Politics and wise economics are never quite the same. Please note, I am not saying that politicians don’t look at practical solutions; just that they rarely if ever look at the right solution. And as and when they do happen to get hold of such a solution, they manage to make a mess of things by their opportunism and their sheer incompetence. I mean, why is it so difficult to convince people about the practical benefits of a scheme when it is so ‘easy’ to persuade them of the efficacy of one’s political outfit and how it is better than the opposition?
The S.E.Z. (Special Economic Zone) issue is raging now, and politics is overshadowing economics again, although I am sceptical about whether one can truly call it a wise economic decision in the first place. I happened to read Nitin Desai’s article on whether the zones per se were a good idea, and I feel everyone should at least go through the piece, if not to understand the whole gamut of the SEZ issue, but just to understand why there is so much opposition to the scheme.
What may be touted by politicians to be beneficial to the people is rarely ever so; they aren’t where they are to serve the people; they have many more benefactors whose benedictions they have to repay, and in the short period that their tenure lasts, it is all the more the urgent that they do something substantial. Nitin makes a fine point when he makes a distinction between a business-friendly government and a market-friendly government as that between a hegemonic gatekeeper and a benign, albeit powerful, guardian. The Indian State, and its bureaucratic institutions love the role of a despotic tyrant when it comes to imposing rules and regulations on industry, and cannot be expected to be amenable to a role wherein their role would require them to be sympathetic towards everyone sine prejudice.
I never quite understood the idea as to why the zones are focussing mainly on export-related production alone. I mean, if you want to promote exports alone, why not improve the general infrastructure? It would also promote domestic growth, and in turn your capability to export also would be augmented.
I believe PC, our dear ‘beloved’ Finance Minister, is not that enthusiastic about the whole affair, considering that his Ministry will bear the biggest brunt of the concessions that are expected to be rolled out to those investing in creating such zones. Tax concessions and the expected reductions in domestic tariffs once industries shift to these zones are expected to set back revenue collections by a mind-boggling 1,75,000 crores or Rs. 1.75 trillion, and this is simply not an affordable scenario, not while our fiscal deficit is still at a worrying level.
The debate over the zones has mainly emerged over land-acquisition issues and the matter of inadequate compensation being given to land-holders. The
Nitin has made a very valid point when he states that the absolute carte blanche that the State is wont to give to the SEZ developers is absolutely deplorable. Where the State, the protector of the weak, has failed in its duties, it is futile to expect the SEZ developers to be concerned about the rights of landholders, and yet there are cases, very heartening ones at that, wherein developers have made the landholders as stakeholders in the project, and have ensured jobs and means of livelihood for the displaced people.
Nitin says, and I quote, “If the policy regimes that are to apply to the SEZs are a good idea, they should be made applicable throughout.” That they are not suggests that we aren’t sure of whether the scheme will work, i.e. we are experimenting with the notion. The point remains as to whether this is an experiment we can afford doing.
6 comments:
Great article...Quite informative,but then that's your trademark style :-)))
The article by Nitin Desai was good. As he rightly points out, even if we cross the initial hurdles, there are some unforeseen factors like the environmental effects and the labour reaction due to an unorganized set of norms.
It is anybody's guess what the effect of such an initiative would be! However if it happens with profit and commercial exploitation not being the sole criterion, and also takes into account the bigger picture, I feel it should be worth a try!
The experiment is worthy of attention so long as all the preliminary preparations have been done to the satisfaction of the experimenter and the ones who would be affected by the experiment. Till such time, the experiment is unworthy of being tried out, as any such attempt would be to the general detriment of the people and the nation.
Reddy, this is a very thought provoking piece.
Nitin Desai has very succinctly explained the drawbacks of the idea called SEZ.
I am personally yet to still understand the entire logic and functioning of SEZs. Even though, I guess I have enough info to comment on this post.
As you and I are very well aware, the fruits of liberalization have reached only a small percentage of Indians. A small trip outside any city will tell you that not much has changed for most of non-urban India.
For private players, the govt. has been unable to divert enough funds to build infrastructure so as to make these remote locations commercially viable. Its own experience with setting up PSUs has been far from satisfactory wherein most PSUs have been inefficient, loss making monsters doing no good to the nation or its people. (Admittedly, this might have been due to unmanageable govt. interference)
In such a scenario, it is imperative that establishing factories in undeveloped areas is incentivised. IT and ITeS sectors cannot really generate employment for unskilled, partially skilled labour. That will have to come from manufacturing.
As regards the arguement about from Mr.Desai about the small size of SEZs India is creating vis-a-vis China - India is an infinitely freer state than China. To land acquisition in such large amounts is bound to create unsurmountable opposition from local people. Unlike China, we simply cannot move people away by force. Look at Nandigram - amid all the senseless violence, one thing is clear - the democratic ethos is alive and kicking. The fact that the opposition is kicking up a storm and calling for a nationwide debate is proof enough.
Having said that, let me admit that the jury is still out on the benifit/loss ratio of SEZs. I agree that we need to re-look at our SEZ strategy and the way we go about implementing it. Perhaps, instead of shooing of villagers with one-time payments, they could be alternatively be given a small stake in the businesses to be setup there. In this way we may just turn a non-productive asset for them into an extrememly productive one with steady returns.
Moreover, as the govt. is rightly mulling, instead of playing land broker to private players, they could leave the land acquisition to the private sector which would then have to deal with these problems themselves. Besides, this could lead to better compensations for villagers giving up land.
Neeraj:
While I agree with your statement that we need to look at a scheme of affairs wherein the existing landholders could be reinstated as stakeholders in the SEZ project, which would definitely compensate them in a more true sense of the word.
As regards the government handing over the land acquisition bother to the SEZ developers rather than doing it itself, well, it would reduce its headache in one area, but would induce many more in others, as it would still be obligated to regulate and ensure that the private developers are offering and giving the landholders and other aggrieved parties adequate compensation for their losses. Considering by the case-by-case approach that the State currently adopts towards businesses, it could be a recipe for disaster or a sure shot formula for success, all dependent on how things are formulated.
SEZ can be a very good idea if implemented correctly. To become a developed country we need to have good industries. But the problem is that we are allocating agricultural land to these industries.
One solution is that proposed by neeraj, that the farmers be made partners in the scheme.
Or else, we can also allocate unhabited areas for these industries. Yes, there would be a huge amount of investment involved on part of the industries, and initially there would be a few takers for this proposal, but this would ensure that we have development everywhere. Besides we won't loose our agricultural land.
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