SEZs – a dumb idea
This topic was in the news quite a bit. Various arguments, for and against, were given. However, I was disappointed as I didn’t come across a single article which addressed all the issues related to this controversy. S Narayan, former finance secretary and advisor to Prime Minister of India came close in his article in Mint. So I would like to take a shot at doing so from a layman’s perspective.
I will state upfront that SEZs scheme or scam (whatever you want to call it) is a dumb idea. Why? Let me give you my reasons which are as follows:
First, private developers are using the government machinery to buy land with the help of the politicians, that to at a low price. Why should government buy land for private developers at low price? What are the compulsions? Government should only buy land if it is for a social / public cause. Tatas have received land at such a low price that even if they lose money making small cars, they will still be the gainers. No wonder there has been so much opposition to Tatas setting up the factory. I can understand the argument of promoting industrialization in the state but the land for the same should have been auctioned.
Second, just imagine what kind of legal infrastructure private developers would have to set up to buy thousands of acres of land? And still, they can face legal hurdles as only land acquired under the Land Acquisition Act of 1894 can grant undisputed title to land. However, when the government buys land for them, legality of purchase / transfer can seldom be challended in court successfully. In any case, it would be the government fighting the legal case and not the private developer. I dropped the idea of buying a property because of uncertainty about ownership as well as the payment issues. I would love to buy the same property from the government as I know there will not be any legal hassles afterwards.
Third, why use 3-crop fertile agricultural land and turn it into an industrial area. I cannot think of more stupid idea than this. A 3-crop land means that there is irrigation facility available in the area. So first we spend money on providing irrigation facility and then we turn it into an industrial area. We want to be self dependant in terms of agriculture but at the same time we are turning 3-crop land into an industrial area. What am I missing here?
Fourth, as pointed out by S Narayan in his article that as per the rehabilitation policy, those dispossessed of land by private developers will be given land by the government. By doing so, the government will end up subsidizing the private developer. Another illogical part of this policy is that the government will have to acquire land again to rehabiltate those dispossessed of their land. But what about those from whom the government has acquired land. They will also be provided land as compensation. It will become a never ending cycle.
Fifth, a group of officials are expected to decide the “adequateness of relief.” I think this provision will be the death of the land owner.
Sixth, why are we giving tax concessions to SEZs. By giving tax concessions, you make one part of the industry which is located outside the SEZs non-competitive. I think this is morally and ethically incorrect on the part of the government to do so. Government should be working to create a level playing field for all. It is very interesting to note that we want to buy land for SEZs at low cost and we also want to give them tax concessions. Why can’t we treat the quest of private developers as a regular business? I did’t get any tax concessions or subsidized land when I started my business. So why should anybody else?
Seventh, I think SEZs as proposed will create more problems. It is true that inside the SEZ, the private developer will build up the desried infrastucture but what about the infrastructure surrounding the SEZ and general infrastructure like Airports, ports etc. Wouldn’t that be a constraint. It certainly would be. Let me give the example of Gurgaon. With the opening of highway, access to Gurgaon has become easier but what happens when one takes the exit into Gurgaon. Traffic jam. This in turn causes a traffic jam on the highway. There has to be balanced infrastructure development as unbalanced infrastructure development will make the investment in SEZs less effective.
Taking the above into consideration, I know what you must be thinking. Another communist friend of Karat. Well, you are wrong. I am a capitalist. But I have no choice but to call a dumb idea as dumb.
Now without going into whether SEZs are good or bad, I will assume that SEZs are good for the country. So how can development of SEZs be done in a fair manner. Here are some of my thoughts:
1. Do not use fertile agricultural land for this purpose. There is plenty of fallow land available in the country which can used for building SEZs, if necessary.
2. If it is decided that a SEZ has to come up in a certain area, the government should acquire the land from farmers by giving them the minimum price as decided by government rules with the condition that they will also get a percentage of the profit when the land is sold. The land so acquired should be sold to private developers through auction. As mentioned earlier, the profit made on sale should be shared by the land owners and the government.
3. The land should be given on a 99 year lease and should not be made freehold. Ownership of such huge pieces of freehold land should be against public policy.
4. Why should there be a rehabilitation policy. The land owners are getting a fair market price. In fact, more than the market price because selling the land as a SEZ would fetch more than when the land is sold individually. When the SEZ will be built, it is obvious that employment will be generated for the locals. Also, land owners who have sold land in Gurgaon area are a happy because they made a killing by selling at market price. The farmers are not against selling their land but they are against selling their land at a low price.
I don’t know if most of you are aware that a complete city was built by Bechtel in Saudi Arabia from scratch in the middle of a desert. So fallow land in India can be utilised for development purposes without harming the interest of the country.
Avinash Narula
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