Factfile

SEZs: frequently asked questions

back to issue

What is an SEZ?

A Special Economic Zone (SEZ) is an especially demarcated area of land, owned and operated by a private company, which is deemed to be foreign territory for the purpose of trade, duties and tariffs. SEZs will enjoy exemptions from customs duties, income tax, sales tax, service tax. After the passing of the SEZ Act by the Parliament in June 2005, the law came into effect in February 2006, though some states, like Gujarat, had passed provincial SEZ legislation in 2004 itself.

From the point of view of industry, an SEZ is an industrial cluster with assured infrastructure aimed at increasing the country’s exports.

Why SEZs?

The stated purpose of creating SEZs across India is ‘the promotion of exports’. The Commerce and Industries Minister Kamal Nath claims that exports will ultimately grow five times, GDP will rise 2% and that 30 lakh jobs will be generated by SEZs across India. It is also claimed by the government that SEZs will attract global manufacturing through foreign direct investment (FDI), enable transfer of modern technology and will also create incentives for infrastructure.

How many SEZs?

As of 30 November 2007, according to the Union Ministry of Commerce and Industry, the breakdown of SEZs in different categories is as follows:

SEZs functional before SEZ Act 2005

19

SEZs notified after 2005 Act

172

Formally approved SEZs

404

SEZs with in-principle approval

165

Total

760

Many more SEZ applications await processing.

Total area under SEZs in 20 states across India is expected to be over 200,000 hectares, an area the size of the National Capital Region. This land – predominantly agricultural and typically multi-cropped – is capable of producing close to one million tons of foodgrains. If SEZs are seen to be successful in the future and more cultivated land is acquired, they will endanger the food security of the country.

The experience with SEZs

 

China

India

Number

7 (7000 in 1993)

Almost 800 approved already

When started

1980

Mostly after 1991

Democratic decision-making

Lot of discussion and debate preceded setting up of SEZs

Very little public discussion. Parliament passed law without debate

Size

Very large (Shenzhen: 32,700 hectares)

Small; the GoI first capped the size at 5000 hectares in April 2007 (after Nandigram). Recently there has been talk of relaxing this once again, after the new R&R policy has been drafted

Ownership

State

Private corporations

On what kind of land

Mostly coastal wasteland

Mostly fertile cultivated land

Exports

Very good (Shenzhen: net exports 2006: $35 billion)

Poor so far (In 1998, a waiver of $1.67 billion on customs duties was given to earn $1.04 billion in foreign exchange). Exports have doubled during last year from Rs 34,000 crore in 2005-06 to Rs 67,000 crore in 2006-07

Employment

Several million low-paid jobs

Very limited so far: less than 200,000 jobs created.

Tax revenue collections

Only selective tax incentives provided

Across-the-board tax holiday given to companies

Overall economic success

Only Shenzhen has been a notable success, though at very high social and environmental cost

Only modest success in Export Processing Zones (EPZs) and too early to tell for the new zones

Ease of land acquisition

Land battles continue in some areas

Bloody, bitter resistance

Displacement and loss of livelihoods

Estimates show that close to 114,000 farming households (each household on an average comprising five members) and an additional 82,000 farm worker families who are dependent upon these farms for their livelihoods, will be displaced. In other words, at least 10 lakh (1,000,000) people who primarily depend upon agriculture for their survival will face eviction. Experts calculate that the total loss of income to the farming and the farm worker families is at least Rs 212 crore a year. This does not include other income lost (for instance of artisans) due to the demise of local rural economies.

The government promises ‘humane’ displacement followed by relief and rehabilitation. However, the historical record does not offer any room for hope on this count: an estimated 40 million people (of which nearly 40% are Adivasis and 25% Dalits) have lost their land since 1950 on account of displacement due to large development projects. At least 75% of them still await rehabilitation.

Almost 80% of the agricultural population owns only about 17% of the total agriculture land, making them near landless farmers. Far more families and communities depend on a piece of land (for work, grazing) than those who simply own it.

A new relief and rehabilitation policy has been tabled in Parliament recently. It promises a ‘Social Impact Assessment’ of development projects which displace human populations involuntarily. It also promises ‘compensation, rehabilitation and resettlement ahead of displacement.’ These assurances also extend to landless families who have been promised jobs in construction projects and various kinds of training for self-employment. Landed families losing land to development projects have been promised land elsewhere in exchange. There are special R&R provisions for displaced SC/ST groups.

These policies have yet to be put into practice and tested on the ground.

Will SEZs create jobs?

The growth of employment in the entire organized sector since the inception of the reforms in 1991 has been negligible. The total employment in the organized sector is still less than 3 crore. Even in IT and ITES, the boom areas of the economy, employment is less than 0.15 crore. (60% SEZs are for IT.) The Indian labour force is estimated at 45-55 crore. Thanks to growing automation, modern manufacturing grows joblessly around the world. (In India automobile production has grown rapidly, while employing less labour than before.) With more automation, organized services also require limited supplies of labour. SEZs will attract modern industry and services in order to succeed. To that extent they are unlikely to generate too many jobs. Moreover, the few jobs that will be generated will be for highly skilled labour, usually not available in the countryside – from where working people are being displaced to make room for SEZs. Kamal Nath’s claim that SEZs will create 30 lakh jobs within a few years is fraught with fantasy: those many jobs have not been created in total since the inception of the reforms in 1991! The government does not provide information on jobs lost, only on jobs created.

More than half of the SEZs approved so far are in the IT/ITES (IT enabled services) sector. The jobs that will be generated will be for trained computer professionals, not for people who have recently been farmers and agricultural labourers.

Furthermore, if the experience of existing SEZs in places like Noida (or Shenzhen, China) is anything to go by, the working conditions – poor wages, non-existent benefits, long working hours, occupational hazards, discrimination and so on – under which people will be employed inevitably violate human rights apart from keeping the benefits of growth away from the poor.

The new corporate city-state?

Many of the SEZs, like the MahaMumbai SEZ (to be built by Reliance Industries) will be like a mid-sized city, over 100 sq km in area (the size of Chandigarh). There will be no elected local government. A government-appointed ‘Development Commissioner’ will govern the SEZ with the main aim of facilitating economic growth. SEZs have been a declared ‘public utilities’ under the Industrial Disputes Act, making collective bargaining and strikes illegal. Infrastructure, like power, roads and water supply has been guaranteed to investors and developers, not to people of the region. Several lakh people may be living/working inside the SEZ. In some cases the developer may have the right to tax the population in order to provide essential services. The constitutional tenability of private monopolies running local governments (for a sizeable cluster of the urban population) without being elected is questionable. All the non-economic laws of the land under the IPC and the CrPC would be applicable to SEZs. However, internal security will be the responsibility of the developer. Would the SEZs turn ultimately into sovereign states – treasure islands of prosperity in a sea of poverty and misery – unaccountable to the vast majority of citizens in the neighbourhood?

Loss of public revenue?

Thanks to exemptions from customs duties, income tax, sales tax, excise duties and service tax (even on luxury hotel facilities, shopping malls, health clubs and recreation centres) given to SEZs, the finance ministry estimates a loss of Rs 1,60,000 crore till 2010 in revenue. (The ministry has also asked for capping the number of SEZs at 100. Finance Minister P. Chidambaram wrote to Cabinet colleagues saying: ‘SEZs per se will distort land, capital, and labour cost, which will encourage relocation or shifting of industries in clever ways that can’t be stopped. This will be further aggravated by the proliferation of a large number of SEZs in and around metros.’) The foregone tax revenue every year is five times the annual allocation for the National Rural Employment Guarantee Scheme and is enough to feed 55 million people each year, who go to bed hungry every day.

Furthermore, given the concessions on import duties (not merely for the investors who will produce exportable items but also for the developer, who will not), there are likely to be foreign exchange losses (rather than gains). For the five year period ending 1996-97 the foreign exchange outgo on imports made by units in SEZs and the customs duty forgone amounted to Rs 16461.58 crore against which exports of only Rs 13563.87 crore were reported.

Moreover, these zones are exempt from sales tax, octroi mandi tax etc on the supply of goods from the Domestic Tariff Area (rest of India).

Importantly, tax exemptions apply not just to the developer’s activities and those of the SEZ units. They also apply to activities happening in the non-processing area of the SEZ, which will be 50% of the area of large SEZs. This implies that if shopping malls, amusement parks, residential high-rises or other luxury amenities are created in the non-processing part of the SEZs, they will not be taxed.

SEZs or REZs (Real Estate Zones)? Are SEZs a gigantic real estate scam?

What are SEZs likely to become in a few years’ time? According to a clause in the SEZ Act [Section 5(2)], as much as 75% of the area under large SEZs (above 1000 hectares) can be used for non-industrial purposes. What will the remainder of the land be used for?

This lacuna in the law is likely to become a loophole for the accumulation of land banks by private developers and property dealers for the purposes of real estate speculation. (This explains why so many of them have been buying areas for SEZs.) In fact, it may well be the case that the rationale for the above clause in the SEZ Act is the uncertainty surrounding the economic attractiveness (and ultimate viability) of SEZs. If adequate productive investment is not forthcoming, the SEZ developer can at least cash in on the land value. Conglomerates like Reliance already own upwards of 100,000 acres of land in the countryside.

Furthermore, the government has enabled foreign direct investment (FDI) in real estate as of January 2007, leaving the door wide open to massive amounts of international speculative investment in property. Far from giving ‘land to the tiller’, as the original idea of land reform had promised, the present tendency of the Indian governments is to remove all ceiling on the ownership and use of land – serving thereby the interests of big business. It is noteworthy that there is no legal upper limit on the size of land area under an SEZ.

SEZs: legal violations

The following are the main legal violations because of the SEZ Act, 2005:

* It violates the letter and spirit of the Indian Constitution (see especially Clauses 49 and 51).

* It infringes the fundamental rights of the citizen guaranteed in Part III of the Constitution.

* Relaxation/inapplicability of many labour laws (including under the Industrial Disputes Act, Contract Labour Act, Factories Act, Minimum Wages Act, Trade Union Act).

* Environment (Protection) Act is inapplicable to SEZs. No environmental clearance needed.

* Violates Panchayat Raj Act (1996) for local self-government.

* Violates laws granting rights and control to Adivasi communities over their land.

* Violates many international conventions on human rights.

SEZs: a timeline of policy changes

1965

First Export Processing Zone in India at Kandla, Gujarat. 8 others follow till 2004.

1980

World’s largest SEZ established in Shenzhen, China. Has been one of the few (partial) SEZ successes in China, which has abandoned the policy since 1998.

2000

Union Minister of Commerce Murasoli Maran visits Shenzhen, China. Changes in Indian policies follow.

2004

Gujarat is the first state to pass SEZ legislation.

2005

SEZ Bill introduced in Parliament in May. Passed without debate within two days. President signs it into law in June.

2006

SEZ Rules issued in February. SEZ clearances by the Board of Approvals in New Delhi begin in the summer evoking immediate protests in Raigad, Maharashtra and elsewhere.

2007

Nandigram erupts in January. Several people killed in the most significant protest against SEZs hitherto. Prime Minister suspends clearance of SEZs for three months.

Nandigram erupts again in March. Many more people killed in police firing.

Central government puts a cap of 5000 hectares on the size of an SEZ. New relief and rehabilitation policy promised. (Tabled in Parliament in November.)

Nandigram violence for the third time within the year. Dozens killed.

Goa government gives in to popular pressure and cancels all SEZs in the state, denotifying at least three.

 

* Adapted from: SEZs and Land Acquisition: Factsheet for an Unconstitutional Economic Policy, Citizens’ Research Collective, New Delhi.

top