The
second criticism in 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 SEZ units can participate in trading activities. It makes
sense that these economic incentives should be uniform throughout
the country, while other policy and 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 revenue loss is reasonable.
In
addition to these policy issues, there are five operational
issues which need to be addressed immediately. First, what
kind of land should be acquired for SEZs? The government
policy is both fair and reasonable. The government says
that mainly waste and barren land and, if necessary, single
crop agricultural land alone should be acquired. Location-specific
industries (port-based etc) 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 ha of land, or even more in future, would reduce
farm land by less that 0.1 percent. With the decline in
share of agriculture in GDP, greater industrialization 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 public purpose. If needed, the law can be
amended to make it more explicit. But as a rule, 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 abnormal price or refusing
to sell; or a location-specific industry needs land which
owners are unwilling to sell. In such cases, land acquisition
may be the last resort, and even then fair price should
be fixed through negotiations rather than depending on registered
sale deeds (declared sale prices are often undervalued to
avoid stamp duty or conceal black money).
Third,
how do we ensure that land losers have stakes in SEZs? Mere
'compensation' at current market prices is insufficient
when the asset value would appreciate significantly. Land
losers suffer the heart burn of relative deprivation as
the 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
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,
the displaced persons need to be imparted skills necessary
for wealth creation, and absorbed in the projects coming
up in SEZ as far as practicable. In 1985-86, a massive project
was undertaken to train 8000 youngsters in displaced families
of Visakhapatnam Steel Project (Now RINL), and all of them
are now productively employed. Until that training, the
displaced persons sought employment without skills, and
the project officials could not engage that many peons and
messengers in a modern steel plant! A national programme
of skilling unemployed youth 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. The 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 was concluded between the local government
and the industrial estate, transferring 30% of the taxes
raised to the municipality. In effect, the industrial township
subsidized the municipality while quality of services and
local autonomy were protected. 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 create stakes
in growth for all groups.
***