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PostPosted: Fri Nov 26, 2010 5:19 pm 

Joined: Sun Sep 12, 2010 2:49 pm
Posts: 596
CAG indicts SEZ policy


In major finding, the Comptroller and Auditor General reported to Parliament earlier this year that a key objective of the SEZ policy, -- augmenting real exports -- has not only been defeated, but the policy had further resulted in revenue losses of hundreds of crores of rupees. Himanshu Upadhyaya has more.

23 June 2008 - A review of much touted Special Economic Zone policy in a recent Comptroller and Auditor General audit report confirms doubts expressed by economists that it will lead to undue favours to corporates at the cost of substantial erosion in revenue earning for State.

In its performance audit-report on indirect taxes for Union Government tabled in parliament on 11 March 2008, the CAG brought 370 SEZ units under scanner with a limited objective to verify if they had complied with existing Customs Act, Rules, notifications etc. The review brought out systemic as well as compliance weaknesses that caused lost revenues to the tune of Rs.246.72 crores. Furthermore, the CAG threw light on the absence of enabling provisions which resulted in Rs.1724.67 crores of revenues forgone, or irrecoverable.

The Special Economic Zones policy was announced in April 2000 by BJP-led NDA government. The SEZ Act 2005, supported by rules came into effect from 10 February 2006, during the tenure of the UPA government.

There were 154 SEZs in private and joint sectors which had been notified after the SEZ Act came into force, in addition to the 19 SEZs that had existed prior to the enactment of the Act, which functioned from 1 November 2000 to 9 February 2006 under the provisions of Foreign Trade Policy.

Duty foregone by the Government on the SEZ scheme during the period 2000-01 to 2005-06 was Rs. 8,842 crores. The budget estimates of the duty foregone for the year 2006-07 was Rs.2,146 crores.

One of the main objectives of setting up SEZ was fast-track augmentation of exports. SEZs are a specifically delineated duty free enclave and are deemed foreign territory for the purpose of trade operations, duties and tariffs. Accordingly, goods and services from domestic tariff area (DTA) to SEZ are to be treated as exports and goods coming from SEZ into DTA are to be treated as imports.

The incentives and facilities offered to the SEZs include duty free import/domestic procurement of goods for development, operation and maintenance. At the same time, the SEZ law allows import/export operations on self-certification basis. The units in the zones are required to be a Net Foreign Exchange (NFE) earner, calculated cumulatively for a period of five years from commencement of production.

Additionally, as per the EXIM Policy (2002-'07) and the Foreign Trade Policy (2004-'09) an SEZ unit was required to achieve a positive NFE. For determining the same, Domestic Tariff Area (DTA) sales/supplies effected to other SEZ units, 100 percent Export Oriented Units etc. – deemed export - were also to be reckoned.

The expose

The CAG revealed in audit scrutiny that the policy had not prescribed the extent of foreign exchange that should be earned by an SEZ unit through actual physical export and that which could be earned through deemed export in DTA, to comply with positive NFE provision. Deemed exports in the DTA do not earn any foreign exchange.

It was observed during the audit, that 22 SEZ units had been achieving the prescribed "positive" NFE mainly though domestic sales and this defeats one of the sub-objectives of the scheme, which was to augment real exports. While an overall export of Rs.7,149.23 crores was made by these 22 units, the actual export content was only Rs.1,999.27 crores (28 per cent) and the remaining Rs.5,149.96 crores (72 per cent) related to DTA earnings. The range of the domestic earnings as a percentage of total export earning in these units was 59 to 100. Customs duty of Rs. 1,043.29 crores was foregone on import of goods by these units.

The CAG found that duty was waived twice - first on the inputs used in manufacturing products in the SEZs, and again when the finished products from the SEZs were allowed into DTA at nil rate of duty. The duty foregone on the inputs utilized for manufacture of the finished products could not be recovered, in the absence of the provisions of paying back.

CAG's audit scrutiny explains how this system turned out to be a huge favour for Nokia the well known mobile manufacturer, while putting similar units in the DTA or even in other EOUs at distinctly disadvantageous position. The audit report states without mincing words, "Audit scrutiny of records of Nokia India Pvt. Ltd., a unit in Madras SEZ, revealed that the unit cleared mobile phones with a value of Rs.4,855.69 crores in 2005-06 and 2006-07 in DTA at 'nil' rate of duty. Duty of Rs.681.38 crores (Rs.86.76 crores in 2005-06 and Rs.594.62 crores in 2006-07) foregone on the inputs used in the manufacture of these mobile phones could not be recovered in the absence of enabling provisions."

SEZ units with negative foreign exchange earning

CAG's scrutiny also revealed a failure in recovering duty foregone from units who had not achieved "positive" NFE. The CAG report states, "Scrutiny of records of 24 units of Falta, Cochin, Madras, Kandla and Vishakhapatnam SEZs revealed that these units failed to achieve the required positive NFE. Accordingly, a duty of Rs.106.71 crores (determined in proportion of the shortfall in achieving positive NFE) with interest of Rs.46.17 crores was recoverable from these units."

Instances of sizeable losses to public exchequer don't merely end there. Audit scrutiny also revealed that violations and non-compliances abound in SEZ units even after so many of waivers and exemptions.

Forty one units in Falta, Chennai, Vishakhapattnam, SEEPZ, Kandla and Surat SEZs had violated conditions of their Letters of Permission (LoP). The violations included (i) carrying out trading activity though the LOP was for manufacture, (ii) manufacturing in a premises not mentioned in the LOP, (iii) excess trading than what was permitted in the LOP, (iv) operating without a valid LOP, (v) clearing all goods in DTA despite the facts that these were required to be exported to the general currency area (GCA) countries, and more. They attracted penal action as per provisions in Foreign Trade (Duties and Regulations) Act 1992 and to pay duty totaling Rs.74.90 crores.

The criticism of systemic and compliance weaknesses of India's SEZ policy in the latest CAG audit report and the impact in revenue losses needs to enter the SEZ debate. Much of the current criticism leveled against SEZs has focused on its impact on agricultural lands in the hands of farming communities. The CAG's report has shown that SEZs are not poor public policy just socially, but economically as well. ⊕

Himanshu Upadhyaya
23 June 2008

Himanshu Upadhyaya is an independent researcher working on Public Finance and Accountability issues.

 Post subject: SEZs: Lessons from China
PostPosted: Fri Nov 26, 2010 5:23 pm 

Joined: Sun Sep 12, 2010 2:49 pm
Posts: 596
SEZs: Lessons from China


While single-minded pursuit of exports has helped China touch record growth figures, millions have been left behind, besides incurring huge environmental costs. And without even the limited dose of welfare that China offers its poor farmers, India must wary of copying China's SEZ-approach, writes Bhaskar Goswami.

9 February 2007 - 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 a valuable lesson for India.

Cost of Export-driven Growth

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.

UNEP worked with Google to produce before-and-after satellite images of a hundred 'hotspots' and integrate them into Google Earth.

Titled UNEP: Atlas of Our Changing World, Shenzen's before and after pics are for the period between 1979 and 2004 are available through this program. (See: the UNEP site for more.)
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.

Illustration: Farzana Cooper

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.

In certain areas such as asset distribution or years of schooling China's levels of inequity are lower (i.e., more favourable) than India. However, when one looks at it at the aggregate level, the picture is different.

The levels of inequity in China have been rising through the last three decades, whether between rural and urban, within them, or on an aggregate basis.

According to Zhu Ling, between 1978 and 1995, the Gini coefficient of rural income increased from 0.21 to 0.34 and that of the urban from 0.16 to 0.28.

With the economy opening up rapidly post-1995 and also due the massive concessions that China was forced to make in order to join the WTO, the trend continues and the aggregate Gini coefficient in 2006 was around 0.5.

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.

Is export-driven growth through SEZs desirable for India?

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. Ila Patnaik of the National Institute for Public Finance and Policy wrote in the The Indian Express in December 2006 that 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 sops in a SEZ will reduce the cost of capital while labour reforms will ensure trouble-free operations. Further, given the considerable international pressure to reduce industrial tariffs, SEZs will be able to export to the DTA at highly competitive prices. This does not augur well for units outside the SEZs who will now face unfair competition. As cheaper imports have already played havoc with the livelihoods of artisan sector of the economy, cheaper imports into DTA from SEZs will also adversely affect the domestic industry. No wonder many of them now want to migrate into SEZs.

In a country with 65 percent of the population depending on agriculture as a means of livelihood, industry ought to be complementary to agriculture. Through SEZs however, industry is being promoted at the cost of agriculture. Valuable resources spent to create SEZs will be at the cost of building better infrastructure for the rest of the country, something that will affect both the domestic industry as well as agriculture.

Other lessons India could learn from China: Welfare

While the Chinese experience with export-driven economic growth definitely offers many sobering lessons, there are many other areas where India can learn from China. China has initiated a series of measures to arrest social tensions and rising inequality in rural areas. In April 2004, the State Council, China's cabinet, halted the ratification of farmland for other uses and started to rectify the national land market. The Minister of Agriculture, Du Quinglin, promised "not to reduce acreage of basic farmland, change its purpose or downgrade its quality".

China also abolished agricultural tax in 2006 and increased subsidy for food grain production by 10 percent. To boost rural income, the selling price of grain was increased by 60 percent in 2005. In 2004, out of a total 900 million farmers in China, 600 million received US$ 1.5 billion (Rs.6,630 crores approximately) as direct subsidies. 52 million of the Chinese farmers have joined in the rural old-age insurance system and 2.2 million received pensions in 2005. More than 80 million farmers had participated in the rural cooperative medical service system by the end of 2004, and 12.57 million rural needy people had drawn allowances guaranteeing the minimum living standard by the end of 2005.

India, on the other hand, either does not have any of these safety nets or is in the process of dismantling the few that exist. There is much to learn as well as unlearn from the Chinese experience. Until that is done, millions of poor across the country will be made to pay an even higher price than the Chinese did for following this flawed approach. ⊕

Bhaskar Goswami
9 Feb 2007

PostPosted: Fri Nov 26, 2010 6:45 pm 

Joined: Sun Sep 12, 2010 2:49 pm
Posts: 596
SEZs: A history of injustice and abuse


The origins of today's law for land acquisition for SEZs act can be traced to 1824, when the British colonial power felt the need to codify the undisguised forcible seizure of land. While colonial rule has long gone, the unjust application of the principle of eminent domain remains, writes Kannan Kasturi.

01 October 2007 - The current government overdrive on Special Economic Zones has once again brought to the fore the question of where the line is to be drawn between public good and private profit. Whereas the law allows Central and State governments, as well as private developers, to set up SEZs, in practice it is the latter group that has proposed the majority of these zones. That being the case, a number of questions have come up, that point to the divergence between the role that governments are supposed to play in promoting public good, and their actual conduct in facilitating the establishment of SEZs.

Some of these questions are now centre-stage in the debate. Is it right for state governments to expropriate land from farmers or should land acquisition be the responsibility of private developers and subject to market forces? Who does the state bear greater responsibility towards - the farmers and other villagers who will lose their livelihoods as a result of establishment of these zones, or the private developers of these zones?

Two principal questions

Acquiring the land is the biggest incentive held out to private SEZ developers by the state governments. The state involvement becomes more apparent in the larger zones that are in the land acquisition phase. Nandigram is by now famous as an example of a failed forced acquisition. However, this has not deterred the West Bengal government from looking at other areas in the state for the same SEZ and for acquisition for the Haldia SEZ. In Maharashtra, the state government has transferred lands acquired by CIDCO to the Navi-Mumbai SEZ, while it has been actively acquiring land for Reliance for the Maha-Mumbai SEZ. And in the north, there is the example of the Reliance Haryana SEZ where the state government and Reliance together have signed agreement for developing what is billed as the largest SEZ in India.

All the above cases reinforce the idea that large sized SEZs implicitly depend on the state to provide land. Governments, increasingly challenged over their roles in acquiring land for private development, argue that SEZs are needed for the 'development' of their states, and that they need to do everything possible to attract the promoters of these zones to their own state. Whether SEZs will bring in the promised benefits is an entirely different discussion. What is examined here is the injustice of using the colonial land acquisition law that has become such a favourite instrument in the hands of state governments.

A second pertinent question relates to the economic philosophy behind SEZs. In the last two decades, we have witnessed a profusion of support for 'free markets'. The Prime Minister is hailed routinely as the primary architect of pro-market 'reforms' during this period. But SEZs challenge that reading of recent history, and prompts us to ask whether 'pro-business' - rather than 'pro-market' - is a more accurate description of attidues to the economy within government since the early 90s. In the case of SEZs, governments are practically over-ruling market forces in determing the price of land being acquired. The additional irony is that the private industry that is usually vocal against the 'licence and permit raj' desires, nay, needs, the state governments to acquire land.

Eminent domain

The origins of the land acquisition act can be traced to 1824, when the British colonial power felt the need to codify in law what was earlier undisguised forcible seizure of land. The Bengal Regulation I of 1824 was based on the principle of 'eminent domain' - the power of the state to take any private property for public use - and enabled land to be acquired for roads, canals and other public works. This was extended to cover land acquisition for the railways in 1850. Separate laws that had evolved in the territories around Calcutta, Bombay and Madras were consolidated into a single law applicable to all the territories of British India by 1857.

The additional irony is that the private industry that is usually vocally against the licence and permit raj desires, nay, needs, the state governments to acquire land.

• Ignoring the groundswell
• SEZs: Lessons from China
• The new Maharajas
• Tales of eviction in Bengal
• Interact: What to do about SEZs?
In 1870, the rules for determination of compensation for the land acquired based on 'market value' were defined, a 'solatium' (additional compensation over market value in view of the involuntary nature of parting with the land) introduced, and the right of appeal to civil court in case of dispute over compensation provided. This law evolved over a period of time under British rule and took the consolidated form of the 'Land Acquisition Act 1894' which has remained almost unchanged to this day.

What were the key concerns of the colonial legislators? The state had to be able to acquire land for a 'public purpose' quickly and easily; excessive compensation, seen as wastage of government resources, was to be avoided. The law was framed with exactly the above concerns in view. The imperial stance was evident in one simple fact - 'public purpose' was neither defined nor elaborated by the law; it was sufficient for the state to declare it to be so. Further, elaborate rules were framed for determining compensation and ensuring that payouts deemed to be 'excessive' did not happen.

The end of colonial rule in 1947 and the republican constitution of 1950 did not bring about any significant change in the land acquisition law. The Constitution of India, by article 372, allowed all colonial laws to remain in force unless they were explicitly repealed. There was an enormous increase in infrastructure building and industrial activities by the state as compared to the colonial period. Numerous large dams, power plants, mines, steel and heavy engineering plants came up over land acquired using the 1894 law, causing a massive displacement of small farmers, agricultural labour, landless village workers and artisans and forest dwellers. The number of people displaced by projects and those whose livelihood was affected between 1951 and 1995 has been estimated at 50 million by some social scientists based on detailed studies.

Rehabilitation, inadequate in the best of cases, was mostly absent. Compensation followed the requirements of the colonial land law and was available to only those who could show ownership of land. Compensation was pegged to 'market' value; however, given that the land market in India was not developed for a number of reasons, and given that recorded transactions invariably undervalued real market rates - and do so to this day - this did not address the issue of fair compensation. With the result that the acquirer of land continued to be privileged under the law, as in colonial times.

'Public purpose' and private industry

Public sector and government projects were not the only purposes for which land was forcibly acquired by the state. Even in the Nehruvian period, land was being acquired for private industry by state governments. A landmark judgement (R.L Aurora vs. State of U.P, 1962) of the Supreme Court held that the government could not justify acquiring land for a textile machinery manufacturer as a 'public purpose'. It further declared that "the Land Acquisition Act did not contemplate that the Government should be made a general agent for companies to acquire lands for them for their private profit".

That might have been an opportunity to revise the injustices of the Act, but in the event, the Nehru government chose to do the opposite. The immediate response of the government was to amend the law through the Land Acquisition (Amendment) Act 1962 to allow land to be acquired for a company "which is engaged in or is taking steps for engaging in any industry or work for a public purpose" . This was applied with retrospective effect and superseded the earlier Supreme Court judgement. Thus the Nehruvian era state succeeded in preserving its authority for acquiring land for private industry. Subsequently, in the courts, a variety of projects of private enterprise for diverse purposes - houses for members of a co-operative society, manufacture of alumina bricks, construction of a students home, an electrochemical factory, a sugar factory, etc. - were all held to promote 'public purpose', and the land acquisition by the state for these enterprises upheld.

Further modifications were made to the law during the Indira Gandhi regime by the Land Acquisition (Amendment) Act 1984. This provided some minor relief for persons whose land was to be acquired in the form of an improved solatium, and some time limits on the acquisition process. However, the major demand heard over the years, that 'public purpose' be clearly and unambiguously defined and limited in the law, was not addressed. Instead, the inclusive definition of 'public purpose' was widened to include acquisition of land for 'planned development' and subsequent sale to private enterprise. With this, the death knell for original possessors of land was completely rung; once the government set eyes on someone's land and intended to acquire it, it mattered very little what the purpose was.

This enormous power available to governments led to many blatant abuses. For example, the West Bengal Government acquired level fertile agricultural land in West Medinipur for Tata Metaliks in 1992, leading to dispossessing small and marginal farmers, in preference to undulating wasteland that was available nearby. In the case of the Century Textiles Pig Iron Plant in the same area, the state government acquired about 525 acres of land for a proposed plant in 1996. However, till 2003 the factory had not come up and neither had all the original land owners been fully compensated; the company had decided that pig iron production was no longer profitable and refused to pay the compensation and take over the land .

Singur is another example of the same government acquiring prime agricultural land for a car factory, in this case, for Tata Motors. State governments have not hesitated to acquire land even (mis)using draconian emergency powers available in the Land Acquisition Act. A case in point is the Tamilnadu government's acquisition of land near Pulicat Lake north of Chennai for a petro-chemical complex. ⊕

Kannan Kasturi
01 Oct 2007

Kannan Kasturi is a freelance writer interested in issues of law, policy and governance.

PostPosted: Fri Nov 26, 2010 6:49 pm 

Joined: Sun Sep 12, 2010 2:49 pm
Posts: 596
Paying no heed to groundswell of opinion


A range of criticisms raised at a recent seminar in Mumbai are a sufficient indication of the extent to which SEZs are being pushed as a government policy without any public consultation on their pros and cons. The seminar, on SEZs and their implications for urban planning, was held at the Rachana Sansad School of Architecture. Darryl D'Monte reports.

27 September 2007 - Despite the groundswell of mass opinion against Special Economic Zones (SEZs), the government appears hell-bent on proceeding with the controversial schemes. In response to the outcry against land acquisition, the Empowered Group of Ministers, which is overseeing the implementation of these projects, has drafted a new resettlement and rehabilitation policy. As many as 184 SEZs have been approved in principle but have yet to acquire land, while there are another 264 in the queue. Andhra Pradesh has the largest number. Some 3 million sq kms of land will be diverted to these schemes, of which half constitutes farm land.

In all the heat that has been generated over the acquisition of land for these projects, the fact that they are meant primarily to boost exports has somehow been forgotten. At a seminar on 25 August 2007 organised by the Centre for Urban Studies at Rachana Sansad School of Architecture in Mumbai, Dr Ajit Ranade, Chief Economist of the Aditya Birla Group, pointed out that this was indeed their raison d'etre. The seminar was on SEZs and their implications as well as emerging challenges for urban planning. Ranade noted that 54 per cent of the country's GDP now comes from services, while agriculture contributes only 17 per cent. However, the fact remains that rural folk constitute some 70 per cent of the population and this lies at the crux of what many critics believe is a thinly-disguised land grab in the garb of SEZs.

Seminar on SEZs, 25 August 2007. R N Sharma (second from left), Bina Balakrishnan (transport planner), Sulakshana Mahajan (architect and urban planner) and Sadhana Mahashabde (advocate) Pic: Centre for Urban Studies.
Ranade was the keynote speaker, and Sharvari Gokhale, Principal Secretary in Maharashtra for Environment, School Education and Sports, and who formerly handled the state's Coastal Regulation Zone department was the chief guest. Other speakers included Sulakshana Mahajan, an architect and planner, Dr R N Sharma, Dean of Social Sciences at the Tata Institute of Social Sciences (TISS) and Sadhana Mahashabde, an advocate.

The main attraction of SEZs is the substantial savings on taxes -- particularly excise and sales tax. No less a person that Finance Minister P Chidambaram has gone on record as claiming that they will deprive the exchequer. He has warned that SEZs "distort land, capital and labour costs" and estimates that as a consequence of extending so many tax and other financial concessions --- customs duties, income tax, sales tax, excise duties and service tax -- the exchequer will lose Rs.160,000 crore till 2010. According to the Citizens' Research Collective, a Delhi-based NGO, the annual tax revenue foregone on these pampered so-called export zones is five times the expenditure on the National Rural Employment Guarantee Programme, which some have castigated as hand-outs to the landless poor. That amount alone could feed 55 million people a year.

Maharashtra has gone one step further by demarcating SEZs as industrial townships to function as self-governing, autonomous bodies.

Dr R N Sharma, who heads Urban Studies at the Tata Institute of Social Sciences (TISS), cited how the City and Development Corporation of the Maharashtra government acquired land for New Mumbai at a paltry 50 paise per sq ft in the late 1960s. It is now selling for up to Rs.3,000 per sq ft and most of the original inhabitants have been reduced to doing petty jobs somewhere else. Something like 54 villages were acquired, displacing 90,000 villagers.

Sharma deplored the entry of large builders like the Ansal Group of Delhi, Tata Housing and DLF in SEZs, which only reinforced the suspicion that the entire exercise is meant to appropriate land through undemocratic means. "The corporate sector doesn't acquire land directly, but through official agencies," he alleged. Lest the role of builders appears exaggerated, he observed that the Eleventh Five-Year Plan envisaged that one-third of the foreign direct investment into the country would be in real estate. Retired revenue department officials from states were being hired by SEZ promoters for Rs.1.5 lakh a month.

Sashi Ratnakar Singh, a development studies scholar at TISS, detailed how the first SEZ, in a sense, was at the Kandla port in 1965; India was indeed the first Asian country to possess such an exclusively export zone. The experience with SEZs, from his research, was different in different countries. In China, these projects had generated 30 million jobs. In South Korea, the projects facilitated the move from manufacturing to services. 63 per cent of SEZs in India are for IT, which employs only 1.2 million people. In the US, these zones were located in poor ("backward" in Indian parlance) areas, which had been bypassed by industry. While the government had supported these ventures in other countries, in India it was by private capital, which is obviously profit-driven.

According to Singh, in 2004-5, SEZs accounted for only 1 per cent of the factory employment in India and 5 per cent of its exports. Thus, the very rationale for these pampered projects doesn't seem to hold good, at least by the record so far. He noted that the shift from export-processing zones or EPZs, which were industrial enclaves, to townships through SEZs, was a fundamental change. While economists like Jagdish Bhagwati had claimed that India suffered from a plethora of democracy and needed SEZs, others like Amartya Sen has cautioned against them, even while asserting that there is need to shift from agriculture to industry. The crucial question is the land acquisition process.

In China, there was no semblance of social justice: "preferred regions", which were mostly along the southern coast, had promoted the unequal development of the country, but, in the absence of democratic safeguards, there were little or no protests against official policy, unlike in India. While the GDP of Shenzhen, China's pre-eminent SEZ, had gone up by 28.5 per cent, nearly three times more than China's, wages had not registered a proportionate increase, according to Singh.

Sadhana Mahashabde, an advocate based in Mumbai and who teaches urban studies at Rachana Sansad, spelt out the legal issues governing SEZs. She noted that the policy had been introduced in 2000 through a revision of the export-import policy. Further, according to Mahashabde, state governments had passed resolutions which included references to "foreign territory". Maharashtra has gone one step further by demarcating SEZs as industrial townships to function as self-governing, autonomous bodies. In other words, people within SEZs could not elect their own local government bodies. This may be in conflict with the 73rd and 74th amendments of the Constitution, which mandate the devolution of powers to local authorities. According to Mahashabde, the Development Commissioner, a serving bureaucrat in the state government, would play a crucial role. Powers under the Industrial Disputes Act are delegated to this official and units in the SEZs would be declared public utilities under this Act, which forbids strikes and agitations.

Mahashabde referred to several other legal issues which SEZs raise. Their special status itself was discriminatory since they challenged the fundamental right to equity under Article 14 of the Constitution. Nobody was allowed to enter without an identity card, which again violates the right to movement under Article 19. Under the 42nd amendment of the Constitution, environmental protection and improvement were explicitly incorporated as both a right and duty on the state as well as the citizen. SEZs are also not subject to any town planning law, which violates the 75th amendment, ensuring people's participation in local government.

There have been agitations over land acquisition for SEZs in West Bengal, Orissa, UP, Maharashtra and other states. The central government has been forced to concede that agricultural land will not be acquired for this purpose. Till now, state governments have acquired land under the Land Acquisition Act of 1894. This Act is to be used only for a public purpose or for use by a company with prior notification and by paying compensation to the owner. With so many worrying aspects about SEZs, and the idea itself being debated, a clear public purpose does not appear to exist. And as for fair compensation, the right of other stakeholders, such as landless labourers and share croppers, are not recognised. Amita Bhide of TISS also referred to the dubious status of migrants in lands to be acquired for SEZs.

After the fiasco with land acquisition for industrial purposes in West Bengal, the central government on the contrary advocated that developers should deal directly with owners to give them a better deal, without intermediaries. Maharashtra, as usual, has gone one step further and notified land meant for SEZs to be acquired under the state's Industrial Development Act (IDA) of 1961. These areas are then transferred to the developer for industrial use, which is a blatant misuse of official powers. The IDA is a more sweeping piece of legislation, which is being resorted to protect the developer from dealing with farmers and other land-owners.

These criticisms raised at the Mumbai seminar on SEZs are a sufficient indication of the extent to which SEZs have been pushed as a government policy without any public consultation on their pros and cons. While no one can object to areas being industrialised, such land ought to be unfit for farming and the state should not extend excessive concessions, all the more so in an era of economic liberalisation. ⊕

Darryl D'Monte
27 Sep 2007

Darryl D'Monte, former Resident Editor of The Times of India in Mumbai, is Chairperson of the Forum of Environmental Journalists of India and founder President of the International Federation of Environmental Journalist

PostPosted: Fri Nov 26, 2010 6:54 pm 

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SEZs: Invitation to chaos?


A Marathi booklet published by the Pune-based National Centre for Advocacy Studies reveals a number of lesser known facts about the latest controversy in Indian development - Special Economic Zones. From land-use patterns to crony land acquisition to the stake of real estate developers in Maharashtra, Aparna Pallavi sums it up
27 November 2006 - What are Special Economic Zones (SEZs), the government's latest 'development' catchword, actually going to do for the people? How much of the proposed 'boost' is for real, and at what price could it be coming?

A Marathi booklet published by the National Centre for Advocacy Studies, a Pune-based research institute, takes an indepth and critical look at the Maharashtra scenario on SEZs. Apart from documenting well known facts like the huge concessions in taxes and virtual freedom from labour laws, the booklet also reveals lesser known facts like the land-use patterns within the SEZs and their implications, the involvement of criminal elements in land acquisition, the stake of real estate developers in SEZs and so on.

The booklet has been published in Marathi under the name 'Dhandgyanna Bhoodan'. As a Marathi booklet, it is accessible to the local populace, who mostly get left out when it comes to access to this kind of information.

Notably, the booklet has been published in Marathi under the name 'Dhandgyanna Bhoodan' (Land doles to the filthy rich), which makes it accessible to the local populace, who mostly get left out when it comes to access to information. The booklet is supplemented by a short documentary film (also in Marathi) called 'SEZ – Arajakachi Nandi' (SEZ – Invitation to chaos). Sampat Kale and Sanjay Sangvai are the editors of the booklet, and Atul Pethe is the director of the documentary film. Kale, Sanghvi and Pethe are based in Pune.

The booklet contains a total of eight articles, most of them by social activists, which look at the different aspects of the SEZ issue and its implications on people.

The key question identified is that of land acquisition for the SEZs – the manner in which land is being acquired and the prices that are being paid for this land -- mostly fertile agricultural land.

In Maharashtra state alone, a total of 41 SEZs are at present proposed, and the amount of land to be acquired ranges between 2,500 and 10,000 hectares of land per SEZ. How is such a huge amount of land to be procured? For what purpose is this land going to be used? Why the insistence on fertile agricultural land? What sort of compensation will the farmers receive? And more important, what is to become of the thousands of fisherfolk and farm labourers who are also dependent on this land though they have no ownership rights?

In his article 'Dhanwantanchya Jameen Balkav' (Land grabbing by the rich), Sanjay Sangvai records the dubious 'land politics' going on in the Pen, Uran and Panvel tehsils in the Raigad district, where Reliance is acquiring 10,000 hectares of land in 45 villages. Initially, Reliance was supposed to buy the land at the price of Rs.4 lakh per acre. But soon tactics changed. It was announced that farmers were refusing to part with their land, and now the land is being acquired 'officially' through government machinery – the Maharashtra Industrial Development Corporation (MIDC) to be precise. Here, and in many other places, the state machinery is playing the role of real estate agents for the big business houses. (For the land being acquired by the MIDC, the compensation will be paid by Reliance.)

It is not just the land, but even the democratic rights of residents are going to be compromised. In 'Special Lootmar Zone' (special robbery zone), activist Ulka Mahajan points out that in the three above-mentioned tehsils, nearly 50,000 farmers will become totally landless. But since the residential lands of the villagers cannot be acquired, the villages will not be moved. Residential land is the land on which the villages are actually located. The villages itself will not be removed with the effect that they will continue to exist inside the SEZ. Only agricultural land is being procured for SEZs.

While this has been played up by Reliance as proof of its magnanimity, activists allege that this is a ploy to disqualify the villagers for rehabilitation. The fact is that on the one hand this situation will disqualify the villagers a right to rehabilitation, on the other hand the gram panchayats of these villages will loose their rights completely and the villagers will have to live within the SEZ with identity cards. The people are questioning this.

And finally, what is this huge chunk of land going to be used for? Export boost? Nonsense, claims Dr B R Sabde in his article 'Builderanche Ukal Pandhre' (Bonanza for builders). While a minimum of 2,500 acres of land are required for developing an SEZ, very little of this land will actually be used for industry. If the SEZ is based on a single industry, as little as 25 acres are sufficient. In case of the IT industry, even 10 acres suffice. Even in SEZs with multiple products, a maximum of 35 per cent of the land will be used for production purposes.

So, why is the rest of the land being acquired? For banking, insurance and hospitality industries, residential complexes, entertainment and shopping complexes and so on. It is quite clear that when industries come up, these services will be required and will have to be provided. And a large chunk of land is going to go for this. In the Mumbai SEZ, the concept of 'Walk to Work' is going to exist, as Dileep Chavre of Navi Mumbai Special Economic Zone Development Pvt. Ltd. has been quoted as saying in one article. And once residences of the expensive sort come in, all sorts of services are also going to be provided as a matter of course. It is quite an obvious thing that official policy papers 'omit' to mention.

The actual intention behind the SEZ idea, says Gajanan Khatu, senior labour leader and president, Lok Rajniti Manch (as quoted in the article) is "to grab as much land as possible as cheaply as possible. It will be more fitting to call these zones 'Special Real Estate Zones', as the real beneficiaries are builders."

And the profit margins are huge. As the article says further, land that is purchased at per hectare prices will then be sold at per square foot. It is hardly surprising that the biggest builders in the country – Dalmia, Mahindra, Ansal, Banyan and others apart from Reliance – are queuing up before the government with SEZ proposals. Another important point that Sabde makes in his article is regarding what it calls the 'great export lie' that is being propagated. The SEZ policy of the Maharashtra government does not have a clause to prevent the goods manufactured in the SEZs from being sold within the country – companies can do so if they pay sales tax on the goods, which is a small thing considering the mammoth sops that they will be getting in terms of 100 per cent Foreign Direct Investment, 100 percent exemption from stamp duty and registration charges, customs, service tax, 100 per cent exemption from income tax for five years and so on, apart from substantial subsidies on electricity and water.

'Company Sarkar' by Sampreet Singh records the violence and oppression that has gone into land acquisition for SEZs, in Maharashtra and elsewhere. At Dadari, UP, the police resorted to firing and lathi charge to remove protesters from land acquired by Reliance Energy Generation Limited. In Raigad, Maharastra, police firing was supplemented by violent and intimidating activities by local criminals, who, according to Singh, were appointed by Reliance to do so. The article expresses concern that Reliance, which has control of 60,000 out of the 1,40,000 acres of land sanctioned till date in the name of SEZs, is going to emerge as the largest landlord in the country, and leaves the implications open for consideration.

One useful article in the booklet is 'Tisri Mumbai' (Third Mumbai) by Alka Dhupe. This is an investigative case study of the proposed Maha Mumbai SEZ which is to come up adjoining the present Mumbai city (land in Raigad district is being procured for this project). Unlike the other articles, this one questions the viability of the very idea of SEZs in infrastructural, social and economic terms. Of the 14,000 plus acres of land required for the SEZ, the procurement process of 10,000 acres is yet to begin. And what with stiff resistance from farmers, the entire process could take a lot of time, which would make the 10-year deadline sound too optimistic.

The secrecy on compensation plans in Maharashtra has forced many farmers to sell their lands off to private agents for fear that they may get even less from the government.

Dhupe's article goes into the compensation issue as well. According to the law, when land is acquired, market prices of lands nearby is taken into account. A committee for the rights of project-affected persons, led by D B Patil is working on this issue in Maha Mumbai. Recently, in this connection, a committee led by former Supreme Court judge Sujata Manohar had determined a price of Rs.5,000 per square meter, which amounts to Rs.2 crore per acre. (The current land price in Navi Mumbai is Rs.55,000 to Rs.75,000 per square metre.) Patil is demanding that this should be kept in mind while determining land prices.

But the government and Reliance sources are silent on the actual price being offered to the farmers. Shyam Vardhane, joint secretary of the state's Urban Development department, said that it will not be proper to discuss compensation amounts since notifications have not yet been issued. But the secrecy has also forced many farmers to sell their lands off to private agents for fear that they may get even less from the government. No compensation has been proposed for the landless.

There are other worries. The Maha Mumbai SEZ's massive water requirement is to be met by the Hetwana and Morba dams in Pen and Khalapur tehsils respectively, but the activists worry about capacity problems at Hetwana reservoir. Activist Surekha Dalvi notes ruthless exploitation of water sources will cause rapid ground water depletion in the area. The Raigad district irrigation department has proposals for nine medium and 14 small dams, but apart from the huge investment involved, it will create a burgeoning rehabilitation problem. To add to all this is the trans-harbour line to connect Mumbai with Maha Mumbai. It will cost thousands of crores of rupees over and above the cost of developing the SEZ. The large number of labourers required for all the construction work will likely cause an expansion in Mumbai's slum areas.

With so many complications involved, will this SEZ finally materialise at all? And finally for what? What kind of a development goal is one that will render around 50,000 farmers landless (per SEZ), destroy livelihood sources for a much larger number of people, pull all the stops against exploitation of labour and cause huge chunks of resources, private and otherwise, to pass on into private hands? Is the administration prepared for the huge backlash of discontent, protest and social upheaval that oppression on such large scale could trigger? These questions are not going to be easy to answer.

And finally, does the country need Special Economic Zones? Putting it succinctly at the end of his article, Sampreet Singh says Special Justice Zones would have been more appropriate for India at this juncture! ⊕

Aparna Pallavi
27 Nov 2006

Aparna Pallavi is a journalist based in Nagpur, and writes on development issues.

PostPosted: Fri Nov 26, 2010 6:59 pm 

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Special Exploitation Zone


At Cochin's Special Economic Zone, independence is a forgotten ideal. Here, as in other SEZs, the government has long treated native soil as territorial possessions of foreign nations, exempt from taxes, rules and safeguards that apply elsewhere. The only losers are the workers. P N Venugopal reports that now this charade is being expanded
17 August 2005 - Spread over 103* acres of land and fortified by high walls, the Cochin Special Economic Zone is an imposing presence in the vicinity of the headquarters of Ernakulam district, Kerala. The public has no free access to the SEZ; entry into the Zone is perhaps more difficult than to the restricted areas of the Southern Naval Command, also in Cochin. The Zone has its own water supply system, power supply and effluence-treatment plant. It has 79 factories manufacturing ready-made garments, rubber gloves, electronic items, software, hardware, food items and jewellery. More than 7000 people work in these factories.

In 1965* the first Special Export Processing Zone was set up in Kandla. Seven more began functioning in the subsequent years at Mumbai, Chennai, Surat, Falta, Kochi, Noida and Visakhapatnam. The primary objectives of the Special Zones are earning of foreign exchange and employment generation. These zones are foreign territories in India as far as Indian customs and excise duties are concerned. The units set up in the Zones are exempt from these duties and import duties. An import licence is not required for importing raw materials or components. Customs examinations are kept to the bare minimum, and self-certification is sufficient. Income tax exemption is also allowed for the first ten years. The Central and State sales taxes and service taxes too are not applicable to these units. Supplies from the the rest of the country are treated as exports, and domestic suppliers are eligible for export-related benefits.

These zones are foreign territories in India as far as Indian customs and excise are concerned. The units here are exempt from duties, and import licensing for raw materials and components is not needed.
The only condition imposed on the units is that they have to be 100% export oriented, and should become Net Foreign exchange Earning (NFE) units within three years. In 2000, these zones were renamed Special Economic Zones. The change in the name was not just cosmetic; the dropping of the word 'processing' was significant. Now even trading units could find space in the zones and enjoy all the above benefits. An added attraction is that the labour comes cheap and the zones are more or less free of trade unions.

Cochin's SEZ is the smallest one, and according to trade union sources has comparatively better working conditions than the others. And about 60% are women, indicating that there is labour to be had for both sexes. But while there is plenty of work to go around, these aren't jobs to be envied. Approximately 55% of the total workforce is made up of contact workers, who do not enjoy any of the benefits and privileges that regular employees do. The Contract Labour (Regulation & Abolition) Act 1970 specifically prohibits employing contract workers in activities which are "permanent and perpetual" in nature. Almost all the activities conducted by the units in the CSEZ are permanent and perpetual in nature and yet the practice of employing contract workers goes unabated. Workers are paid as low as Rs. 35 to 75 a day, and are often made to work more than the stipulated eight hours for no extra payment; the rules of the Minimum Wages Act offer no protection to contract workers. Worse, they have to part with anything between Rs. 10 to 15 daily to the contractor as his commission. Recruiting agencies get paid for the contracted amount from the companies in the Zone. It is they who then make the payments to the workers on a monthly basis after deducting their commission.

The workers, once they enter the premises do not have any contact with the outside world. The work atmosphere is oppressive; the eerie stillness of work is only occasionally broken by a woman asking for permission to use the toilet. "There are restrictions even in going to the toilet. The supervisor will shout if we take more than a few minutes," says Sajitha, a semi-skilled worker in a ready made garment unit. "How much ever hard we work, we are scolded and shouted at in front of others. There are very few days when I've not cried." The workers are reluctant to talk, and are afraid of being quoted. Sajitha [not her real name] and other women workers who spoke about the intimidating atmosphere in the Cochin zone insisted on changing their names when quoted.

Most of the women workers come from far away places and are often the only bread winners of their families. Groups of five or six of them rent a room and live together with very limited facilities. A frugal meal of rice and a curry cooked once in a day is shared among them as breakfast, lunch and supper. "We took up this employment with great hopes, but now feel trapped," says Seena who has been working in a garment factory for the last five years. "We cannot give up and go back as our families are totally dependant on us and there are very few alternatives." Despite employing more than 3500 women, the zone does not provide accommodation facilities nor are there any crèches. Transportation facilities are inadequate. The workers are taken by vehicles to the factories for the morning shift, but they are left in the lurch once the shift is over. "After the night shift, we are taken in a vehicle and all of us are forced out in front of the first house where some among us stay. All the rest run for their life in the dead of the night," says 25-year-old Mallika working in a ceramic unit. The lofty ideals of each zone developing into townships catering to all the needs of the work force including housing, education, medicare remain only on paper.

Often the shifts run 10-12 hours a day to achieve production targets, without the workers receiving any overtime allowances. "My health is ruined working continuously to complete the stipulated number of pieces. They won't allow me to take a day's leave to go to the doctor," mourns Mini john, a contract worker in a glove-making unit.

Exploitation is not limited to the blue collar jobs; even the sophisticated Information Technology jobs here come with a millstone around the employees' necks, in the form of 'traineeships'. Employees are appointed as trainees for eleven months on meagre wages, and then their employment is terminated. They are then reappointed again as trainees after a reasonable lapse of time and the trainee cycle continues for any period of time you are willing to let yourself be 'trained'.

The lot of permanent employees is also not much better. Although the Minimum Wages Act does apply to permanent work, only those industries that are brought under its purview by the government can be thus regulated, and so far the IT and Readymade Garment sectors have been left out. Thus the majority of workers in the Cochin Zone receive no effective protection under the Act. Many workers complain that the Provident Fund and Employees State Insurance contributions collected from them are not being remitted.

In order to 'facilitate the smooth functioning' of the zones and to stop 'outside interference' the powers of the labour department were transferred two years ago to the Development Commissioners, who are in charge of the administration of the zones. With that the last resort for redressal of grievances of workers has been taken away. The administration is vested in a Development Commissioner and a fairly large beaurocracy. The administration admits without qualms that their responsibility is only to see that the units function without any interruptions. "We cannot bother about the conditions under which the employees work nor about the contract labourers," says TV Chandran, one of the Assistant Development Commissioners of the Cochin Zone.

Not every employer in the CEZ, though, appears to be exploiting the workers; there are a few companies which pay their employees a decent salary. Tyco Eletronics Tools India (the Indian subsidiary of Tyco International, a US based multinational) is reportedly one among them. But, Mr Mazood Basha, the Unit Head of the firm which manufactures precision tools and employs highly skilled workers, declined to reveal the minimum or average level of emoluments. "If I reveal the exact figures there are chances of my competitors grabbing my trained personnel," he says.

Even though, Kerala has a tradition of militant trade unionism, the unions have not ben able to effectively protect the rights of workers in the zone, union leaders admit. Only about 1500 of the total workforce of 7000 are members of any trade union. There are trade unions in only 21 of the 79 units functioning in the Cochin Zone, the majority of them being led by the Centre for Indian Trade Unions (CITU). "Attempts to organize the contract workers have not born any fruit," admits Nasser, Joint Secretary of the CSEZ Workers Association (CITU) "They are afraid. They fear retribution from managements and contractors", he adds. The women workers also allege that they were tutored on what to say to the State Women's Commission and The Labour commission when they visited the Zone. They confess that they always abide by the management's instructions, for fear of reprisals, as also from apprehension that the company itself might close down, if they revealed the truth. "The work culture of the Zones is akin to that which existed during the Industrial Revolution in Europe; mindless exploitation," comments advocate Shiny, President of the Workers Union, an independent trade union.

The International Scenario

The first Special Zone which bears any semblance to the present-day ones was set up in Spain in 1929 with the intention of increasing exports by value addition to the raw materials available in that country. It was also the time when an unprecedented depression was stalking the economies of the West. Skillful technicians were employed and they were a privileged class. But the International Monitory Fund and the World Bank highjacked the idea in the 1960s. They saw the Special Zones as a tool for penetrating the third world economies, and ever since the scenario changed.

Exploitation of labour in the Special Economic Zones is an international phenomenon and the International Confederation of Free Trade Unions (ICFTU) corroborates this. The Kenya Human Rights Commission recently launched a book "The Manufacturers of Poverty: The Untold Story of EPZs in Kenya", that has this to say: "jobs that pay poverty wages do not significantly improve the lot of workers, nor raise their economic status. They reflect the worst effects of globalisation and contrary to their objective of empowerment, end up becoming factories for the manufacture of poverty".

The interviews we had with the women workers of the Cochin SEZ are almost verbatim reproductions of the words of Grace Nyaeko, working in a SEZ in Kenya. She says "I've developed tuberculosis as a result of breathing in the dust that emanates from the garments I stitch. I've been suffering for three years now and the management does not care. They are only interested in the number of clothes I sew per day". Time off for medical check-ups has been denied, Nyaeko adds, as have overtime allowance for the occasions she stayed on at work in an effort to meet production dead lines.

Labour Notes South Asia points out how violations of the human rights of skilled workers is rampant in garment factories at EPZ Karachi. "These workers are paid ridiculously low wages. They have no job security. No medical treatment is provided". Whenever a foreign delegation visits the zone, the management conjures up false papers depicting an exaggerated salary structure. If a labourer reveals the truth, he loses his job, say the Notes.

The ICFTU speaks of a typical Special Zone in Nicaragua: "The metal covered buildings lie under a leaden sky. Nothing in their appearance suggests there are human beings inside. They look like giant warehouses. Inside the only sound is the noise of machines. There is not a single human sound. From time to time, someone gets up and asks for permission to go to the toilet. The workers are only allowed to go once during their ten or twelve hour shift and even then their time is strictly limited. If they are absent for more than three minutes, the supervisor shouts for them to come back to work. Once the women have entered the building, the doors are locked. Nobody can leave or have any contact with the outside world".

The All China Federation of Trade Unions, the official trade union of China confirm the practice of low wages often below the legal minimum and just falls short saying that exploitation is the rule.

Regarding the exploitation of women, the ICFTU says they are used to allow for excessive "flexibility" reminiscent of the manufacturing methods of the second half of the 19th century in European towns. "Most women are confined to repetitive tasks in production while men move on fairly quickly to better paid supervisory jobs". It's pertinent to recall that the women workers of the Cochin SEZ complain of forever remaining 'helpers' even as their male counterparts move on to become 'operators'.

The International Labour Organisation (ILO) has over the years made many recommendations towards the improvement of the working of the SEZs. Surprisingly, countries like Dominican Republic and Nicaragua have implemented at least some of the suggestions, while India has not even made any attempts. On the contrary, the recently passed SEZ bill too had a clause in it which gave powers to the state governments to pass a bill bringing the Zones outside the purview of privileges like trade union rights, gratuity, bonus, maternity leave etc, which are conferred to workers as per the existing state laws. It was the stiff resistance of the Left parties that saw the removal of this clause.

A cost-benefit analysis is underway in most of the countries. These are some of the observations of the ILO in this regard: Investment has been narrowly concentrated in the electronic and clothing and footwear sector. Investors usually locate only simple processing tasks, thus limiting technology and skill transfer. Most of the jobs are low wage, low-skill jobs. Very little of the foreign exchange generated stays in the country. The foreign investment is not secure and could leave easily. The investors often import all their requirements procuring little from the local market.

An ICFTU study of six Asian countries including India reveals that almost two thirds of the foreign exchange earned through the SEZs is used up by these same Zones for import of raw materials and assembly parts. In a particular year the total foreign exchange earned by Srilanka through Special Zone export was 250 million dollars, while the imports they made accounted for 174 million dollars. The ICFTU states that it is very difficult to obtain import figurines from the governments while they trumpet the export earnings.

With the SEZ ACT 2005 getting the President's assent on June 23, and permission given to establish as many as 45 new zones in the private and joint sector, it is quite apparent that the future industrialisation of the country will be closely interlinked to and concentrated in the Special Economic Zones. A cost-benefit analysis of this approach is therefore imperative. But there is very little data available to conduct this study; neither the government nor the Zones themselves are conducting such an assessment. The Cochin Zone administration could provide only two figures: the government has spent Rs.96 crores so far on infrastructure development, and the total exports from the Zone were Rs.463 crores for the year 2004-05. The value of their imports, or the revenues lost by providing tax concessions and exemptions to units operating in the CEZ were not available with them.

However, some indicators are available from a study conducted by International Confederation of Free Trade Unions (ICFTU). The foreign exchange earned by all the 811 units in the 8 Zones put together came to only Rs 18,309 crores, (4.08 billion dollars) a mere 5% of India's exports during the fiscal 2004-05. but what of the quality of the jobs and at what enormous cost? As much as two-thirds of this is used by them for imports of raw materials and components. (See Box). Add to that the profits transferred from the country by wholly owned foreign companies, the revenue loss from tax concessions, and the hidden costs of the natural resources used up by the Zones - and the SEZs actually appear to be a net drain on the economy. That 100,650 people have gained employment may be cited as a saving grace, but this is also of a suspect nature, with workers exploited the way they are.

It's not clear, then, why the SEZs should be 'special' in any way, but that's a question no one is asking seriously. Like much else in the 'development' of the country, the theories behind the economic decisions have been embraced only to make those decisions; whether they have any merit at all is a question - and a burden - left to the workers. (Quest Features and Footage) ⊕

P N Venugopal
17 Aug 2005

P N Venugopal is an independent journalist based in Kochi, working for The Quest Features & Footage.

* Corrections made on 1 Mar 2006. 110 acres corrected to 103. 1969 corrected to 1965.

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The high cost of 'easy' foreign exchange


A new sop came into effect for net-foreign exchange earning businesses in designated export zones from February 10 -- a 15-year income tax holiday. But are the costs of the revenues foregone worth the claimed benefits of more investment and jobs? M Suchitra examines the reality and does not find a rosy picture.

9 March 2006 - It was in early 2000 that the late Murasoli Maran, the then Union Commerce and Industries Minister, went on a visit to China to garner first-hand knowledge of how a socialist economy suddenly became the most attractive investment destination in the world. During that trip he visited the Special Economic Zones (SEZ) in China. Inspired by the impressive impact of these industrial enclaves on China's economic growth, Maran introduced the concept of SEZs in the Indian economy through the annual Export-Import (Exim) Policy in March 2000.

The effort has been to create delineated, duty-free zones with world-class infrastructure, internationally competitive production environment and fast track clearance system for attracting private investments, especially foreign direct investment (FDI) for setting up export oriented units. In order to convince the investors about the commitment of the country on SEZ scheme and to provide them with the protection and stability of a policy regime, Parliament passed a comprehensive legislation in May last year. When the Special Economic Zones Act 2005 and new rules came into effect on February 10 this year, it made headlines in the national and regional media. Newspapers and news channels quoted the Commerce Minister Kamal Nath, "The SEZ Act and Rules will provide comfort to and instill confidence in prospective investors." He also said that investment of Rs.1,00,000 crores was expected to flow into the zones in the next three years providing employment to over 5 lakh people. The mood was clearly upbeat. (1 crore = 10 million)

The country is now promoting the SEZ programme more vigorously than in the past. In fact, India's experience with SEZ predates that of China. India was the first country in Asia-Pacific region to follow the international trend of setting up a separate zone with special incentives for earning foreign exchange through export promotion and employment generation. The first special export processing zone (EPZ) was set up in Kandla, Gujarat, as early as 1965. It was followed by Santacruz Electronics Export Processing Zone which became functional in 1973. The Central government set up five more zones in mid 1980s at Cochin (Kerala), Chennai (Tamil Nadu), Visakhapattanam (Andhra Pradesh), Falta (West Bengal), Noida (Uttar Pradesh). Under the new SEZ scheme, all these seven EPZs and the first private zone at Surat which started operations in 1998 were converted to special economic zones. China established its first zone much later in 1980.

SEZ units produce ready-made garments, gloves, spices, processed food, electronic parts, jewellery, diamonds, etc. The companies keep their buyers' list confidential. There are now 17 functional zones in the country, and the New Delhi-based Board of Approval of SEZ has given its green signal to about 120 new zones in private sector in the last few months.

A snapshot of Textile and Garment SEZ enterprises listed the Government of India's SEZ website: www.sezindia.nic.in

Costs and benefits

To woo investors to the zones, the central government has been offering a number of fiscal incentives and concessions. For instance, the zones are deemed as foreign territories as far as trade operations, duties and tariffs are concerned. The units (100% export oriented) also have full flexibility in operations. They are exempt from all direct and indirect taxes. No export and import duties, no excise duty, no central or state sales tax and no service tax. The units do not require license for importing capital goods and raw material. 100 per cent FDI is allowed in the zones. Repatriation of export profits is also allowed.

With the new SEZ Act 2005, a new sop is available to firms operating in the zones. The firms are eligible for getting an extended Income Tax holiday for 15 years: 100 percent exemption for the first 5 years, 50 per cent for next 5 years and then in the next five years, the income ploughed back for investment in capital goods is exempt up to 50 per cent. SEZ developers are also entitled for exemption from income tax for 10 years. The only condition imposed on the firms is that they must have a positive net foreign exchange earning (NFE).

Recently, a zone developed by the cell telephone giant Nokia has started operations in Tamil Nadu. All the units in the zone manufacture components of Nokia mobile handset.

SEZ rules stipulate a minimum area of 1000 hectares for multi-product zones. To develop these zones, only big players can enter the fray.
What does India, or for that matter any other developing economy, benefit from providing the zones and their units with fiscal, forex and exim incentives and making them secure by administrative, legal and regulatory regime? A report on the Export Processing Zones by the Comptroller and Auditor General Of India (CAG Report 1998) had highlighted that "Customs duty amounting to Rs 7500 crores was forgone for achieving net foreign exchange earnings of Rs 4700 crores and the government does not seem to have made any cost benefit analysis." In spite of this caustic comment, the Central Government, in the 1999-2000 Budget raised the corporate tax holiday period in EPZs from 5 to 10 years.

It may be of relevance here to refer to another CAG report, which covers not just EPZs, but all export promotion schemes. The Union Government has forgone a whopping Rs 39,704 crore of duty under export promotion schemes during 2003-04, accounting for 82 per cent of customs duty collected in that year, a CAG report has said. The duty was forgone under schemes relating to advance license, duty exemption pass book (DEPB), export promotion capital goods (EPCG), export promotion zones (EPZ), export oriented units (EOUs) and refund under drawback and other schemes, the report said. In the previous two fiscal years, the concessions amounted to 62 per cent of customs duty collected and in 2000-2001 it was 43 percent.

But those who argue for SEZs underline that thanks to the incentives offered, foreign investors have been encouraged to invest in countries that would otherwise not be the natural choice for FDI. A report "SEZs in India: Attracting Investment" sponsored by the Commerce Ministry and prepared by the Industrial Development Bank of India (IDBI) in 2002 contends that "national loss" should be weighed against benefits such as foreign direct investments, export potential, generation of employment, transfer of technologies and skills, and economic growth of the country as a whole.

The reality

But do these general claims hold water? What kind of jobs do these zones generate? Are these investments secure from the host nation's point of view? Will the investors remain in these countries if the financial incentives are withdrawn or if the cost of labour increases?

A world-wide study conducted by the International Confederation of Free Trade Unions revealed in 2004 that despite the incentives offered by the governments, the zones (SEZs, EPZs and FTZs) often fall short of their goals. The ICFTU was set up in 1949 and has 234 affiliated organizations in 152 countries with a membership of 148 million. The study highlights many reasons for the limited benefits derived by the host countries from these zones.

First, investments are usually short term, with companies moving to other zones that offer better incentives. Globalisation of economy and trade liberalisation accentuates the tight competition between the zones of different countries. To win the race for investments and to retain them, more and more incentives and concessions are offered to multinationals often resulting in less gain for the host country. Legislations also allow easy exit for investors whenever they want.

A study of female factory workers at the Madras Export Processing Zone by the Madras Institute of Development Studies revealed that the women suffered from a number of pains, allergies and other ailments due to tension and working conditions.

Besides, with the growth of the global production network, it's easy for the MNCs to source goods and services throughout the world and reconfigure production lines quickly. A country or a supplier will be cut out from the network if they fail to respond to the increasing demands of the global market rapidly enough.

International trade agreements too effect investment decisions. For instance, China's accession to the World Trade Organisation and phasing out of the Agreement on Textiles and Clothing (ATC) which allocated clothing export quotas to developing countries have accelerated the recent trend of shutting down operations in various EPZs throughout the world and relocating to the Chinese zones. The International Textile, Garment, Leather Workers' Federation (ITGLWF) had estimated that the phenomenal rise of China would lead to a million job loses in Bangladesh (an estimate confirmed by the UNDP), another million in Indonesia, around 200,000-250,000 in Sri Lanka, several thousand more in the Philippines and many other countries. Hundreds of factories have closed down in Mexico since their orders have gone to China which offers cheap -- and perhaps the most exploited -- labour.

The ICFTU study also points out that companies in the zones bypass local markets by importing their raw materials, which brings little benefit to the host country. Also, there are no strategies or agencies to facilitate the transfer of technologies and skills to the domestic market. And since most companies operating in SEZs do so independently, there is very little communication between them and domestic firms. The investors usually limit their activities in the zones to simple processing operations, thus limiting the transfer of technologies and skills. Thus neither the workers nor local industry gains much from the zones.


Statistics available from the Commerce ministry reveals that the average annual EPZ export growth rate declined continuously. During 1966-1980 average annual export growth rates of EPZs was over 77%, whereas during the post 2000 period (2001-2003) it came down to 7%. The reasons generally attributed are growth of exports outside the zones and the fact that bulk of the exports from EPZs was to the former Soviet Union and East European countries. These nations were not too bothered about quality and price as there was little competition. But with the break up of USSR and the East European block, the scenario changed and exports declined.

Likewise, while the net foreign exchange earning in absolute terms increased phenomenally after the mid 1980s, the rate at which it grew remains stagnant, and in fact, started declining after 1998. Also, more than half of the foreign exchange earned by the industrial units through exports is spent for importing goods and raw materials. For instance, in 2004-2005, exports from Madras Export Processing Zone (MEPZ SEZ) amounted to Rs.1590 crores. However, Rs.859 crore was spent for imports.

In the present circumstances, do exports per se justify an income tax rebate? In the past, when the country was starved of foreign exchange, the Central Government decided to give exports a special break. It was justified then. But to create income tax-exempt zones now in the name of foreign exchange, when India's foreign exchange reserve has crossed $140 billion appears without justification. Incidentally, for export oriented units (EoUs) outside the zones, there is a sunset clause on income tax. Section 10-B of the Income Tax Act envisages their income tax benefit will end in March 2009. The SEZs though are governed by the new SEZ legislation.

Zones and employment

It's true that the zones in the country provide thousands of people with their livelihood. When the Kandla zone became operational, it had only 70 employees. Now over one lakh people work in 946 units in different SEZs, and with the number of zones increasing sharply, as the Commerce Minister points out, a few more lakh employment is expected to be generated. There will be more economic activities as a result of the ripple effect of these employments. (1 lakh = 100,000.)

However, the gains generated by SEZs in terms of employment cannot be viewed as long-term. Apart from providing the best infrastructure, the zones entice investors with promises of cheap labour and peaceful work environment. According to a study conducted by Society for Participatory Research in Asia (PRIA) on the plight of workers in Indian zones, few workers have long-term employment contracts. Short-term contracts are used for flexible hiring and firing and for avoiding costs such as maternity and redundancy pay.

Since the industries are export-oriented, the emphasis is on minimising production costs to competitively price the product in the international market. Women workers constitute 70-90% of the workforce, and it is they who bear the brunt of the competition. To meet the production targets, they are compelled to work harder and longer until they burn out or quit. They work 10-12 hours a day without or improper overtime payment. Minimum wages are not paid. Social security benefits are not implemented. Women are forced to work in the night shifts. Maternity leave is not allowed and sexual harassment of women workers is common in the zones.

Though, unlike in many other countries, in India, labour laws are applicable to the SEZs too, in practice, they are rarely implemented. Workers hardly benefit from any of the labour laws — not just because the laws are not implemented properly but also because there are many loopholes in the existing zone legislation. For instance, all the zones in the country have been declared as 'public utilities' under the Industries Disputes Act and complicated procedures restrict the workers from going on strike. A minimum of six weeks' notice is required before resorting to strikes. Restrictions on the right to join trade unions, right to collective bargaining and the right to strike are common features of all zones. Companies campaign strongly against trade unions and threaten the employees with dire consequences if they associate with unions. Except in emergency situations, state government agencies themselves require prior permission of the Development Commissioner to inspect the industrial units in the zone.

Hard work, strain and stress due to stiff targets and unhealthy work environment have taken their toll on the workers' health. A study among female factory workers, mainly at MEPZ, done by the Madras Institute of Development Studies revealed that the women suffered from frequent headaches due to tension and intense concentration on work, acute back pain, joint pains, swelling in the legs, severe abdominal pains, various types of allergies, skin ailments, and, piles (the result of working sitting in the same position for hours on end). The majority of women working in the garment units suffered from respiratory disorders such as asthma, long-lasting coughs and breathlessness.

It is true that international buyers insist on healthy and safe working conditions and reasonable wages. They have a crucial role in determining the working environment in the firms. Some buyers even visit the companies and place orders only when they are satisfied. There are a few companies in all zones which abide by the labour laws and cater to the demands of the buyers regarding work environment. They recognise workers' basic rights and realise the importance of productive labour and healthy industrial relations. While some lucky employees benefit from this, there are thousands of workers who are trying to support their livelihoods in an atmosphere of threat, fear and uncertainty.

Development, Export and FDI

More information-


Government websites for the export processing zones provide more information about the zones and firms housed in them.

• SEZ website
• Madras EPZ
In fact, no nation has so far proved that real development—progress and welfare of all sections of people—is possible through exports alone or FDI. In a submission to World Trade Organisation in April 1999, India itself has raised concerns of developing countries on the quality of FDI inflows: " …'more' is not necessarily 'better' in the case of multinational corporate activities in developing countries. Studies have shown that between 25 and 40 per cent of FDI has a demonstrably negative impact on host countries. This is the cost in terms of using scarce domestic resources inefficiently and substantially outweigh the benefits of national income…" Still, in the World Economic Forum held in Davos recently, the focus of the India Economic Summit was how India can achieve Chinese growth rates. Of course, the Prime Minister Dr Manmohan Singh reiterated that India was not interested in adopting China's "growth first, equity later" model.

Why then is India madly running behind foreign investors at the cost of public resources and the welfare of the workers? (Quest Features & Footage, Kochi)

M Suchitra
9 Mar 2006

M Suchitra is an independent Kochi-based journalist working for Quest Features. This report is part of a study "Socio-economic Impacts of Proliferation of Special Economic Zones (SEZs) in India". The author received the 2005 Appan Menon Memorial Award for this study.

Correction: A paragraph compared Indian SEZs with China's and noted that in India sales from the zones to the DTA are not permitted. This was later found to be incorrect, and deleted.

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