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CONTENTS

PREFACE

ACKNOWLEDGEMENT

INTRODUCTION …………………………………………………………..

SEZs: A brief overview …………………………………………………..

History of SEZ initiative in India ……………………………………………

Present SEZ initiative …………………………………………………….

Socio-Economic Implications of SEZ …………………………………….


Positive Impact of SEZ …………………………………………….
Negative Impacts of SEZ …………………………………………….

Recent examples of impact of SEZs in India ……………………………………..


Chirner Village, Maharashtra
Haryana
Nandigram and Singur

China‘s SEZ: Lessons to be learnt ……………………………………………..

India and China: Policy Comparision ………………………………………………

Conclusion ………………………………………………………………………

References ………………………………………………………………………
PREFACE

This report has been prepared as a part of the practice component of our course HS-
6101 titled ―Human Resource Management‖. The practice component has provided us
with an opportunity to research and explore a recent topic and we have tried to relate
it with what we have learnt in our course. The topic of our report is ―The socio-
economic implications of Special Economic Zones (SEZs) in India‖.

Through the topic has been discussed in news forums and various dailies for quite
some time but doe to its recency, there has not been much detailed research on it.
Lack of any such detailed work made the report preparation quite a challenging task
as we had to gather material from news articles, mafgazines, discussions forums, etc.
Most sources mentioned here provided a divided opinion of the impact of Special
Economic Zones and we had to mostly rely on our own ideas and opinions.

Inspite of these minor hurdles we have tried our best to come at a reasonable
conclusion. We have started with an introduction of SEZs covering the past and
present initiatives. Then some positive and negative aspects of SEZs have been given
and their impact on society has been analysed.

Next we have drawn examples of the recent disturbances arising due to SEZs and
their possible causes. We have also involved a comparision of China‘s SEZ model
and its lessons for India.

We sincerely hope that this report provides a better insight into the effect of SEZs in
India.
ACKNOWLEDGEMENT

We would like to acknowledge and thank our instructor Prof. P.K. Parida for
encouraging and guiding us in this endeavour and for giving us this opportunity to
relate our course content with a real world situation.
INTRODUCTION
After independence, Indian economic policy was a result of the nostalgia for
socialism from the pre-independence era which had driven and inspired our leaders.
Though a beautiful idea in its own right, our leaders did not realize that making
socialism the foundation of the economic policy of this vast country of 30 crores was
not befitting. The days of license raj, orthodox business practices, non-involvement of
foreign business and barriers on imports and exports ensured that for decades our
economic growth was pathetically slow and was stereotyped as the ‗Hindu Growth
Rate‘. Social and Economic development go hand-in-hand. The slow economic
growth cost India its social development also. The scenario of health, education and
social reforms remained dismal in most of the country, a direct implication and
indicator of the fact that social growth is not sustainable without economic
development.

The turning point came in the form of the grim economic and financial situation of the
1990‘s when the foreign reserves had almost depleted and our economy was on the
verge of bankruptcy. There was a major shift in the economic outlook as the
government started liberalizing and globalizing the economy and allowing private
sector participation. Since then, and fortunately enough, in spite of the regime
changes, liberalization has been going on in a phased manner. The positive impact of
liberalization has been evident. It is assumed that given their greater economic
efficiency, the private sector would not only help in increasing the rate of economic
growth in the country but also lessen the economic and financial liabilities and
burdens of the government. Since the introduction of ‗liberalization‘ the GDP growth
rate in the country has been relatively much higher than prior to liberalization years.
India has emerged as one of the major player in World Economic arena and is
attracting sizeable amounts of foreign capital in the country. Finding more
economic space, many private sector, companies and MNCs have taken up/set up
their Projects at places having locational advantage. Many capital intensive Projects
in heavy engineering, steel, power generation, fertilizer, infrastructure development,
etc. have also been taken up. These Projects certainly have enhanced the capital
resource of the nation and accrued economic gain to certain section of population.
Besides these infrastructural developments, the recent emergence of India in the
service sector, particularly in the software and IT industry has lead to a spur in the
economic growth in the last few years. Driven by the domestic market and the new
found spending power of the Indian consumer the economy is on the fast track. But
growing only in the service sector cannot help in realizing the goal of a developed
nation. Strong growth in industry, infrastructure and manufacturing sector is the next
main requirement along with a growth in exports to bring in the much needed foreign
currency. This is where the idea of SEZ comes in.
SPECIAL ECONOMIC ZONES
A Special Economic Zone (SEZ) is a geographical region that has economic laws
that are more liberal than a country's typical economic laws. The category 'SEZ'
covers a broad range of more specific zone types, including Free Trade Zones (FTZ),
Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports,
Urban Enterprise Zones and others. The objectives of setting SEZs are aimed at
boosting exports and attracting investments in various export-oriented
manufacturing and service sectors. Several fiscal incentives are offered to units setting
up operations in SEZs which coupled with a business friendly operating environment,
would result in increasing levels of productivity, with a resultant growth in
investments & exports.

A SEZ is also defined as


“A specifically delineated duty free enclave and deemed to be a foreign territory
for the purpose of trade operations and duties and tariffs”.

Goods going into the SEZ area from Domestic Tariff Area (DTA) are considered as
exports and goods coming from the SEZ area into DTA shall be treated as if the goods
are being imported. In any SEZ, goods may be imported or procured from DTA,
without payment of duty for the purpose of manufacture of goods and services,
production, processing, assembling, trading, repair, reconditioning, re-engineering,
packaging, etc.

Considering the need to enhance foreign investment and promote exports from the
country and realizing the need that a level playing field must be made available to the
domestic enterprises and manufacturers to be competitive globally, the Government
of India has encouraged exports and in year 2000 introduced a Special Economic
Zone (SEZ) scheme with a view to provide an internationally competitive and hassle-
free business environment. In January 2004, Government of India further announced
the following additional policy initiatives in respect of SEZs viz.
• Passing of a comprehensive Central SEZ Act, which would be the nodal
legislation in respect of all reliefs, concessions and incentives for SEZs and
SEZ developers
• Increasing the tax holiday period from 10 years to 20 years for SEZ units
• Location of an Internal Financial Services Centre in one of the SEZs.
• Establishing a National Infrastructure Development Fund with a corpus of
Rs. 50,000 crores for funding major infrastructure Projects at concessional rate
of interest.

Since then considerable progress have been made by both the Central and
State Governments towards enacting a Central and a State SEZ Act respectively. A
total of 309 SEZ‘s have been planned and some of them are already under
development with land allotments.
While SEZ‘s offer a plethora of relaxed laws and economic advantages to investors,
they also provide substantial problems for residents of the communities in which they
are located and people who comprise the labor force of SEZ industries. The socio-
economic impact are undoubtedly wide and far-reaching. This report intends to
analyze these socio-economic impacts with particular emphasis on the situation in
India.

Before embarking on the socio-economic consequences we need to see the reason that
why the government and the private investors are so eager for setting up of Special
Economic Zones. Special Economic Zones offer many advantages to investors
otherwise wary of dealing with an unfamiliar foreign regime and foreign business
environment. The promotion of SEZs is an attempt to deal with infrastructural
eficiencies, procedural complexities, bureaucratic hassles and barriers raised by
monetary, trade, fiscal, taxation, tariff and labour policies. These structural
bottlenecks affect the investment climate adversely by increasing production and
transaction costs. Since country-wide development of infrastructure is expensive and
implementation of structural reforms would require time, due to given socio-
economic and political institutions, the establishment of industrial enclaves
(SEZs/EPZs) is seen as an important strategic tool for expediting the process of
industrialization in these countries. The zones offer numerous benefits such as:
1. Tax incentives:
 Income tax exemption for a block of 10 years in 15 years.
 100% income tax exemption for a block of five years and an
additional 50% tax exemption for two years thereafter
 100% FDI in the manufacturing sector permitted through automatic
route, barring a few sectors.
 100% FDI permitted to SEZ franchisee in providing basic telephone
services in SEZs.
 Exemption from Central Sales Tax and Service Tax.
 Exemption from customs duties on import of capital goods, raw
materials, consumables, spares etc.
 Exemption from Central Excise duties on procurement of capital
goods, raw materials, consumable spares etc., from the domestic
market.

2. Infrastructure and Utilities:


 Roads with Street lighting, Signals and Signage
 Water treatment plant, water supply lines (dedicated lines up to
source), sewage lines,
 storm water drains and water channels of appropriate capacity
 Sewage and garbage disposal plant, pipelines and other necessary
infrastructure for
 sewage and garbage disposal, Sewage treatment plants
 Electrical, Gas and Petroleum Natural Gas Distribution Network
including necessary sub-
 stations of appropriate capacity, pipeline network etc
 Security offices, police posts, etc, at entry, exit and other points
within and along the periphery of the site.
 Effluent treatment plant and pipelines and other infrastructure for
Effluent treatment
 Telecom and other communication facilities including internet
connectivity
 Recreational facilities including club house, Indoor or Outdoor
games, gymnasium, employee welfare facilities like Automated
Teller Machines, Crèche, Medical center shopping arcade and/or
retail space and other such facilities.
3. Simplified procedures:
 Exemption from industrial licensing requirements for items reserved
for the SSI sector.
 No import licence requirements.
 No routine examinations by Customs for export and import cargo.
 Exemption from duties on import /procurement of goods for the
development, operation and maintenance of SEZ.
4. Provisions better suited for foreign investors than domestic economy:
 External commercial borrowings by SEZ units up to US$500 million
in a year without any maturity restrictions through recognized
banking channels.
 No cap on foreign investment for small scale sector reserved items.
 Facilities to set up off-shore banking units in SEZs.

These benefits foster a conducive business environment to attract local and foreign
investment, which would not otherwise have been forthcoming. The competitive
advantages of zones may also be explained within the framework of the ―cluster
approach‖. Zones are industrial clusters where external economies of scale and other
advantages help the operating firms in reducing costs, developing competitive
production systems and attracting investment, in particular, FDI. As a result of these
benefits, many developing countries have been promoting zones with the expectation
that they will provide the engine of growth to propel industrialization.
HISTORY OF SEZ INITIATIVES IN INDIA
It‘s a little known fact that the present SEZ initiative is not the first of its kind in
India. The first such initiative was Kandla in 1965, SEEPZ in 1972. Based on these
experiences Cochin, Falta, Madras (Chennai) and NOIDA followed in 1984 and
Vizag in 1989.

A micro level analysis of the zones‘ contribution to industrialization efforts in India


reveals that EPZs have had a catalytic effect in promoting new production sectors,
exporting new products and in building up the country‘s image in certain products in
international markets. The foundation of the modern jewellery industry in India, for
instance, was laid in SEEPZ in Mumbai in 1987-88. It was there that the wax setting
technique‖ was introduced in jewellery production, which made mass scale
production possible and dramatically transformed the labour-intensive jewellery
industry from its cottage industry status into a highly mechanized modern industry.
SEZs accounted for over 55 per cent of total Indian jewellery exports in 2002-03.
Zones have also been instrumental in creating the base for the growth of the
electronics industry through technology transfers, spillovers and demonstration
effects. Until the early 1980s, electronic hardware exports were primarily originating
from EPZs. Even during 2000-02, the share of SEZs in total hardware exports was as
much as 26 per cent. The Indian software saga also really began in SEEPZ, Mumbai.
The first major breakthrough in India‘s software exports came in 1977 when the Tatas
established a unit in SEEPZ in partnership with Burroughs, an American company, to
export software and peripherals. A further breakthrough in the progress of the
industry occurred when, in 1985, Citibank established a 10 per cent foreign-owned,
export-oriented offshore software company in SEEPZ This company drew attention to
the possibilities available for offshore soft ware development in India. Soon after
Texas Instruments and Hewlett-Packard established subsidiaries in Bangalore, in 1986
and 1989, respectively and the rest is history. Most of these companies grew as firmly
established in the Indian market and have contributed towards employment generation
and growth.

The success stories notwithstanding, the economic contribution of SEZs remained


minuscule at the national level. Though India was the first Asian country to take the
free zone initiative, slipshod implementation made these initiatives in-effective. The
share of SEZs in exports was a mere 5 per cent in 2004-05. Furthermore, they
accounted for only 1 per cent of factory sector employment and 0.32 per cent of
factory investment in the same year. Their contribution to regional economies has also
been limited. Although they have had a positive impact on regional employment and
human development by creating economic opportunities, especially for those without
high levels of schooling, their potential in contributing to human development
has not been fully exploited due to their failure in attracting investment and promoting
economic activities in the region. All in all the SEZ initiatives barring a few Export
Processing Zones have not been successful.
PRESENT SEZ INITIATIVE
For a country like India which needs to hasten growth in the manufacturing sector, the
Special Economic Zones is a viable path towards phased and sustained growth. It is
generally agreed that the present Indian SEZ initiative has been motivated by the
partly successful Chinese model.

The rationale behind India's SEZ policy is quite straightforward. Inadequate


infrastructure continues to head the list of companies' woes in India, constraining
firms that compete overseas in export markets and deterring foreign companies
looking at India as a manufacturing base. Since establishing world-class industrial
infrastructure throughout India will be an extremely expensive, long-term endeavour,
the next best solution is to build pockets of excellent infrastructure in the form of
SEZs. By offering various incentives to private developers, the government is also
attracting private investment for setting up such zones, easing the financial burden of
a task that has traditionally been the responsibility of the state.

Proposals for SEZ projects in India have to be approved by a committee composed of


central government bureaucrats from various ministries. After a project is approved,
SEZ developers are entitled to a number of fiscal incentives, such as exemption from
income tax for ten years and from customs duties. The government also offers a host
of incentives to firms setting up units in SEZs. In bureaucracy-heavy India, where
regulations and required procedures create significant headaches, an important
incentive is ―single window‖ clearance from central and state government authorities.
Attracted by the commercial returns and incentives on offer, a large number of
entities—including Indian and foreign companies, real-estate developers and state
government agencies—have submitted project proposals for SEZs. In addition to the
339 SEZ projects that have been formally approved, another 170 proposed projects
have received in-principle approval.

The Ministry of Commerce and Industry, which is the architect and implementer of
the SEZ policy, views it as a major initiative for expanding exports, improving
infrastructure, attracting foreign and domestic investment, and providing employment.
The ministry estimates that the SEZs formally approved thus far could provide
investment of Rs3trillion (about US$74bn) and create around 4million jobs. The
Ministry also estimates that exports from SEZs set to become operational in the
2008/09 fiscal year (April-March) will exceed Rs1trillion in that year.

SEZs when operational are expected to offer high quality infrastructure facilities and
support services, besides allowing for the duty free import of capital goods and raw
materials. Additionally, attractive fiscal incentives and simpler customs, banking and
other procedures are offered in such zones. Setting up of SEZs is also treated as an
infrastructure development activity and offers same incentives.
In the Indian context the salient features of the Indian initiative are as follows:

• Unlike most of the international instances where zones are primarily


developed by Governments, the Indian SEZ policy provides for development
of these zones in the government, private or joint sector. This offers equal
opportunity to both Indian and international private developers.
• For Greenfield SEZs, the Government has specified a minimum preferable
area of 1,000 hectares. However, for sector specific SEZs, there is no
restriction of minimum area.

• 100 per cent FDI is permitted for all investments in SEZs, except for
activities under the negative list.

• SEZ units are required to be positive net foreign exchange earners and are
not subject to any minimum value addition norms or export obligations.

• Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be
treated as exports and goods coming from the SEZ area into DTA are treated
as imports.

For all of their apparent economic advantages, implementation of Special Economic


Zones is a very tricky issue, especially in a democratic and more importantly, diverse
country like India. Acquiring land for infrastructure projects has often been
problematic. People who are displaced by projects and receive inadequate
compensation can express their dissatisfaction openly through political participation
and protest. When land is acquired for use by private companies--as opposed to
infrastructure projects such as roads meant for public use--the level of dissatisfaction
is often higher. A common perception is that SEZ projects are mere land-grabbing
exercises, with real estate being acquired at unfairly low costs. This and many such
issues result in far reaching socio-economic consequences.
SOCIO-ECONOMIC IMPACTS OF SEZs
Special Economic Zones requires large parts of non-developed land. Availability of
such land near big cities is not possible which means that most of the planned SEZ‘s
have to be setup in rural or semi-rural areas. In such areas which mostly comprise
villages the main occupation is agriculture and the main source of income is land. The
dynamics involved in the tectonic changes that setting of these zones intend to bring
are very complex. In a democratic country like India with its multi-party system
ensures that the only stakeholders during acquisition and rehabilitation are not just the
people involved but the various political parties as well.
In order to look deeper we need to look at the various aspects of Special Economic
Zones.

POSITIVE IMPACT OF SEZs


Setting up SEZs in such areas can have many positive effects on these situations as
listed below:

1. CHANGING THE CURRENT OCCUPATION PATTERN:

Most of the people in villages live in poverty not only due to lack of
employment but also poor size of land per capita/per household. Due to
shortage of fodder, livestock or animal rearing can not be practiced on a large
scale in these regions. It appears that the present pattern/kind of land use in the
villages is reaching to its carrying capacity and there is a felt need to change
the land use. More intensive and profitable activities like secondary and
tertiary activities can be developed for sustained economic development of the
area. However, development must be of such nature that can employ the local
people of the area/villages and ensure sustainable source of livelihood to them.

2. NEW EMPLOYMENT OPPORTUNITIES (LOCAL RECRUITMENT):

Land being a permanent asset is a traditional source of livelihood, but


this cannot continue forever. There is an urgent need to shift more of our
population from agriculture based jobs to skill intensive industrial jobs. With
the setting of industries within these regions there will be an urgent need of
skilled and semi-skilled workforce. We know that the recruiters will look to
derive these low-skill workforces from the local population. Giving regular
employment in the project to the persons of affected households would
provide them regular source of income. This will be beneficial for the
recruiters as well as the recruits.
For example; There are large number of educated unemployed youths in these
regions with either graduation degree or 10+2 (HSC) or some schooling.
These people can be given training in computer typing, driving heavy vehicles
or can be trained as electricians, welders, fitters, plumbers, etc. Older people
can be employed as security personnel, watchman, etc., and unskilled women
in gardening, cleaning, etc. In villages, traditional skilled laborers comprise
of carpenter, mason, blacksmith, etc. These skilled laborers from among the
Project Affected People can be utilized in the project and subsequently
absorbed in its workshops wherever possible. If needed, some training can
also be imparted for improvement of skills.

3. SELF-EMPLOYMENT WITH THE COMPENSATION MONEY:

Most of the villager families will receive compensation money for the loss of
their lands. This will provide families with some capital that they can
invest.but one very important thing to be seen is that it should be the
responsibility of the company involved to make the people awre of such
opportunities. As the Special Economic Zones would develop they will have a
number of townships with large number of employees comprising the skilled
workforce of the company.Emerging township and development of the area
will lead wide and diversified self-employment opportunities especially suited
to villagers.Aspirants of self-employment can be provided with easy term
credit facilities to undertake poultry farm, dairy development,horticulture,
transportation, communication, food and beverages, machine-works and
repairs, computer typing, photocopying, etc. Besides providing easy term
loans to Project Affected People (PAPs) and training them, the project agency
may utilize various rural and urban development programmes for the
purpose.

4. BETTER INFRASTRUCTURE AND LIVING CONDITIONS:

There is no doubt that the present infrastructure and living conditions in most
rural areas is pathetic. Most of them are not well connected through roads and
there is no reliable transportation system in place. The medical and
educational facilities are not something to be boasted of. People still suffer
from diseases like jaundice, malaria, stomach problems etc. which would
otherwise be easily cured in cities with modern medical facilities. Water
supply and sanitation are equally bad if not worse. Literacy rates are a bare
minimum. All these factors have also lead to large scale emigration of
villagers, especially men, from these areas to cities where they have to work as
labourers in sub-human conditions.
The setting of these new projects would ensure that new transportation
facilities, water supply facilities, medical facilities will be setup in these
regions. Need to bring in the raw construction material will ensure better roads
right from the beginning. Other amenities would follow with further
development of the region. But again it all depends on the proper
implementation of these projects and the considerate behaviour of the
developmental authorities towards the people.

5. CONTRACT OPPORTUNITIES FOR LOCAL POPULATION:

Though it is obvious that most of the construction work would be carried out
by big real-estate contractors but the local population may be provided with an
opportunity for the supply of lower level materials such as sand, stone etc.
Also the labour force that will be needed in the beginning of these projects can
be derived from the local population. Such measures on the part of company
would go a long way in ensuring trust and goodwill amongst the local
population for the developmental authority
Any Human Resource Planner can easily gauge the importance of this
favorable condition for the company in the long run, or, more importantly, the
vastly negative effects that its absence can have for the company‘s fortunes.

6. FURTHER SELF EMPLOYMENT OPPORTUINITIES THROUGH


TRAINING:

If the developmental authorities ensure that they work with the local
population for mutual benefits then they can be given training for self
employment. The scope for training people for various kind of jobs depends
on the kinds of job which are going to emerge from the Project. However, for
self-employment training for men and women can be in areas of:

For Men

1. Driving (heavy and light vehicle)


2. Mechanics & Repairs
3. Electrician
4. Computer operator
5. Welding & Fitting
6. Plumbing
7. Hotel Management & Catering
8. Typing & Photocopying
9. Tailoring and embroidery
10. Jhadoo making
11. Packaging
12. Papad making
13. Dairying
14. Salesmen
15. Security men
16. Modern method of fishing with mechanised boats in coastal areas.
For Women :

1. Computer Operation
2. Hotel Management & Catering
3. Typing & Photocopying
4. Tailoring, knitting and embroidery
5. Jhadoo making
6. Packaging
7. Papad making
8. Dairying
9. Cleaning
10. Masala Making, etc.

7. BRINGING THE RURAL SOCIETY IN THE MAINSTREAM:

A constant failure of the Indian economic policy for decades has been its
inability to bring everyone under the umbrella of development. While the big
industrial houses and middle classes have thrived, the gap between the rich
and the poor has constantly widened. The SEZ initiative seeks to address this
fundamental problem by ensuring that the rural population does not has to wait
for the ‗trickle effect‘ to come into play this time.
They will be directly addressed as the development is directly in their
geographical regions. This will ensure that slowly but surely they get a better
chance to be integrated into the mainstream.

The above discussion mostly summarizes the expected positive effects that the
development of Special Economic Zones can have on the society under the ideal
conditions of human consideration by the government as well as the developmental
authority. But past experiences with policy implementation make it hard to believe
that things can remain ideal. Under this pretext there have been valid concerns over
the negative effects of Special Economic Zones. The further discussion now
emphasizes on the negative aspects of SEZs.
NEGATIVE IMPACT OF SEZs
Implementation of such a large scale venture will most definitely have negative
effects as well. These negative impacts are of economic as well as social nature. We
now list the possible negative effects that they can have:

1. FINANCIAL LOSSES TO GOVERNMENT:

Up to now government has approved around 339 Special Economic Zones,


each of which will have more than one industrial firms working with the
heavily reduced taxes, tariffs and custom duties. As stated before in the
various benefits given by SEZs to the developers, the manufacturers are
obliged to export only 1% of their total output. This means that the primary
objective of increasing exports may or may not be fulfilled by them. But the
huge tax exemptions that they will be enjoying will cost the finance ministry
an estimated 1,50,000 crores by the year 2010. These are huge losses by any
standards and the SEZs need to validate their importance to justify this.

2. LAND GRABBING:

Human displacement, whether in response to war (civil and ethnic), natural


disaster, economic opportunity, or building of infrastructure within countries,
is the key issue in contemporary discussions of population movements. These
movements include displaced, political and economic refugees, migrants, and
exiles who move across and within national boundaries, as well as those
forced to relocate in response to infrastructural development such as economic
zones, power projects, dam construction or conservation projects. Such
movements mean that thousands are rendered landless, jobless, homeless,
income less, rootless, displaced making way for gargantuan projects
christened as epitomes of economic development. In India the battle-lines
have been drawn between the paupers and the prosperous over the issue of
displacement and (forceful) acquisition of land for development of Special
Economic Zones (SEZ). The idea of private companies‘ directly buying land
from the farmers would spell a disaster for agriculture. Land mafia will rule
the prices and force the farmers to sell land to big companies at throw- away
prices. SEZ policy is described by some as the ―biggest land grab movement
in the history of modern India. Where earlier movements were led by the poor
to acquire land, this time round it is the rich that want to ‗grab‘ land belonging
to poor farmers. It is likely that the policy maybe misused for real estate
development rather than for industry and generating exports. ‖Developers and
promoters of SEZs get land cheaply—almost one-fourth or less than that of the
market price. With the minimum required processing area being 35 percent,
the rest will be used for residential, recreational facilities and the promoters
will make their fortune out of real estate development and speculation
indiscriminately. The boom in real estate sector too is fuelling the fire. In the
name of SEZs developers hope to acquire land easily at nominal prices, put up
basic infrastructure incurring minimum cost and sell it at huge profit margins.
3. ENVIRONMENTAL IMPACT:

huge tracts of agricultural as well as forested land will be converted for


industrial purposes for the setting up of SEZs. This can have grave effect on
the ecosystem. Besides, this it is unfortunate that the minimum environmental
guidelines set by the United Nations for Special Economic Zones the world
over, are not necessarily followed in our country. The developers are also
given the freedom to develop 50-60 percent of the land according to their
liking. The blatant replacement of such forested or agricultural land can lead
to severe environmental problems

4. CLUSTERS OF DEVELOPMENT:

Rather than promoting overall economic development, SEZs will result into
clusters of heightened economic activity widening the already existing chasm
between selective areas witnessing rapid development vis-à-vis the
impoverished surroundings. Critics term SEZs as ‗islands of affluence‘ amidst
the sea of deprivation. India has already witnessed the ill-effects of such
spatial dissimilarities in the form of increasing secessionist and separatist
activities. Continuing this inequity will lead to more dissatisfaction among the
rural poor.

5. EMPLOYEE WORKING CONDITIONS:

Generation of employment is being counted as a big advantage of SEZs. An


estimated one million jobs will be created. Whether these promises are illusory
or not cannot be said but one thing is sure that the employee working
conditions in SEZs will be far from normal. no labor laws will apply to SEZs.
Workers will enjoy no rights, including he fundamental rights of association
and protest. It has also been noted that SEZs are a devious way of attacking
the rights of the working class. They serve to exempt capitalists from existing
labor laws and regulations,– including limits on the length of the working day,
right not to be dismissed without adequate cause, right to form unions and go
on strike, to retirement benefits, maternity leave, etc.

LOSS TO FARMERS DUE TO LACK OF AWARENESS:

The people that developmental authorities are dealing with for land
acquisitions are generally poor farmers who are not literate enough to have the
awareness about the proper prices of their lands and the compensation that
they deserve. In many places it has been seen that some unscrupulous real
estate agents are buying land from villagers in the expectation that they will
finally sell it back to the Project by earning huge margins. The farmers in this
way are set to suffer heavy injustice if proper steps are not taken to ensure
their awareness. Even in cases when farmers are receiving roper
compensation, they have no knowledge about how to utilize that money to
ensure future income for their families.
It is clearly seen that there are far reaching positive as well as negative
consequences of the development of Special Economic Zones. Though nothing
concrete can be said about the possible outcomes of their implementation, we can
gain a better insight by considering some of the problems that have been caused
by the introduction of SEZ plans. The report now deals with a few such examples.
RECENT EXAMPLES OF IMPACTS OF SEZs

1. CHIRNER VILLAGE, RAIGARH, MAHARASHTRA:

The place is famous for the ―Chirner Jungle Satyagraha‖. During the independence
struggle, on September25, 1930 eight martyrs were killed here. Maharashtra has 48
out of the 234 SEZs approved by the Union Government. Opposition against the SEZ
has started in Pen, Uran and Panvel talukas of Raigad district, where over10,000
hectares in 45 villages will be acquired for the Reliance Group‘s Mumbai Special
Economic Zone project(earlier called Mahamumbai SEZ). The notification for
acquisition of land for the projectt was first announced through a notice in a local
paper on June19 stating that the land is being acquired under the Land Acquisition
Act, 1894, for a public project, namely, the SEZ. The notice says that the State intends
to acquire land for a ―public purpose‖, and asks land owners to file their responses.
Acquisition notices have been issued to over one lakh small and big land owners.
Land owners and farmers have started filing objections to the acquisition notices sent
under Section 4(1) of the Land Acquisition Act. Over 17,000 objections have come
from 45 villages in the Raigad district. Chirner is worst hit, as over 1400 hectares
would be acquired. Yeshwant Narangikar one of the anti-SEZ activists stated:
“We sent the British packing, but they seem to have come back in the guise of
Reliance.”
Another activist Santaji Gondhali expressed.
“What’s wrong with our area. We have two crops every year, education, plenty
of water. Since the city is close, we do get jobs too. Why does the government
want to take all this away?”
Over the last few months the voices of resentment have grown higher. Farmers claim
that
"If we give up our land, what we will eat? They will not give us any jobs, and
finally we will have to give up our homes. People are willing to sacrifice their
lives to oppose these SEZs. Our land is productive and fertile, why should we
give it up for a private company?"
The villagers have formed a Farmers' Action Committee to oppose forceful
acquisition of land on the name of public interest. With discontent growing out of
proportion the central and the state governments acting defensively put forward that
they want to strike a balance between farmers' interests and industrial development.
But is it really the case? What sort of public interest such acquisitions would serve is
highly debatable.
2. HARYANA
Voices of protest are intensifying through- out the State of Haryana . `Aam Aadmi
Adhikar Andolan', the movement started by the Congress MP from Bhiwani, Kuldeep
Bishnoi, raised the issue of forcible acquisition of farmland for SEZs. Protesting
against the acquisition of land on the name of public interest to setup SEZ Bishnoi
said that
"it has become another reason for sophisticated land grab by big industrial
houses aided and abetted by the state governments. If we industrialise large
chunks of fertile cultivable agriculture land, how will we maintain a balanced
ratio as we will become a food grain deficient state from being food grain surplus
due to growing population? The SEZs are a tool to rob farmers of their land.
Since Haryana is landlocked and the SEZs in Haryana would not have access to
any port, the zones were not going to be a feasible idea to industrialise Haryana
in such a big way."
In Haryana too Reliance Industries Limited has signed an agreement to build India's
largest industrial infrastructure project. The $ 8 billion SEZ will cover over 12,500
hectares neighbouring Delhi, falling in the territory of the state of Haryana. The
proposed zone will include cargo airport, power station, residential complexes,
shopping malls, commercial and sports complexes. The zone is slated to compete with
top Asian hubs in China, Indonesia and Malaysia. The state government of Haryana is
giving full support to Reliance industries. Land in Haryana is very fertile and giving
away fertile land for industrial activity would ruin agriculture and farmers. The
question that arises is if large chunks of fertile agricultural land would be given to big
industrial houses where will this ultimately lead us to? What would happen to
agriculture? What about the issue of food security? Such industrial activities on
agricultural land would have serious implications on the status of food self-
sufficiency in future. A nation with billions of population and half of them living in
conditions of subsistence will starve after some time.
3. NANDIGRAM, WEST BENGAL AND SINGUR, UTTAR
PRADESH

What were mere voices of protest in other States became bloody battles in West
Bengal. The controversy started when the West Bengal Government decided that the
Salim group of Indonesia would develop a special economic zone at Nandigram, a
rural area in the district of Purba Medinipur, by acquiring 14,000 hectares of land for
the purpose. The zone was slated to be spread over 29 villages of which 27 are in
Nandigram. Most of the land under acquisition was multi- crop and would have
affected over 40,000 people in the areas. The protest turned violent and at least 14
people were killed in police firing at Nandigram creating national uproar. Amidst the
mayhem Chief Minister of West Bengal Buddhadeb Bhattacharjee announced that the
proposed Special Economic Zone is scrapped and it would be shifted elsewhere.
Similarly, public outcry and discontent was expressed over the Tata Motors' car
project in Singur. There was controversy over the acquisition of agricultural land and
allegations of forcible eviction of farmers from the area. In protest Trinamul Congress
leader Mamata Banerjee went on a hunger strike for 25 days. According to one
survey, more than 10,000 families live on the 1000 acres in Singur. They include
about 6000 landholders, 1200 registered sharecroppers, and 100 unregistered share-
croppers. Others living in the area since generations are landless labourers, artisans,
small traders. There are thousands of regular, seasonal migrant workers who live on
the same resources. Tata Motors has now begun construction work on a new assembly
plant factory in which it plans to employ 10,000 people producing the `1-lakh car'
(100,000 rupees).

AN INFERENCE

A simple inference can be drawn from the above examples.

By taking land away from peasants, the government is clearly depriving the farmers
of their basic and traditional source of income. The most basic need of human beings
is the PHYSIOLOGICAL NEED and taking away their occupation amounts to
depriving them of this need which is bound to arouse a negative response.

Not only this but taking their lands which have given them relief for decades is like
violating the SECURITY NEEDS of the farmers. Besides, a farmer who has tilled the
same land at the same place for generations cannot break his close emotional ties with
the place so easily. When it comes to this high level SOCIAL NEED of
belongingness, then the money given as compensation is too weak a motivational
factor to assure them to leave the place as is evident in their readiness to sacrifice their
lives for the lands.

Though it cannot be completely denied that violent incidents like Nandigram and
Singur don‘t have a political connotation, they still have an element of actual anger
among the farmers and project affected people.
CHINA’S SEZs: LESSONS TO BE LEARNT
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 valuable lessons for India.

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. 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.

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. 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.

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. 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 above section clearly highlights the fact that china has made many compromises
with regard to its people and environment in the run-up to its fast growth. But as a
democratic country India will be less assured of following the exact pattern.

Next we make some comparisons between the Chinese and Indian situation.
INDIA AND CHINA:POLICY COMPARISON
India has more or less adopted the same China model of SEZ development and
expecting the similar results. However, the government is missing out on few vital
differences:

(i) Free zones in countries like China, UAE were mostly public funded in which
economic gains prospects assumed far more significance than financial viability
considerations. Thus the responsibility of market to promote zones & to attract tenant
industries was primarily shouldered by governments. The Indian model, on the
contrary, envisages ‗private sector led‘ development of such zones. Thus, the
responsibility or risk of financing, marketing & promotion has been vested with
private players, who have very little or no experience in these areas.

(ii) India is not a command economy i.e. foreign investors are not confined to SEZs
only, which make these zones little special than were China‘s where SEZs used to be
the only route through which foreign investors could enter the country. Besides,
Indian has no equivalent to Hong Kong or Taiwan where industries had a pressing
need to relocate and China served as a ready relocation base.

(iii) China continues to score because it has bundled an attractive tax environment
with world-class infrastructure and a liberal labour environment. In India, on the other
hand, buckling under the pressure from Left parties, the government has axed the
Section 50(b) from the central SEZ bill, which would have empowered states to ease
labour laws in SEZs. Democratic India has strong labour unions organically linked to
political parties. Authoritarian China, conversely, has very pliant unions. Here India
has lost a crucial edge in the global environment marketplace.

(iv) India has also some advantages over countries like China. It has significantly
larger English-speaking workforce than does China. India also has an edge in a
number of key knowledge based industries like software, IT-enabled services, medical
services, drugs & pharmaceuticals & agro-based industries. Hence India‘s SEZs are
therefore likely to develop along quite different lines from China‘s. Indian zones will
more likely attract investments in high-end human skill based industries & services
sector.

(v) Also in the light of the increasing economic engagement of India with the ASEAN
& China, it is more likely that a greater proportion of investment into Indian zones
could come from these countries than from US or Europe.
CONCLUSION
Like all ideas, the idea for Special Economic Zones, in its originality, is a very
attractive one. If implemented according to proper rules and regulations and most
importantly, with proper consideration for farmers and project affected people
(PAPs), the SEZ s provide a win-win situation for the company and the PAPs as well.
In the ideal condition, the Project Affected People benefit by getting better
occupation, better living conditions and better income while the involved developers
and company get the benefits of tax-exempt production centers along with a dedicated
workforce derived from amongst the PAPs.

Claearly, if the PAPs are satisfied with the policies of the company and their
Rehabilitation and Relocation programmes, they will have trust and goodwill as
employees while working for the company