India’s industry zones irk IMF, Maoists and farmers

NEW DELHI – From the IMF to Maoist rebels, from Hindu nationalists to the country’s own finance minister, India’s mad dash to revitalise industry through Special Economic Zones (SEZs) has generated an impressive range of critics.

And it has run into trouble. On India’s eastern coast, tens of thousands of Muslim farmers have barricaded themselves in, digging up and blocking roads to prevent their land being taken for a chemicals complex and SEZ.The protests have forced a rethink.”It’s been a great learning process,” said one of the policy’s architects, Commerce Secretary .K Pillai.”Maybe we should have spent the first few months explaining what an SEZ is all about.There is a tremendous misapprehension.”In just a year, the government approved nearly 400 SEZs, and received proposals from state governments for 304 more.All but 63 of the projects have been put on hold pending a review by cabinet ministers.Political analysts say the issue of seizing farm land for industry has become explosive.The policy aims to emulate China’s experience with SEZs in the 1980s by establishing tax- and customs-free pockets of land around the country to encourage export industries.Pillai said the first 63 projects alone should generate US$13,4 billion (about N$96,4 billion) in investment and create 890 000 jobs by 2009.SACRED BOND But he is yet to convince the country’s own, reform-minded Finance Minister Palaniappan Chidambaram, whose ministry fears the loss of US$20 billion in revenue over the next four years alone through the tax exemptions granted by SEZs.The ministry is worried that existing industries will simply relocate to the SEZs to avoid taxes.”I am not against SEZs as such, I am against the proliferation of SEZs,” he said in an interview with the Indian Express newspaper late last month.”There is a sacred bond that binds the tiller with the land,” he added.”If you want to snap that bond, then do so with great caution …It is a minefield.”Think SEZs and many people think of the gleaming skyscrapers of Shenzen just outside Hong Kong or the transformation of the tiny fishing village of Pudong outside Shanghai into a world-class investment destination.Yet not all of China’s six main SEZs were a roaring success.INVITATION TO CORRUPTION The island of Hainan became a byword for corruption in the late 1980s because officials used the tax breaks to feather their own nests.Where the policy succeeded, though, was in declaring the then heavily statist Chinese economy “open for business”.That may not apply to India.”The policy is 15 years too late here,” said Bibek Deb Roy, a leading trade economist.”At one point in time, you couldn’t liberalise across the board, so you had to liberalise in selected enclaves.Now you are liberalising across the board, there should be no question of liberalising in selected enclaves.”The selective tax breaks, he says, will mess up land markets and the fiscal structure.They also threaten to give bureaucrats enormous powers.”The outcome will be little more investment than would otherwise have happened and a lot less revenue, but much richer bureaucrats,” wrote Ranguram Rajan, then director of the IMF research department in Washington, last year.Abhirup Sarkar, economics professor at the Indian Statistical Institute of Statistics in Kolkata, puts it even more bluntly.”It is an invitation to corruption,” he said.The whiff of corruption is already circling the SEZs, with property developers with political connections already said to be making a killing.The government’s communist allies want a stricter limit on how land is used within an SEZ, especially on the proportion allowed for housing and non-industrial use.Many farmers, unhappy at the idea of being forced to exchange their land for cash, would like to do away with the whole idea altogether.Nampa-ReutersOn India’s eastern coast, tens of thousands of Muslim farmers have barricaded themselves in, digging up and blocking roads to prevent their land being taken for a chemicals complex and SEZ.The protests have forced a rethink.”It’s been a great learning process,” said one of the policy’s architects, Commerce Secretary .K Pillai.”Maybe we should have spent the first few months explaining what an SEZ is all about.There is a tremendous misapprehension.”In just a year, the government approved nearly 400 SEZs, and received proposals from state governments for 304 more.All but 63 of the projects have been put on hold pending a review by cabinet ministers.Political analysts say the issue of seizing farm land for industry has become explosive.The policy aims to emulate China’s experience with SEZs in the 1980s by establishing tax- and customs-free pockets of land around the country to encourage export industries.Pillai said the first 63 projects alone should generate US$13,4 billion (about N$96,4 billion) in investment and create 890 000 jobs by 2009.SACRED BOND But he is yet to convince the country’s own, reform-minded Finance Minister Palaniappan Chidambaram, whose ministry fears the loss of US$20 billion in revenue over the next four years alone through the tax exemptions granted by SEZs.The ministry is worried that existing industries will simply relocate to the SEZs to avoid taxes.”I am not against SEZs as such, I am against the proliferation of SEZs,” he said in an interview with the Indian Express newspaper late last month.”There is a sacred bond that binds the tiller with the land,” he added.”If you want to snap that bond, then do so with great caution …It is a minefield.”Think SEZs and many people think of the gleaming skyscrapers of Shenzen just outside Hong Kong or the transformation of the tiny fishing village of Pudong outside Shanghai into a world-class investment destination.Yet not all of China’s six main SEZs were a roaring success. INVITATION TO CORRUPTION The island of Hainan became a byword for corruption in the late 1980s because officials used the tax breaks to feather their own nests.Where the policy succeeded, though, was in declaring the then heavily statist Chinese economy “open for business”.That may not apply to India.”The policy is 15 years too late here,” said Bibek Deb Roy, a leading trade economist.”At one point in time, you couldn’t liberalise across the board, so you had to liberalise in selected enclaves.Now you are liberalising across the board, there should be no question of liberalising in selected enclaves.”The selective tax breaks, he says, will mess up land markets and the fiscal structure.They also threaten to give bureaucrats enormous powers.”The outcome will be little more investment than would otherwise have happened and a lot less revenue, but much richer bureaucrats,” wrote Ranguram Rajan, then director of the IMF research department in Washington, last year.Abhirup Sarkar, economics professor at the Indian Statistical Institute of Statistics in Kolkata, puts it even more bluntly.”It is an invitation to corruption,” he said.The whiff of corruption is already circling the SEZs, with property developers with political connections already said to be making a killing.The government’s communist allies want a stricter limit on how land is used within an SEZ, especially on the proportion allowed for housing and non-industrial use.Many farmers, unhappy at the idea of being forced to exchange their land for cash, would like to do away with the whole idea altogether.Nampa-Reuters