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SEZs are billed as the great Indian gold rush to create Chinese-style export oriented enclaves without taxes or labour laws. This is a laudable enough aim but the rush has also spawned widespread controversies. It has pitted ministries against each other, farmers against states and coalition partners against their own governments.

There was not much opposition when the government passed the SEZ Act in 2005 as it was seen as an attempt to catch up with China and replicate its major manufacturing success. As things began to unfold, the finance ministry argued that the 237 SEZs approved so far would cause revenue losses of Rs 175,000 crore by 2011. The commerce ministry counter-argued that the zones would generate net additional revenues of Rs 45,000 crore. And the Reserve Bank interjected that these zones would lead to large scale resource diversion and widen the industrial inequity among states.

Politicking escalated even as dust was settling down, since SEZ development involves a massive displacement of farmers and land acquisition of a whopping 35,000 hectares. Another cause for discontent is that many of these zones are veiled attempts by companies to corner fertile agricultural land from which millions of farmers draw their sustenance.

Vivek Mehra, executive director of PricewaterhouseCoopers (PwC), who advises a host of SEZ developers argues that the present hiccup is a fallout of bad land acquisition policy and politics. “The state governments need to adopt pragmatic land acquisition policies that do not lead to deprivation among the displaced, but create a win-win situation,” he says.

Compensation is a particularly contentious issue. Various news reports suggest that state governments, under the aegis of a 113-year-old Land Acquisition Act, acquired farmland for “public purpose” at low rates and resold it to developers at a premium. Such deals have snowballed into police-farmer clashes at, for instance, Kalinganagar in Orissa and Nandigram in West Bengal.

So what is the win-win solution to the current stalemate? Aradhna Aggarwal, a consultant with the Indian Council for Research on International Economic Relations, who has just completed a finance ministry study on revenue implications of SEZs, says that the farmers should be paid the market price for their land to ensure that development takes place with a humane face. Alternatively, she suggests that state governments should create a land bank by acquiring infertile land and developing its infrastructure and connectivity to attract investors.

Vivek Mehra of PwC suggests a “land for land formula”. “In addition to the monetary compensation, two per cent of the land acquired by
developers should be turned into either residential or commercial establishments and given back to the displaced. Once the area develops, it will give the affected a huge value,” he says.

Giving away prime agricultural land for the sake of industrialisation doesn’t necessarily result in equitable development, as farmers cannot make an easy transition to the jobs that are offered in the SEZs. Partha Mukhopadhyay, senior fellow at the Centre for Policy Research underlines that dispossessing poor farmers to subsidise SEZs is an unconscionable social policy.

He suggests that any compensation package should allow the affected persons to retain their current living standards. As a long-term measure he suggests there should be ways and means to provide education, health and physical infrastructure to the displaced so that, a few years hence, they can aspire to work as engineers and managers in the factories set up on their land.

A sectoral break of SEZ approvals in India shows that around 60 per cent of them have been granted in the IT sector, which employs skilled workers. A report by the investment bank Morgan Stanley says that this trend will further alienate the displaced as they will not find much work opportunities in such specialised sectors.

The report further recommends a big push to small enterprises and labour intensive units that will generate jobs and reap the country’s demographic dividend.

Email author: asaikat.neogi@hindustantimes.com