It’s more about accountability and uniformity. 

After months of deliberations, empowered group of union ministers in India have come out with little more clarity on the 5th of April elaborating the myth called Special Economic (or Exploitation?) Zones (SEZs) that India needs to create to have a fast track path in order to achieve long-term economic developments.

The controversies and debates in Indian federal democracy since the SEZ Act (2005), that came into practice on 10th of February 2006, saw a fast-slow-stop-let’s-move-again approach so far, causing many violent protests and deaths of Indian farmers – the present land-owners, on whose lands most of these Chinese-styled SEZs would come up to prepare India to match, if not better Chinese records in manufacturing industries (true, there are proposals of few IT SEZs as well). The rush to set-up SEZs, hundreds in numbers, reminds one of the Californian Gold Rush of 1848. It looked like a one-way-street to richness and productive assets for organizations that could afford the investments needed to set-up one, if not more, in this SEZ rush of 21st century.

There’ve been enough debates on the SEZs, and expectedly in India, most of the meaningful debate was ignored in the new guidelines. The key point, per se, is not SEZs; the key point rather is India and Indian way of doing things. It’s ‘Indian’ SEZs, policies and acts at the core; and merely discussing about SEZs acts and policies by ignoring voluminous Indian standards in the background when what gets proposed and what finally gets implemented is as similar or as different as two different sides of a coin in India, one needs to be extra cautious. 

For the rest of the world, the point needs to be explained with evidences. 

In India, police forces at times take out their duty books and complaint books out of their police stations (which they aren’t supposed to) to get necessary signatures on complaints lodged by influential citizens as it recently happened with a Bollywood actor in Mumbai, whereas same police force consistently refused to lodge complaint against killers and rapists from marginalized sections as we found in Nithari. ‘Aam admi’ – the common man, if ever utters any un-parliamentary words against our political leaders in our moments of frustrations with them, would surely be behind jail whereas honorable Members of Parliament can engage into un-parliamentary acts within parliament itself and go unpunished in-spite of being video-recorded.  

India probably had the best of the Constitution, in words, back in 1950, but in practice we took it to such an extent that a recent Supreme Court judgment on OBC reservations was forced to state “Nowhere else in the world is there competition to assert backwardness and then to claim we are more backward than you.”  Police officers can get suspended for their dereliction of VIP duties; however when a strong police-force of 2000 or more kills poor village farmers, women and kids in a gruesome incident like Nandigram, Government shields them.
The examples can indeed be more voluminous than any of the epics; and to state a long story short; in India rules are flexible for those who mostly violate them and can flex some muscles, and rules are the strictest norms for those who abide by them and happen to be the weakest. 

What have all these got to do with SEZs? Or even Indian SEZs? 

A timely reminder, indeed. It’s all about rules and applying them uniformly in a timely manner. 

The question we, with our experience and learning, need to ask is: do we ignore these background stark realities of our societies when we frame policies, and believe everything goes as per acts and policies and rules as in developed world, and thereby frame policies? Or do we proactively take cognizance of the actual situation prevalent across the breadth and diversity of our society and come out with policies and acts that we know we probably can implement? 

Because so far, in-spite of having excellent rules, none was probably practiced uniformly ever even for 1% of the actual cases. For urban and global-centric Indians, we saw how a celebrity like Naomi Campbell can be ordered to engage into community services (that too in garbage-truck garage) for throwing a cell phone at her maid. And in our mainstream media, we often see many reports of violence against domestic maids, many times those maids being children (another unlawful act), and nothing much happens to most of these culprits after hitting newspaper for a day. 

Or take even more relevant examples of SEZs vs. land-grabbing: haven’t most of us ourselves have seen how promoters take on water-bodies or free space anywhere unlawfully to create few more thousands of  feet’s of concrete in our urban jungle to earn some extra money, in open collusion with regulators? 

So the point is: who would regulate this much debated and what many may term now as much refined SEZ act and policy? A lot of concessions are being offered, justifiably or unjustifiably. Irrespective of policies, if one promoter exceeds the land that can be used for real-estate or other non-core purposes by more than 50%, that too deliberately, what happens to him or her, and all involved regulatory authorities. Matter of fact – as we know it – nothing, because if anything had to happen, most of the real estate promoters in major Indian metros would have been behind bars by now – for breaking laws and/or duping end-consumer with promises of excellent views and open space, and finally offering prison-cells. 

Or consider other possible option – what if goods made in SEZs are re-routed back to India by showing as finished goods exports by SEZ first, and then by input imports by another group company. One may be surprised – how can that happen, but few know how smart many Indian business houses are in innovations and creativity, not for all their stake-holders; but for themselves. And what can potentially be incentives (the tariff division) – 40% or even more can pay for freight costs and extra profits; it thereby damages existing other domestic businesses as well. 

So the essential question is: do we have adequate checks and balances to regulate that? Even without SEZs, such incidents were reported in the name of Forex earnings many times before; and when the incentives to break the rule is more; naturally the ingenuity is likely to be more. 

And when wrong people apply these simple innovations that SEZs offer, honest, responsible firms operating in non-SEZ zones can also suffer from unsustainable competition. 

Without checks and balances, without the much-needed carrots and the sticks, how do we regulate SEZs by matching what’s desired from them and what they actually deliver? 

One may argue that rapid, fast track industrialization can’t wait for grass-root changes in all aspects of society. Valid point, however when SEZ acts could be passed in parliament with so much sops and Commerce-Ministry asking for more (e.g. service providers outside SEZs offering services to SEZs should also be tax-exempted, as reported lately. One won’t be surprised if potential demands list that, commercial sex workers should offer subsidized services to SEZs. Please don’t take this as a flippant comment from an immature mind, this rather is a painful cry from an ‘aam admi’) and thereby being in logger-heads with Ministry of Finance; why not also pass a special act in case any of the principles of SEZs are violated in spirit. 

Make that a fast-track court where even the top man would be responsible for any violation with accountability equally shared by concerned authorities. Any result of such an act would be clearly visible to all of us as soon as it is in place – the stricter the punishment and fairer and speedier the judgment, more would be the fall outs from proposal to projects. 

Competing in global markets ethically, legally and competitively isn’t easy. India’s balance of trade is a stark reminder of that, where our trade deficit is nearly $50 billion; and even when one excludes energy (crude) imports; we would still be running in trade deficits. 

Just drop the land ownership or bring in strict monitoring of the land-usage, and one would be reasonably certain that the SEZs rush would boil down to genuine interested business groups meaning rare few right business houses still evincing an interest in SEZs. Till that happens, the skeptics can’t be blamed if they think that government is selling a proven oil reserve without the necessary exploration risks at throwaway prices, and that’s what explains this mad rush. The answer offered for failure of EPZs, and SEZs being the remedy is not convincing either. 

Enough statistics has been thrown from both sides. One source stated: ‘The commerce ministry projects that by December 2009, the 63 notified SEZs will draw investments worth Rs 53,561 crore and provide employment to 15,75,452 more people.’ Now as ‘aam admi’ we don’t pretend to be omniscient; we get our information in bits and pieces from mainstream media and internet. However it comes to a figure of Rs. 3.3 lakhs ($8000) of capital investment (including land?)/job created. Going by the Economic Times reports over the longer term, projections of an overall investment of Rs. 300000 crores ($70 billion) for the 234 SEZs having formal approval and needing only 350 square-km of land would have capex/job of little higher than Rs. 7 lakhs ($15000)/job, and expected to create 4 million jobs. 

Going by these 234 SEZs having formal approval and following ministry statements, isn’t it fabulous that in SEZs, we would generate 114 jobs/hectare of land? 

Extending this ratio, in Nandigram there should have been 4.5 lakhs of job creations! People of Nandigram really didn’t follow logic. However what I fail to understand here is: when there is so much of job creation, there should not be much problem to reserve a small 10% of the potential created jobs for low skilled and less educated land losers, which yields at five jobs/acre of land. 

But here lies the problem because we see authorities fumbling in reserving jobs, and passing the buck to another ministry. Are we missing something in these rosy projections? 

Well, one knows that the SEZs would be labor intensive, but may not be ideally meant for SMEs where (job created/investment) is historically the highest. With all that investments of $70 billion, from domestic or overseas investments, we may well be less than 5% of Chinese investments. Cumulative FDI alone in China, mostly in its SEZs, was $650 billion, add with that the domestic Chinese investments. And with large sample size, we can believe data to converge in these two similar nations, be it capital intensive ones or in footwear or garment manufacturing ones. Superficial analysis of Chinese SEZs tells us that it takes a minimum capex of $60,000/job created. 

There have been so many rosy projections of ‘Garibi Hatao’ (abolish poverty) to job creations, that if many of these projections made now do come true; we may create more jobs in India than we probably have supply of manpower. Investment Strategy for India is working towards the goal of $1.5 trillion dollars of investments in India over next five years, and applying same ratio there (which may be questionable, agreed), we would create another further 10 crores (100 millions) of jobs. 

Another staring lacuna that strikes us in this mad competition with China is along with SEZs, China made a lot of investments in infrastructures also. Trillions of dollars of investments have been made, and are still being made. We that infrastructure brings in economic growth. So why don’t we encourage infrastructure developments even more than the SEZs? As released by commerce ministry, we are made to believe that SEZs would occupy only 0.06% of total Indian land. True, developing infrastructure like power, roads, ports may not yield land ownership to the tune of SEZs; but isn’t it an even more priority than SEZs that our infrastructure covers 100% of Indian land. 

As rightly stated in one cited reference, we haven’t seen mad infrastructure rush in-spite of similar benefits (‘Forget about SEZs, outside them too — in the infrastructure sector — you get the same tax holiday under section 80-I-A of the Income Tax Act. In SEZs, the extra benefit is in customs duty.’) offered. Shouldn’t it make one ask why? Why such a mad race for SEZs and why not for power? 

And ask any person anywhere in India what’s needed more and the obvious answer would be power. 

Agreed it’s not an either-or scenario. However experience tells us when something is too good to be believed, there must be something wrong in it. 

Our present SEZ policy stinks from that too-good-feel-factor when viewed from any investor community, more so with that background of policy-one-implementation-another Indian mindset. 

Let’s have an SEZ policy which we can implement. Let it not be another grandiose boardroom dream! 

As a roadmap, we just need couple of things to get it right, and not many of these debates (including this one). We need to learn from the Chinese (and others) experiences, and improve that. More so when China has much more land than we have in India, and 30-years back there was no concern on global warming and its impacts on food-grain productions. We find out an average {investment made (and potential future investments on same SEZs)/unit of land} along with job creation records from the Chinese experience; and implement that with minor adjustments/improvements. We debate on ownership of land with adequate safeguards to invite good business, and get some lock-in of the funds; more so where land ownership is being transferred. And we also have a stick in case states need to wield that stick which is not as inefficient and as ineffective as all the existing sticks so far been in dual-standard Indian societies. 

Right investors never rush into mad gate-crashing parties. We need to stop this gate-crashing party of SEZs in India. The day that’s done with few interested parties, we would be certain that we have got it right.

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