave a revealingly convenient reply: "It's not the Gita or the Bible, no?" In any case, Reliance is still moving ahead with its plans in Maharashtra and Haryana, attempting to construct an area significantly larger than 5000 hectares by acquiring contiguous land under the names of several different companies.

Approaching eventualities
What else do India's policymakers want to do? Recent concessions such as the liberalisation of foreign direct investment in real estate; the rush of builders and developers to acquire SEZ land; the fact that only half of the area under an SEZ has to be dedicated to a broad definition of processing or industrial activities; the fact that industrialists are all too often being granted land well in excess of their production requirements – all these point to an engineered real-estate boom through SEZ growth. Huge amounts of capital are pouring into the land market, from both within India and overseas. Returns of 30, 40, even 100 percent are becoming common – making Indian real-estate markets some of the most attractive anywhere in the world for investors.

And the political implications of SEZs? Far-reaching and monstrous. It is proposed that the SEZ Authority will be headed by a centrally appointed Development Commissioner, in whom will be vested all the powers of local administration, the state Labour Commissioner and the regional pollution control boards. The Authority will consist of five other members, at least two of whom will be representatives of the private developer. Importantly, none of the six members of the SEZ Authority will be elected. The Authority will have jurisdiction over areas as large as 50 or 100 sq km, putting out of applicability such things as elected municipal government (for urban areas) or panchayats (for rural areas).

Indeed, the powers being granted to the unelected SEZ Authority suggest a real-time experiment in corporate totalitarianism, launched through the high offices of the nation state. As flags are raised once again in rajwadas and princely states, the long-slumbering glories of Indian feudalism may once again rise from the ashes under newly coined corporate brands, fitting snugly into the needs and imperatives of global finance, injecting with new energy a capitalism that would appear to be stagnating worldwide.

With their private airports, luxury housing, super-deluxe hotels, world-class shopping malls and multiplex plazas, SEZs offer us a window into the world of corporate consumer dreams. To some, they also portend the end of effective democracy in India. The surrounding sea of human misery and squalor is bound to give rise to repeated and violent rebellions, something that is already well underway. With such concerns in mind, private armies of security guards are now being trained and readied for the approaching inevitabilities. While statistics on the growth of private security are hard to come by, it is well known that security firms like Group 4 and others have been expanding their operations in recent years.

With this alarming scenario as a backdrop, the question may be asked: is there not a way that SEZs could be used judiciously? The short answer is no, not under the given provisions and the extension of overarching rights to corporations. Moreover, there are a plethora of alternatives to SEZs. For instance, the government could widen and strengthen the National Rural Employment Guarantee Scheme (NREGS), putting purchasing power in the hands of the rural poor, raising at once rural employment, aggregate demand, investment, output and growth. In the process, it could create Sustainable Ecological Zones (another species of SEZ altogether) as programmes like watershed management, soil conservation and afforestation are institutionalised and the natural environment is protected. 

But to execute such a strategy would involve environmental democracy, in which local elected bodies such as panchayats have control and decision-making powers over resources. To galvanise the collective imagination and to forge the will to implement these alternatives in practice, will require a thriving public culture of democracy – precisely that which SEZs are being created to undermine. Globalisation, far from bringing freedom to the world, is taking it away – in the name of freedom.
     

  Aseem Shrivastava has taught Economics at universities in India and the US. He is based in New Delhi.