Expansion Strategies

The following item underlined that strategies for assembling SEZs -- and modifying SEZ rules to allow for this -- take a huge range of forms:

ADANI GROUP INTENDS TO INCREASE AREA OF ITS SEZ IN MUNDRA [GUJARAT]

Business Standard, 21 Dec 09

Ahmedabad-based Adani Group is looking at increasing the area of its multi-product SEZ at Mundra in Kutch.

Mundra Port and Special Economic Zone Ltd (MPSEZ), the developer of the SEZ, has already approached the Board of Approval for SEZs seeking its permission for addition of land to its SEZ.

Adani Group's multi-product SEZ in Kutch is notified over 6,472.86 hectares.

The developer has requested for addition of 2008.41 hectares of land to the already notified SEZ. If the government approves the request, the area of this SEZ would be 8,481.27 hectares.

"Out of the 2,008.41 hectares the company proposes to add, it is in possession of 1,840 hectares and is also in the process of obtaining possession of balance 168.41 hectares of land shortly from the government of Gujarat," the company has communicated to the Board of Approvals. The additional area applied for notification is contiguous to the notified SEZ.

The SEZ is positioned on the west coast of India and it is ideally situated for exports to African, Middle Eastern and western countries.

Mundra Port and Special Economic Zone Ltd also manages the largest private port at Mundra in terms of cargo handling with total 36 million tonnes of cargo handled in 2008-09. It is expected to handle 44 million tonnes in the current fiscal.

The company is further developing world’s largest and fully mechanized coal import terminal at Mundra with a capacity of 50 million tonnes to cater to various power projects including the power projects being set up by Tata and Adani Group.

Peeling Back the Veil on SEZs

Since the passage of the SEZ Act, 2005, critics of the new policy have complained that the implementation modalities lend themselves to abuse. Among the concerns has been the role of the Development Commissioners (DCs), appointed to oversee the enforcement of rules pertaining to the operation of SEZs. DCs are vested with a variety of powers -- some central subjects, others state subjects. Not only did critics of the SEZ policy fear that the DCs would implement rulings detrimental to the interests of labour and the environment, but also that the concentration of state power in the hands of a single official (working with a small group of subordinates) would lead to corruption. There would also be strong incentives for private sector actors to abuse the provisions of the Act -- by, for instance, smuggling tax-free goods to the Domestic Tarrif Area or using SEZs primarily as a way of evading zoning restrictions on housing development.

It did not help matters that the Union Ministry of Commerce and Industry did not take urgent steps to reassure these critics. The nature of the DCs' powers were left vague, allowing fevered speculation as to the scope of their authority. Transparency in the operation of the zones, moreover, has been uneven at best, and usually much worse than that -- leaving civil society watchdog groups little option but to bark from the sidelines when they were denied access to pertinent information. To top it all off, efforts to ensure that the state's own oversight institutions could effectively keep tabs on the functioning of the zones -- and the performance of the DCs -- had been thwarted since last summer by the infamous Instruction No. 34, issued by the Ministry. This required DCs to authorize investigative action by various auditing and enforcement agencies. Anecdotal evidence indicates that permissions were often denied, further fueling speculation about what it is that the SEZ developers and their bureaucratic accomplices might be hiding.

The latest Ministry-issued instruction has reversed this precedent, however -- allowing audit and enforcement agencies to investigate activities with and pertaining to SEZs without obtaining prior permission from the DC or Zonal Development Commissioner. This is an important, but still limited, boon to the cause of transparency and accountability. Why ''limited"? Mainly because it opens up SEZs only to state agencies with a mandate to investigate issues that fall within their organization's core mandate; there are many non-governmental groups who could contribute substantially to such inquiries, as the People's Audits of SEZs held in many states have shown. Even more important, many issues (such as land alientation in the process of establishing an SEZ) are not adequately covered by the new Instruction (No. 43).

The Ministry of Commerce has in one respect gone 'beyond transparency': when revoking the legal force of Rule No. 34, it also wiped the relevant provision off of its website entirely, rather than simply ensuring that a subsequent Instruction superseded it.

Another interesting feature of this climbdown is that it was prompted, apparently, by India's desire to demonstrate to the international community that it was serious about combating terrorist financing, which in turn required bold action that indicated that no entity was beyond the reach of India's investigative agencies. India hopes to join the Financial Action Task Force before long, and without unleashing its significantly hemmed in enforcement agencies, it stands little chance of being accepted into the club. International norms may be less meaningless than is often thought.

An Indication of Continued Confusion?

According to two developers who recently attended a (small!) conference on investment opportunities in India, the lack of clarity about the way in which rules related to SEZ are to be interpreted is one of the factors that is slowing down the completion of SEZs under construction as well as the establishment of business units within SEZs. (Obviously the global economic downturn and the reduced availability of credit are the most important variables.)

The policy ambiguities most cited concern taxation matters -- sales tax, duration of various concessions, categories of expenditure that attract tax breaks, etc. But there are other unresolved issues as well, most notably those related to land acquisition and the nature of the regulatory regime -- particularly the applicability of labour laws and the functioning of special tribunals stipulated in the SEZ Act. The lawyers for American firms in the auto-parts and energy sectors are especially worried about how such tribunals will deal with questions relating to collective bargaining (should trade unions make a big push for representation in a given SEZ).

Apparently, Development Commissioners who are responsible for overseeing much of the administrative infrastructure of SEZs have been seeking clarification on the rules governing these and other questions at an increasing rate. It is therefore no surprise that Ministry of Commerce and Industry in Delhi has felt obliged to notify these and other officials of a procedure for dealing with such queries. Below is the text of the Instruction (No. 43, F.No.C.8/6/2009-SEZ) was issued by the Additional Secretary in the Commerce Dept in late November. Since the text is a little vague on the precise modalities for operating this decentralized system for addressing policy questions, it will not be surprising if further clarification is sought on how to go about seeking clarification pursuant to this Instruction.

Procedure for seeking clarification on policy issues relating to SEZ Act and Rules from Department of Commerce

Instruction No. 43

F.No.C.8/6/2009-SEZ

Government of India
Ministry of Commerce & Industry
Department of Commerce
Udyog Bhawan, New Delhi


Dated the 23rd November, 2009

To: All Development Commissioners

Sub: Procedure for seeking clarification on policy issues relating to SEZ Act and Rules from Department of Commerce

Sir/Madam,

I am directed to say that references are received from Development Commissioners in this department seeking clarification on various provisions of SEZ Act and Rules. It has been decided that such clarifications may first be considered for a decision in the meetings held by Zonal DC.


2. Meetings of all Zonal Development Commissioners under the chairmanship of AS (SEZ) would be held after BOA meeting in the Department of Commerce to discuss and clarify policy matters which required further discussion. Therefore, if Zonal DCs need any clarifications on SEZ Policy issues, they may bring up such matters along with full details of the case in these meetings.

3. This issues with the approval of AS (SEZ).

CP Joshi and LAA

Land acquisition Bill to go to Parliament any time: Joshi
BS Reporter / New Delhi September 16, 2009, 0:19 IST

Cabinet has already approved the Bill.


Union Rural Development Minister C P Joshi today said the Land Acquisition (Amendment) Bill, certain provisions of which were earlier opposed by Trinamool Congress chief and Railway Minister Mamata Banerjee, was ready to go to Parliament any time. He told reporters here that the Cabinet had already approved the Bill and now the introduction of the Bill in Parliament had to be addressed by the parliamentary affairs ministry.

The minister did not comment whether the content of the Bill had been changed to accommodate the views of the Trinamool Congress. Joshi, who presented the quarterly report of his ministry’s performance, however, did not say when the Cabinet approved the Land Acquisition (Amendment) Bill 2007.

The Trinamool Congress chief, whose party is the second largest constituent of the United Progressive Alliance (UPA), had almost walked out of a Cabinet meeting raising serious objections to the Bill.

Banerjee had opposed that provision in the Bill which provides for private developers to acquire 70 per cent of land for an industrial project, directly from farmers and land owners. The remaining 30 per cent is to be acquired by the state government concerned. Joshi, did not comment on whether the provisions opposed by Banerjee were part of the Bill approved by the Cabinet. The Medha Patkar-led National Alliance of People’s Movement, which has been opposing the Land Acquisition Amendment Bill and the Relief and Rehabilitation Bill, said it was totally in the dark as to when the Cabinet approved the Bill.

NAPM activists said the only way the Bill could be brought in Parliament without displeasing Banerjee could be after the Assembly elections in West Bengal in 2011.

Mamata and the LAA

In a huff
Business Standard / New Delhi August 20, 2009, 0:14 IST

It may be a coincidence, but Railway Minister Mamata Banerjee hasn’t attended any cabinet meeting after she almost threatened to walk out of a cabinet meeting in the third week of July over the Land Acquisition Amendment Bill. On that occasion, Banerjee had to argue with not only Rural Development Minister C P Joshi but also other Congress ministers like Human Resource Development Minister Kapil Sibal who wanted to pass the bill immediately. While she has been in West Bengal for her political programmes, she was in Delhi in the first week of August when a Cabinet meeting took place. On that occasion, she chose to attend a private party of a party colleague instead....

'The State's Duty': To Make Land Available for Development

The 'L' word
Vinayak Chatterjee / New Delhi September 21, 2009, 0:29 IST

The introduction of the Land Acquisition Amendment Bill (2009) has the potential to derail economic development.

Exasperated with the public perception of its role, the government now wants to abdicate its key sovereign function of making land available for economic development by dumping it on the private sector. This is wrong. The maintenance of up-to-date land records, the scientific identification of tracts for change-over from agriculture to non-agricultural uses and the smooth transfer of land-assets are the functions of the sovereign. The Land Acquisition (Amendment) Bill, 2009, to be introduced in conjunction with the National Rehabilitation and Resettlement Bill (R&R Bill) throws the baby out with the bathwater.

The introduction of these Bills has had a troubled history, and not all of it is due to Mamata Banerjee! The Standing Committee of Parliament set-up in UPA-I to examine the provisions in detail, had expressed its reservations. Chambers of commerce had sent written communication of their very serious concerns. Nevertheless, it was sought to be enacted in February on the last day of the 14th Lok Sabha. Hurriedly passed in the Lok Sabha, it invited criticism — not just for the haste, but also for doing so in the absence of the opposition National Democratic Alliance. Luckily, there was inadequate time for the Rajya Sabha to clear it, and it thus lapsed as the tenure of the 14th Lok Sabha ended. Notwithstanding all this, UPA-II once again tried introducing the same Bill on August 10, seemingly oblivious to all past objections. As expected, Mamata Banerjee created a furore leading to Sonia Gandhi refereeing the matter and hurriedly withdrawing the Bill, ostensibly, to be dealt with again in the next session of Parliament.

It is not possible to have a perspective on the Land Acquisition Bill without taking stock of the accompanying Rehabilitation and Resettlement Bill. This Bill re-emphasises resettlement as a development issue. In a recent interview, Amartya Sen said, “...on land acquisition ... the sets of people benefitting and paying the price are often quite different.” The Rehabilitation and Resettlement Bill does take a major stride in attempting to address Sen’s concern. The Congress Party thinks that this Bill is heavily aam aadmi but appears to have not quite factored in the possible negative impact on economic development. If it hampers job creation, it cannot be aam aadmi.

Anyway, let us refresh ourselves with the key provisions.

One, the Bill stipulates that land may be acquired by the state only for public purpose. However, the proposed amendment to the Act severely narrows down the definition of ‘public purpose’ to ‘defence purposes’ and ‘infrastructure development’.

Two, other than defence or infrastructure, the Bill proposes that the state can only acquire a maximum of 30 per cent of the land required for an industrial project while the rest has to be purchased directly by the concerned company. A company that wants to set up a large project cannot ask the government to forcibly acquire land, citing ‘eminent domain’. It must first buy 70 per cent of the land required privately, and do this directly from those who own the land. Simply put, the state will step in only to ensure that a 30 per cent minority does not hold back the wishes of the 70 per cent majority.

Three, in the event of resale of acquired land, the entity is required to share 80 per cent of the difference (between the new sale price and the original acquiring price) with the original landowners or their heirs. The implementation of this clause has several practical limitations.

Overall, it is only government that can carry out the task of acquiring land from numerous owners, efficiently and effectively, in a scenario where title-search is frustrating, to say the least. The private sector can perform this function only in reasonably efficient markets. The land acquisition business is a grossly imperfect market. Therefore removing government from playing a proactive role is self-defeating.

(Banerjee’s demands include a buyback provision under which the farmers can repurchase their land if the proposed industry does not use the land within the given time — no role for the government in land acquisition for private industrial projects, no forcible acquisition of land and exclusion of all farm lands. All these four demands are impractical, in the opinion of this columnist.)

Identifying large tracts of land and their subsequent acquisition should be sterilised politically. This means, land is acquired ex-ante, and partially or fully developed before it is allocated to a particular private sector entity and before controversies erupt over government acting at the behest of any particular industrial group. The clause ‘public purpose’ should be redefined to empower the state to acquire land not only for infrastructure or defence purposes but also for the purpose of development of land for potential use by private-sector led industrial, commercial or institutional purposes. This is all the more relevant in an era where Public Private Partnership is being encouraged from bus terminals to sports stadia to hospitals.

The columnist has argued in ‘The lay of the land’, November 17, 2008, that Land Bank Corporations in the public domain would be an appropriate 21st century institutional response to fulfilling the required objectives. As the debate and discussion on the Land Acquisition Bill again hots up, it will be worthwhile considering this solution.

The focus of these State Land Bank Corporations would be to scientifically acquire large tracts of primarily non-cultivable land, develop them as land banks for the future, build appropriate infrastructure linkages and have a transparent mechanism to pass them on to the private sector. The Rehabilitation and Resettlement Bill requirements should be handled by the Land Bank Corporations as per the Rehabilitation and Resettlement Bill Bill, the costs of which could be passed on to the private sector.

Where site-requirements are large (as in the case of a refinery, or a steel plant), or very specific (as in the case of a mine), it is clear that the effort has to go beyond ex-ante land-banking. Industry and government have to work together on this. The arrangement to purchase land should be a tripartite one involving the government, the seller and the buyer. The Land Bank Corporation can be the market-maker. In an article in Hindustan Times on August 15, 2009, Kaushik Basu wrote: “Modern economic theory ... comes out on the side of government intervention … the land acquisition process cannot be left to voluntary transactions. The state must have a role”.

Among the three classical factors of production, government plays a pivotal role in developing and regulating capital and labour markets. It cannot excuse itself from the third factor of production — the land market.

The author is chairman of Feedback Ventures.

He is also the chairman of CII’s National Council on Infrastructure.

Views expressed are personal. vinayak@feedbackventures.com

A Trio of Articles on Proposed Reforms to the Land Acquisition Act

Land Acquisition (Amendment) Bill: A slow but sure step forward

By Ramaswamy R. Iyer. The Hindu. August 7 2009

The debate about the displacement of people caused by various developmental projects has been going on for over two decades. Without going into that history in detail, we may note that the Government of India finally notified the National Rehabilitation and Resettlement Policy 2007 in October 2007, and followed that up with the Rehabilitation and Resettlement Bill 2007 and the Land Acquisition (Amendment) Bill 2007. Those Bills have lapsed and have now to be introduced afresh in the new Lok Sabha. There have been reports that Railway Minister Mamata Banerjee is unhappy with the Bills. There have also been protests against the Bills by many NGOs.

Superficially, the Bills seem to include a number of good elements. There was a demand for a Rehabilitation Act and here is a Bill; the much-criticised Land Acquisition Act is being amended; ‘public purpose’ is being re-defined; governmental acquisition of land for private parties is being reduced; ‘minimum displacement,’ ‘non-displacing alternatives,’ consultations with the people likely to be affected, and so on, find a place in the Rehabilitation Bill; a Social Impact Assessment is provided for; an Ombudsman is being provided for the redress of grievances; and a National Rehabilitation Commission is envisaged. Why then are the Bills not being welcomed?

Let us consider the Land Acquisition Amendment Bill first. At first sight, the deletion of all references to companies gives us the impression that acquisition by the state for private parties is being eliminated, but that is not the case. The original Act had the wording “for a public purpose or for a company”; the words “or for a company” are now being omitted; but the definition of “public purpose” itself is being changed to include a (supplementary) acquisition for “a person” (including a company). If the private party purchases 70 per cent of the required land through negotiation, the balance 30 per cent can still be acquired by the government for that party. This means that sovereign compulsion will be brought to bear on those who are not inclined to sell their land, and also that state patronage for industrial houses can continue. Incidentally, it will be seen that the definition of ‘public purpose,’ instead of being made stringent and narrow as many had recommended, is being widened.

Moreover, it was necessary not merely to rule out (or limit) the acquisition of land for private parties under the Land Acquisition Act, but also to ensure that rural communities are not taken advantage of by corporate bodies in unequal negotiations. There is no such provision in the Bill.

Judging by its name, The Land Acquisition Compensation Disputes Settlement Authority will apparently deal only with compensation issues. A longstanding criticism of the Land Acquisition Act has been that the ‘public purpose’ for which land is being acquired is not open to contestation. There seems to be no change in that position.

One wonders whether the bar on the jurisdiction of the civil courts and the establishment of a Dispute Settlement Authority instead is in fact a good thing to do. There is room for misgivings here.

Turning now to the Rehabilitation Bill, the provision for a Social Impact Assessment seems very good, but the impacts are rather narrowly confined to physical assets (buildings, temples), institutions, facilities, etc. Social impacts must be more broadly understood to include the loss of identity; the disappearance of a whole way of life; the dispersal of close-knit communities; the loss of a centuries-old relationship with nature; the loss of roots; and so on. It is good that the SIA will be reviewed by an independent multi-disciplinary expert body, but it should first be prepared by a similar body. The provision for a Social Impact Assessment clearance is good, but not enough: it should be part of an overall clearance for displacement. If the felling of trees and interference with wildlife and nature in general require statutory clearances, should not the displacement of people be subject to a similar requirement? Such a clearance must come from an independent statutory authority and not from the bureaucracy. The clearance must of course be subject to certain conditions and must be revocable in the event of non-compliance or lapses; and the revocation clause should be actually used.

The terms ‘minimum displacement’ and ‘non-displacing alternative’ are music to the ears, but the application of this criterion is left to a late stage when the consideration of options may no longer be possible, and the decision is left to the Administrator for R&R. In other words, this crucial decision is entrusted to the bureaucracy.

An impressive structure of institutions has been specified, but their responsibilities and powers have not been spelt out. Administrator, Commissioner, project-level and district-level R&R Committees, Ombudsman, Monitoring and Oversight Committees, National R&R Commission: what each will do, how they will be inter-related, what decision-making powers each will have and in relation to what aspects, and so on, are far from clear. Everything is covered by the phrase “as may be prescribed.”

Words such as “wherever possible,” or other similar phrases are scattered throughout the Bill. For instance, group settlement is laid down, but qualified by the phrase “wherever possible;” training is to be provided “wherever necessary;” there are also qualifications such as “if government land is available,” “preferably,” and so on. They seem innocuous, but all of them involve decisions. Such hedged-in requirements can hardly be mandatory: they are likely to become discretionary, with the discretion vesting in the bureaucracy.

The Ombudsman provision is a good one, but ‘grievance’ has been narrowly defined to cover only the case of “not being offered the benefits admissible.” Grievances could relate to many other things: non-participatory project decision, failures of consultation, non-compliance with the minimum displacement condition, non-inclusion of a person in the ‘affected’ category, and so on. How the Ombudsman will be appointed, how the Ombudsman will function, etc., are left to be ‘prescribed.’

Taking the preceding points together, it appears that the precise manner in which this seemingly benign and enlightened legislation will actually work in practice will be entirely determined by the delegated/subordinate legislation, that is, the rules that are made under it.

The National Monitoring Committee seems totally bureaucratic, except for the non-mandatory association of some experts (the operative word is “may”). No civil society or NGO participation seems envisaged.

In the case of the Sardar Sarovar Project the basic principle in force (though it may not always be complied with) is: rehabilitation must precede submergence. The present Bill retreats from that position and requires only “adequate progress in rehabilitation” prior to displacement. This is a retrograde step. Besides, who will decide the adequacy of the progress?

The elements of the rehabilitation ‘package’ seem inferior to the policies already adopted in projects such as Sardar Sarovar and Tehri. Moreover, cash in lieu of land is envisaged in several places. This is fraught with danger. Eventually, cash may well become the main form of compensation.

In the event of deliberate or inadvertent lapses or non-compliance or deviations, what consequences will follow? The Bill is silent on this. Without such sanctions, how can the provisions be enforced? Far from sanctions for non-compliance, there is a sweeping indemnity provision!

In addition to those primary points, there are many others, some of them quite important, that need consideration. They cannot be set forth in detail here for want of space.

The conclusion that emerges from this quick examination of the two Bills is that there are many weaknesses and questionable features in these Bills which need to be rectified. Opposition to the Bills is therefore warranted. However, the very fact that the government is thinking of a rehabilitation law and of amending the Land Acquisition Act is an achievement for public opinion. It has taken more than two decades for the debate to reach this stage. Opposition to the Bills should be carefully modulated so that we can proceed further from here and not lose what has been gained.

==================================

West Bengal Land (Requisition and Acquisition) Act

A review of Avijit Guha’s Land, Law, and Left

Bitten in the backside by Nandigram, Singur, and the political developments that followed, the West Bengal government is wary of using the Land Acquisition Act to acquire land even for its own essential development projects. Mr. Subhas Naksar, state irrigation minister, recently proposed directly purchasing 14,210 acres for a protective embankment in the Sunderbands: an example of how the Bengal government will try to side-step the central act in the lead up to the 2011 state elections. And, it is unique in Bengal history. Whether it further corners the government - if some landholders disregard the overall importance of the embankment and simply refuse to sell - remains to be seen.

Successive governments in West Bengal have avoided using the central Land Acquisition Act to acquire land in the past too. But, only to substitute it with another more powerful law. Hark back to the period between 1948 and 1993. During these 45 years in Bengal the Congress and Left governments had an acquisition tool more powerful and more destructive than the central act in the form of the West Bengal Land (Requisition and Acquisition) Act, also known as Act-II. Act-II was purportedly created to settle millions of refugees from East Pakistan, but its power (which included not even needing to pay those displaced by acquisition) was used for a variety of development works.

Abhijit Guha’s Land, Law, and Left dissects how, in its 45 years of existence, Act-II was used by parties in power to acquire vast swathes of land, despite the same politicians having opposed the extension of the act from opposition benches. For example, Mr. Guha shows that in opposing the extension of the bill in 1957, Harekrishna Konar railed against the government for pauperizing lakhs of people in the name of development, citing examples where the government used bulldozers over standing crops of farmers. However, as Minister of Land and Land Revenue Mr. Konar had no qualms about extending Act-II in 1967 and 1970, stating that “this Act is necessary for quicker work.” Similarly, before he took the Chief Minister’s chair, Mr. Siddhartha Sankar Ray opposed the act on legal grounds calling it “an oppressive and jabardast piece of legislation.” During, his own tenure, however, the Bill passed without even a proverbial choon. In fact, the Bill was placed in the house, and successfully passed, 17 times. The year 1993 brought with it a message from the Centre to discontinue the act. Seeking to expedite pending cases, the Bengal government then declared that a staggering 15,000 cases of acquisition under Act-II were in limbo: this land could neither be returned to the original owners and nor could it be transferred to the central Land Acquisition Act.

Just for its insight into the legislative history of Act-II, Land, Law, and Left, is well worth a read. But, Act-II is only peripheral to Mr. Guha’s main focus: an analysis of particular cases of acquisition in Kharagpur block of West Midnapore district. By studying these acquisitions and their impact on specific communities, Mr. Guha provides an essential window into the process of land acquisition in Bengal after Act-II and before the eruptions of Nandigram and Singur.

Mr. Guha, an anthropologist associated with Vidyasagar University, has used Land, Law, and Left to stretch the margins of academic anthropology in India by focusing on displacement caused by a mainstream legislation, the Land Acquisition Act, amongst specific agricultural and tribal communities. Bracketed within the limitations of academic scholarship, it is an essential primer on the workings of arguably the least understood laws that have had immense impact on people and therefore on politics.
That it is land and its ownership which has once again rattled Bengal politics is not surprising for anyone even vaguely familiar with the history of the state. This time around it is the Land Acquisition Act, its amendment, its use, its abuse, its avoidance, and its very nature that is in the eye of the storm.

A fortnight ago, Mamata Banerjee put her foot down and stalled the Congress desire for swift passage of the Land Acquisition Amendment and Rehabilitation and Resettlement Bills. It appears likely that the bills will again be referred to the standing committee, yet to be constituted by the Ministry of Rural Development. Recommendations of the last standing committee (to which even Dr. Guha presented his opinions) were coolly ignored by the UPA in its unsuccessful attempt to pass the two Bills in 2008-09. There are considerable defects with the Bills, going beyond Ms. Banerjee’s reported objection to the clause which states that the government will acquire the remaining 30 per cent of the land for the requiring body. The present Bills continue to side-step defining “public purpose”, attempt to placate the idea of consent by offering “consultations”, harbinger further displacement in providing land for some of those displaced by projects, and take India no closer to the need of the century: scrapping of the land acquisition act in order to replace it with one that offers proper rehabilitation and only caters to projects without private interest built by the government according to the needs of particular local populations.

All governments need some law in order to acquire land for projects essential to the needs of local populations. That these laws have been either painfully laborious in implementation, have been used to cater to the needs of non-local interests, or have been a source of misery for the displaced is a sad chapter in India’s history. But, the fact is a law is needed. Mr. Guha’s treatise shows how in Bengal despite personally finding prevailing acquisition laws oppressive, politician after politician has used the same when in power. In attempting new projects without using the Land Acquisition Act, the present Left Front government might just be throwing the baby out with the bathwater. On the other hand, Ms. Banerjee’s stand against the two bills in their present form and against how the central act has been used in Bengal, though inflated in proportion, is well in line with the nature of opposition in Bengal history. The question is, if Ms. Banerjee were to come to power in 2011, what trick will she use to acquire land for the specific needs of Bengal’s residents?

============================

The real issues behind land acquisition

By Pranab Bardhan. The Hindu, August 1 2009

The opportunistic and partisan stalling of the Land Acquisition and Rehabilitation and Resettlement Bills in the Cabinet recently by Mamata Banerjee has provided an opportunity to rethink some of the important provisions of the Bills (which she is not concerned about, but should have been).

Under the prospective legislation, a company must first buy directly from landowners 70 per cent of the land required. The state steps in to buy the rest in case some recalcitrant landowners are holding out; even here, the sellers are guaranteed a 60 per cent premium on the average land price over the previous three years. While this is an improvement on the existing colonial land acquisition law, this is quite unsatisfactory, particularly from the point of view of stake-holders in agricultural land. Let us spell out the reasons:

First, while leaving the major part of the transaction to the market may stop the matter from becoming a political game of football in populist competitive politics (as has happened in West Bengal), it is an inadequate solution to a complicated problem. Even assuming that the purpose for which the land is to be transferred is a legitimate one from an economic and environmental point of view, Indian history is replete with instances of uninformed, cash-strapped peasants being induced to sell their land at nominal prices by the lure of ready cash from developers, speculators, and touts of large corporate interests. This is how many Adivasis have lost their land even in recent years. Even in the case of informed, market-savvy sellers, thousands of small, uncoordinated farmers are no match for a large corporate buyer in the bargaining process.

Of course, in many cases the State government did very little to get the landowners a good price; but there is potential here for community organisers (and panchayats) to get involved in ensuring a fair price. In particular, the provision of a 60 per cent premium on the past average price is not good enough. The average past price is for the land as agricultural land, whereas use for industrial or infrastructure purpose will probably multiply the value many times, the gain from which the farmer is deprived. So, over and above the value of the agricultural land being considered as a minimum floor of basic compensation, the farmers should be compensated with a share in the enterprise or company, so that they can benefit from future profits.

Of course, the poor farmer may not have the capacity to bear the risks of fluctuating share prices. Here the role of the state is to put the farmers’ shares of the new company in an independently managed trust fund which will bear the risks at the cost of some management fees. Out of this trust fund, the farmer should be paid a steady “pension” (or annuity) every six months or so. Given the large gap between productivity in agriculture and the new activity for which the land is acquired, the farmer can be assured of a reasonable stream of pension. This will go a long way in assuaging the anxieties of an uncertain future that the farmer may contemplate in selling the land.

Also, a regular pension may be more advisable than a one-off cash payment, which often tends to get frittered away. In case the land is acquired for public infrastructure building (where there may not be any direct company profits to be shared), the land should be given out by the farmer on long-term lease with the rent periodically readjusted in accordance with the current value of surrounding pieces of land and the rental increases deposited in a trust fund.

Secondly, a land sale displaces not just landowners, but other stakeholders as well (sharecroppers and agricultural labourers working on the land, for example). In West Bengal, the government had announced compensation to be paid to registered sharecroppers (which Ms Banerjee never paid much attention to). But the state also needs to be involved in some form of welfare payments (and job training and so on) to unregistered sharecroppers and landless workers.

Thirdly, the state often needs to get involved in building roads, providing electricity, water supply and so on for the new company, and this may require coordination in the land transaction itself between the transactors and the state right from the beginning.

Of course, politicians often lack credibility in any process of obtaining fair compensation to land sellers. Cases of politicians, middlemen, and contractors defrauding poor sellers of their compensation and resettlement rights are far too many. So it may be desirable in some cases to hand over the responsibility of determining fair prices and managing the process of transfer and resettlement to an independent commission, provided political interference with the working of such a commission can be minimised and enough opportunity is given to community leaders and organisations to serve in such commissions or present their cases at hearings before the commission, and to generally act as watchdogs in the whole process.

Thus, what is at stake with the new Bills is much larger and deeper than Ms Banerjee’s political gripe.

The author is a professor of economics at the University of California, Berkeley.

VAT, SEZs and Federal Politics

The legal regime surrounding SEZs raises a host of issues concerning the relationship between different levels of government. For instance, whether state governments (including through urban development authorities) are (or will) usurp the authority delegated to panchayat and urban bodies is something that continues to be debated.

One area where the conflict is likely to be particularly intense is with respect to taxation. In the process of working out so-called 'anomalies' in the tax code, SEZ promoters and firms operating within their boundaries have lobbied heavily for policy changes. This has manifested itself most recently in the form of complaints by these actors that they are treated unfairly when it comes to VAT applied to products sold by SEZ units within India's Domestic Tariff Area (DTA).

As reported recently, a collection of state governments are opposing a move by the commerce ministry to do away with VAT on goods sold into the DTA. States, not surprisingly, see this as a good (and legitimate) source of revenue. The Government of India organization that represents SEZ promoters and units is, on the other hand, of the view that, because SEZ units already pay import duty on intermediate goods used to produce that portion of their production that is sold into the DTA, their products should not be subjected to VAT as well.

Whatever the legal merits of the case -- and there is disagreement as to whether the SEZ Act trumps other legislation in this respect -- it seems likely that the final decision, which requires the Finance Ministry's approval, will not be taken in a political vacuum.

Graveyard Humour

http://timesofindia.indiatimes.com/cartoonpics/5172299.cms

Fiscal and Export Implications of SEZs

The Comptroller and Auditor General's recent report on taxation highlights, among other things, the adverse revenue implications of SEZs. The issue of whether incentive schemes are revenue-neutral or not has been around at least as long as India has been operating export processing zone-type schemes. The debate has become more heated since the SEZ Act came into force in 2005-06. The CAG Report claims that roughly Rs 2000 crore (USD 400 million) has been lost to the exchequer because the SEZ rules do not require firms to pay sales taxes and import duties on production inputs, even if the final product is sold in the Domestic Tariff Area (DTA), and not exported, as long as the product category does not attract excise duty. This is an anomaly that is harming the competitiveness of non-SEZ firms.

An intriguing political economy question thus arises: dos the existence of such opportunities create incentives for 'domestic' producers to lobby for curbs on the ability of firms operating within SEZs to avail of such incentives? It may be that the barriers to collective action among those adversely affected by this state of affairs is too great to allow them to gain much traction. On the other hand, it may incentivize firms producing within the DTA to relocate to SEZs in order to level the playing field.

Al Jazeera on India's SEZs

Al Jazeera has a quality video piece on its website that looks at SEZs, with a particular focus on Maharashtra. It includes (Maharashtra-based) interviews with academics on both sides of the SEZ issue. The report is fairly critical on issues relating to forcible land-acquisition.

Taxation and SEZs

Provisions in India' new Direct Tax Code could serious affect SEZs. It would drastically reduce the value of the concessions that currently help attract investments into SEZs. Tax breaks would henceforth be based on investment rather than profit levels. Existing SEZs are to be grandfathered, as will (apparently) units operating within SEZs before April 2010.

A couple aspects of how this state of affairs has come about are striking. The first is the ability of the Finance Ministry to exercise authority in ways that significantly undercut initiatives in other policy domains. The FM has always exercised outsized influence, but in the context of a fiscal crisis, and with a stalwart minister at the helm, it is doing so more vigorously and with less regard for the interministerial consequences.

V Balakrishnan, CFO, Infosys was quoted as saying that the lack of clarity in the relationship between the tax code and the SEZ policy 'creates uncertainty for any investments to come into SEZ. But he also saw a larger pattern of incoherence at work: "When the SEZ act came into force in 2005, the government proudly proclaimed that the three pillars of fiscal incentives, regulatory freedom and a supportive infrastructure would make the new policy a success. Today—the very same government has proposed a tax policy that takes the fiscal incentive pillar away. Without which, there will be nothing special about Special Economic Zones.

A change to the applicable tax regime also raises the question of what will happen to SEZs still in the process of acquiring land -- will these too be grandfathered? Or will only some of them, based on a discretionary waiver system, for which state-level approval would also be required? If some form of the latter arises, this will fuel further speculation about favouritism and rent-seeking -- a, perhaps, unintended consequence of thepolicy shift

Loans to SEZs to Qualify as 'Infrastructure' Lending

It has been decided by the Government of India that henceforth SEZs -- both firms that develop, operate and maintain SEZs, as well as firms that operate business units within them -- should be able to borrow on more commercially advantageous terms. Rather than being classified as real-estate lending, financing to these firms would be considered 'infrastructure,' thus attracting a lower-rate of interest and requiring borrowers to meet fewer qualifying conditions.

This is, in one sense, a valid reclassification. The public purpose provision within the Land Acquisition Act, formerly associated with large infrastructure projects, has been redefined to include commercial projects in which economic activity would be spurred; so why not see such projects as infrastructure when it comes to financing?

One very good reason is the element of risk involved. There is in general greater likelihood of a commercial real-estate developer (which is what many SEZ promoters are) becoming overextended due to perverse incentives related to moral hazard than would be the case with large traditional infrastructure projects where the public purpose was more apparent -- if not completely uncontested -- and therefore the implicit guarantee by the state and its agencies more meaningful in determining the associated risk premium.

A quote from the Economic Times coverage of the decision included this statement:

'LB Singhal, director general, Export Promotion Council for EoUs and SEZs said: “We had taken up this issue with the ministry of finance and the ministry of commerce. The matter was before the empowered group of ministers headed by finance minister Pranab Mukherjee, which had decided that SEZ should be treated as infrastructure.” '

The decision-making process is presented in this account (by an IAS officer whose job it is to promote the interests, and address the concerns, of business-people) as one in which both formal procedural requirements were met and substantive deliberation took place. Viewed differently, the process involved a longstanding policy conclusion, reached by a group of Mandarins, supported by experts in planning for financial contingency -- that is, both Finance Ministry and RBI officials -- being overturned in an overtly political forum in which tortured logic, and a vague nod to the difficulties associated with today's tight global credit markets, substitutes for rational debate. The ability of any EGoM -- particularly the leading figure on each -- to make these kinds of decisions makes this avatar of committee-based cabinet government an important institutional innovation, which India will end up either celebrating as a boon to efficiency, or lamenting as the further entrenchment of patronage politics.

Is it a North-South Issue?

This may well just be coincidence, but none of the six states to have passed SEZ Acts are in South India. They are Haryana, Gujarat, West Bengal, Maharashtra, Madhya Pradesh, and (just recently, in August 2009) Punjab. Here we have east, north, central, west, just not south. Any reason? It is especially puzzling because the states listed above are for the most part better-off or at least more industrialized states (with the exception of MP), and so are the South Indian states. One would not ordinarily expect the southern States to be fall into a category with (implying shared behaviour with) the likes of Orissa, Bihar, Rajasthan, Chhatisgarh, Jharkhand, and the always imperiled northeastern states. How many non-Southern states will have to pass SEZ Acts before it becomes statistically anomalous that the generally reform oriented states of Karnataka, Tamil Nadu and Andhra Pradesh have not taken legislative action?

The Indian Model?

It is fair to say that India has encountered a wide range of challenges in trying to establish SEZs -- not just the deadly violence in Nandigram and elsewhere, but also the the regulatory kinks that continue to need ironing out, the over-ambitious plans that have had to be shelved, and the difficulty of determining whether marginal gains in terms of investment, trade, growth or employment can be attributed to the SEZ phenomenon.

For this reason it may strike some as odd that India has now become an exporter of SEZ expertise. India has agreed to assist Nepal's fledgling government to establish one in a series of planned SEZs, in Birgunj. It is not clear whether the Nepalese authorities are fully cognizant that they may receive an Indian knock-off of a Chinese original. The Indian approach to SEZs -- particularly their limited size, large number, and relatively unplanned nature -- is at variance with many aspects of normal international practice.

Officers of the Government of India also raised the need for Bangladesh to construct new SEZs, presumably with technical assistance from India. This was communicated in the process of conducting the Sixth Joint Working Group Meeting on Trade between the two countries' officials. Quite apart from the oddness of India, which is in fervid pursuit of foreign investment, seeking to promote investment destinations outside India, there is also the matter of Bangladesh's PM having called on Indian industrialists to relocate their operations to existing Bangladeshi SEZs to avoid political troubles of the sort found across the border in Nandigram and Singur.

Note also that the Government of India is not the only channel through which India's experience with SEZ promotion and operation is being disseminated abroad. Through firms that develop and operate SEZs, provide consulting services, or bundle inward investments for SEZ promoters, India's increasingly outward-oriented business culture is finding a receptive audience fort their ideas on how to structure and maintain an SEZ.

National Anti-SEZ Network in the Making?

The item below has been circuating via email networks, and seemed worth posting, for two reasons: (a) because people should consider attending; and (b) because this particular event -- part of a larger planned program of audits -- may indicate the stirring of some kind of all-India resistance movement. Whether and how such a phenomenon is emerging is one of the topics being studied by the research project with which this blog is affiliated: The Politics of India's Special Economic Zones.

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Dear Friends and Colleagues,

We are pleased to invite you to a People’s Audit of SEZs in Maharashtra on September 15, 2009 at Pen Taluka in Raigad District.

As you may know, Maharashtra has the largest number of approved SEZs in the country to date: 202. This People’s Audit, along with an eminent panel, will critically examine issues emerging around large SEZs, of land acquisition; displacement; corruption; environmental impact; compensation as well as questions of development and economic growth from 4 districts in Maharashtra: Raigad, Gorai, Nasik and Poona.

Your participation and engagement would prove extremely valuable in critically examining the unfolding political economy of SEZs and in articulating the development needs of the State. We hope that you will join us in this process and since this is a largely campaign based initiative we are requesting participants to find support for travel to Mumbai. We will make all necessary arrangements for your food and stay within the area and travel from Mumbai to Raigad and back.

This effort has been jointly initiated by the Jagatikaran Virodhi Kriti Samiti (JVKS; alliance of several peasant organizations in SEZ areas in Maharashtra), National Alliance of People's Movements (NAPM), the National Campaign for People's Right to Information (NCPRI), the Tata Institute of Social Sciences (TISS), National Centre for Advocacy Studies (NCAS) and the India Centre for Human Rights Lawyers Network (ICHRLN).

Brief Background:

The SEZ Act was enacted in India in 2005 and since, 722 SEZs have already been approved in the country with many in various stages of approval, land acquisition or completion as the case may be. SEZs have invited controversy and peasant resistance in many quarters and have become bones of contention between the state, the developers and ordinary citizens.

To recap some of the features of the law: the Special Economic Zone Act 2005 deems SEZs as “public purpose.” The definition of manufacturing in the Act includes manufacturing and production processes, and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture, mining and services. This comprehensive inclusion of all types of economic activities within the purview of SEZs, comes with no restrictions on the maximum size and numbers of SEZs and a requirement of only 50% of the proposed land to be dedicated to economic activity. SEZs do not have any local body representation; nor adequate representation of labour and environmental concerns in their administrative structure. The Act contains provisions like section 31(9) that further remove accountability mechanisms from the Zone Authority: “No act or proceeding of an Authority shall be invalidated merely by reason of—a) any vacancy in, or any defect in the constitution of, the Authority; or b) any defect in the appointment of a person acting as a Member of the Authority; or c) any irregularity in the procedure of the Authority not affecting the merits of the case.”

What has been the impact of this radical legislation? Given the potentially large scale implications and the nature of "development" envisaged by the SEZ Act in the country, the NAPM, the NCPRI, TISS, ICHRLN, NCAS, JVKS and several other groups and organisations from across the states and SEZ areas met early last month to initiate a national People’s Audit on SEZs process in India. The Maharashtra People’s Audit is first in a series that will be followed by similar exercises in Goa, Guajarat, Andhra Pradesh, Tamil Nadu, Karnataka, Orissa, West Bengal and Delhi. The People’s Audits will seek to examine the impact of the projects against stated objectives, as well as the impact of the law on the people of the area, and the political economy of the country.

Looking forward to your kind participation on September 15.

Warm Regards,
Ulka Mahajan and Sampat Kale
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People’s Audit of SEZs in Maharashtra
Time and Date: 11:00 am — 6:00 pm; September 15, 2009

Venue: Div Village, Pen Taluka, District Raigad, Maharashtra

Travel to the Venue: Div Village is 1 hr (40 km) from Panvel in Mumbai by road on the Mumbai-Goa highway. There are regular buses to Pen town from Mumbai Central, Sion and Chembur Maitri Park bus stations. From Pen frequent 6-seaters are available outside the bus station to Div Village.

Travel Arrangements will also be made by TISS for 15th morning at 8 am. Kindly reach the main porch of TISS in time to avail of the same. The Tata Institute of Social sciences (Main campus) is situated opposite the Deonar Bus Depot on V.N. Purav Marg (earlier known as the Sion-Trombay Road).

For more details please contact Sampat Kale: 9423202202; Ulka Mahajan: 9869232478; Shiva Dhakal: 9011596707; Simpreet Singh: 9969363065; Preeti Sampat: 9004071740

More Thinking Small

The government continues to add to the list of 'minor' policy changes regarding the SEZs. Referring to them, at times, as 'implementation' issues, or operational matters, the Commerce Dept gives the impression of engaging in a relatively unimportant administrative clean-up exercise, as if the decisions taken were not of major consequence for certain constituencies. A particularly salient change -- in the spirit of earlier reforms to the way in which SEZ investment is classified, or the period of time within which certain actions must be taken -- we now hear of a commerce ministry proposal to allow SEZs that have developed 'captive power plants' to distribute electricity within their boundaries without obtaining a license of the state government concerned. Nor would they need a licence to tap sources of electricity from outside the SEZ. The change requires an amendment to the Electricity Act (Section 14).

In a sense, this IS mainly a question of administrative coherence, since it makes no sense to allow an SEZ to generate power if it cannot distribute it. On the other hand, this eventuality had been foreseen at the time the SEZ Act 2005 was passed, and it was specifically decided that state governments, who feared (with good reason, as it turned out) that their prerogatives would be undermined by certain aspects of the SEZ movement. Perhaps most importantly, the Development Commissioners may be in a position to take over decision-making responsibility over the implementation of various functions within their SEZs. Labour and environmental clearances are the ones most frequently mentioned. This can, potentially, amount to something approaching policymaking control once implementation decisions begin to acquire a particular bent in terms of how they interpret existing policy. So to the extent that this new decision on electricity-distribution claws back from state governments an important veto point -- the withholding of which could be used by states to force compliance by SEZ promoters with other agenda items outside their purview -- it is a substantial matter.

This process of fostering the accretion of layers of small policy change -- decisions which nevertheless have a HUGE impact not just on government actors such as state government departments, but also of course the corporate interests involved -- is consistence with earlier practice, some examples of which can be found in earlier blog posts. It is also an extension of the logic of reforming by stealth, which has characterised the politics of reform in India for many years now. While such a strategy would seem to have a diminishing shelf life over time -- and it does -- it is proving remarkably effective in keeping the potential political opposition to SEZs wrong-footed. Despite the protests on certain egregious projects, the ability of opposition parties at the national level to hit at the core of the SEZ phenomenon is striking. Senior BJP members, including former ministers in the NDA government, have called attention to the party leadership's inability to make headway on this or any other issues.

The God of Small Things

The Government of India -- notably the Ministry of Commerce, in the case of SEZs, but the Finance Ministry and the Reserve Bank of India (RBI) as well -- is able to take seemingly very minor regulatory decisions that have, in some instances, fairly significant implications for particular constituencies. A good example came recently in the form of recently amended SEZ rules. Manufacturers located in special economic zones will now have a full year to sell goods, including gems & jewellery, displayed in foreign shops and designated show-rooms, without attracting penalties. The previous limit had been six months. Unsold good can be re-imported within a year from the date of their export. The justification for the policy change: the global economic downturn.

Economic crises has, in fact, become something of a catch-all excuse for any number of policy revisions and discretionary decisions, including extensions on the amount of time within which SEZs must be developed, and rules governing external commercial borrowing by SEZ promoters. To avoid the appearance of favoring business interests, rule changes are often packaged alongside restrictive conditions of various types. For instance, the relaxation on external commercial borrowings on 'infrastructure' are limited to non-residential/non-commercial-real-estate portions of the SEZ; they cannot be applied, for instance, to Integrated Model Townships. Because money is fungible, the logic implicit in this restriction (that the Government of India and Reserve Bank do not want to encourage speculative investment in residential developments) is undercut in practice.

Pro-industry rule changes are also coupled with what are meant to be perceived as countervailing get-tough policies to ensure compliance with new or existing rules by those actors to whom concessions are being granted. Vowing to crack down on firms that have violated ECB norms, a statement by the Finance Ministry declared that the government will revoke access to the 'automatic route' (i.e., non-licensed procedure) for overseas loansby such companies. According to the statement: 'Currently, the ECB policy is not explicit about accessing of ECB by the corporates, which have violated the extant ECB policy and are under investigation by the Reserve Bank and or Directorate of Enforcement'; henceforth, however, a 'request by such corporates for ECB will be examined under the approval route', which hardly seems like a harsh punishment -- except insofar as the approval route will tend to result in demands for illicit payments by those granting these approvals. A strange form of disincentive, to be sure, but possibly effective.

Finding the Reverse Gear: Precedent-Setting on Denotification

The case of Goa's SEZs first raised the question of denotification. After initially supporting the applications of various SEZs at the Commerce-Ministry-led Board of Approvals (BoA) in Delhi, the state government eventually bowed to pressure from within Goa's civil society and announced its decision to 'scrap' the planned SEZs. The Goa government's requests to the BoA and other authorities in Delhi to have the notifications withdrawn met with a curious response: that there was no provision in law for denotification of SEZs. This delayed the process of scrapping the SEZs.

Just this week, the Board of Approvals announced that it would allow the the withdrawal of the Matyas biotech SEZ planned for Hyderabad that had been promoted by the relatives of the former head of IT giant Satyam. Whether there is a distinction between withdrawal and denotification is unclear. Presumably it matters which party initiates the request for denotification -- that is, the promoter or the state goverment. But in the Goa case, where the state government was a co-promoter in at least some of the SEZs, this distinction is less meaningful.

The bureaucratic machinery charged with implementing and overseeing the SEZ policy is making up the rules as it goes along. There is nothing inherently wrong with that, unless you believe that those framing the initial legislation and regulatory guildelines should foresee every potential contingency. On the other hand, it is perfectly legitimate to ask whether, in the process of framing and revising officials rules -- whether with regard to SEZs or any other policy domain -- biases manifest themselves. In the case of SEZs, it will be important to track whether the pressing concerns for equity and transparency among civil society receive the same treatment as corporate interests.

Vague Nods to Corporate Social Responsibility

The promoters of SEZs are, not without good reason, often portrayed as aloof from the concerns that responsible corporate citizens should, ideally, be addressing. This is putting it mildly, of course, since some see the SEZ phenomenon as an intentional method of avoiding regulation and indeed short-circuiting the democratic process. A 2006 paper by Anirudh Burman outlined some of the issues that reside at the intersection between CSR and SEZs in India, though how these will play themselves out in practice is still rather murky.

There are a few indications that at least some SEZ developers are at least aware of the complaints levelled against them, and want to be seen to be taking some kind of positive action. The promoters of Sri City, a 5000+ acre mega SEZ, near the border between Tamil Nadu and Andhra Pradesh, took the trouble to identify the availability of housing within the residential portion of the SEZ for 'workers' (as well as for executives, who are routinely catered for). But how many 'workers' will indeed be covered? What about those who will be employed in ancillary service industries that will (if the development is successful) grow up around the walls of the SEZ? What options will workers in the informal sector? These and other questions ought to be part of the master plan for the regions in which SEZs are located, but (as the research of Dr N Sridharan, a professor of Urban Planning at Delhi's School of Planning and Architecture, has shown), efforts to plan for such eventualities are rarely seen. (Dr Sridharan's work is one of the components of the research project with which this blog is affiliated).

The firm's public relations presentation to an investment summit also highlighted its concern for the surrounding environment, noting that limited-carbon-impact was its goal. Towards this end, the developers were planting 1 million saplings on the 800-acre designated 'green' area within the SEZ. Whether such pro-environment trappings would be sufficient, given the huge water resources that the industrial sites within the SEZ would require, is open to question. Moreover, as production of automobile components is one of the sectoral thrusts of the SEZ, the project can hardly be called 'green.'

Informative Discussion of SEZ Land Issues

Demonstrating once again that it has some of the most creative editorial minds in India's business and economics press, LiveMint.com has had a series of articles on issues related to SEZ land acquisition. These have been produced in connection with the release of a report by Infrastructure Development Finance Co. (IDFC) entitled India Infrastructure 2009. The first is called 'The politics of land acquisition', and asks 'Why do some industrial projects face opposition and not others?'. This is one of the key questions that the indiaSEZpolitics research project (affiliated with this blog) has sought to address through its field studies in 12 states (currently in progress). LiveMint.com editors discussed this with the IDFC report's authors.

The discussion in this case included some very incisive points about the various aspects of India's Resettlement and Rehabilitation policy, of which compensation (to the individuals whose physical assets are being acquired) is just one part. The social dimensions (rebuilding the social fabric) and the question of sustainable livelihoods (for all project affected people) were also touched upon.

But there was, in fact, very little by way of an answer to the question posed above -- as to why opposition arises in some cases and not others. The obliquely supplied answer was that when private companies acquire land on their own they have been more attentive to these complex issues than when government does the acquiring on their behalf. A contrast was drawn between the Tata Nano (Singur) project (which, incidentally, was NOT an SEZ), where the West Bengal government acquired the land (or sought to), and the Jindal Steel plant (where the firms purchased land directly, placing some of the funds in reserve rather than paying out all at once). Whether this pattern (state bad, corporate good) is discernable among a larger set of cases is open to question. Especially given that many corporate land acquirers do not in fact attend to the multiple dimensions of rehabilitation mentioned above.

The second article in the series, 'Land acquisition and legislative lapses', looks at the legal issues involved in land acquisition for SEZs. Among other things, the discussion with LiveMint.com's editors included this striking opinion from CEO and Managing Director of IDFC, Rajiv Lall:

'What has happened in our country is that starting with that concept [SEZs], by the time you’ve got to the legislation [The SEZ Act 2005], you’ve completely distorted the notion of SEZ.

So along the way, because of interventions of a lot of vested interests, what you have created is legislation that allows for, technically, the creation of SEZs that have nothing to do with the original concept. Hence, the allegations or the suggestions that “Oh, this is just a scheme either to avoid taxes”—because one of the fiscal benefits associated with getting that status is a whole bunch of tax exemptions—or that it is a land grab in which you effectively change the land use and hence enhance the land value....

I think the allegation that the legislation has been completely distorted to undermine the original noble purpose of the initiative is the correct interpretation. So I don’t think I am a particular fan of the existing legislation.'

The launch of the report, where among the speakers was Kamal Nath (former Commerce Minister, now in charge of infrastructure -- a smooth transition thematically, if nevertheless viewed as a demotion, politically), was also covered on LiveMint.com. It includes video extracts which are quite revealing, not least about the Government of India's current intentions regarding reform/amendment of the Land Acquisition Act and reintroduction of the Resettlement and Rehabilitation Act. The former has run into some trouble, in the form of opposition from Mamata Banerjee, who led the anti-Nandigram agitations and whose Trinamul Congress is a member of the UPA.

Calcutta Art Exhibit on SEZs

The Statesmen carried a review of an art exhibit, ‘SEZ Who?’, curated by Tushar Joag at Kolkata's Experimenter gallery. The reviewer was critical in many respects, not least in terms of the quality of the exhibit's execution. But the ability of visitors to interact with activists concerned with the impact of SEZs, and the availability of (recorded) testimonials from people affected by SEZs, seems to have made it a worthwhile experience. As Partha Banerjee (a member of the research team for the 'Politics of SEZs' project with which this blog is affiliated) has noted in some of his writings on the subject, artists and intellectuals have engaged intensively with the SEZ debates and controversies in West Bengal. It is not clear whether there has been a similar level of involvement in other states.

A Question of Time?

With deadlines in prospect for time-bound development rights for SEZs in many states, promoters are having to seek extensions. This is the case in two high profile SEZs : Quark City in Punjab (the state's only IT SEZ), and the (Mukesh) Ambani Reliance Haryana SEZ (a 90:10 joint venture betweeen Ambani and the state government). In both cases, the reasons cited for the delay in completing the planned developments is the global financial-crisis-cum-recession.

It is clear, however, that in both cases, other factors have been at work. The Reliance-Haryana project has been beset with problems from the outset, including slow acquisition of land, the changing size-ceiling norms under the SEZ Act's amended rules, frictions with the state government, and charges of corruption (leveled by Bhajan Lal's son, no less).

The Quark City project in neighbouring Punjab is also facing delays arising from a broadly similar set of constraints, though the size issue is of a different magnitude (it is much smaller). The fact that Quark's promoters also have two other SEZs under development in the state may influence the decision on their request for more time.

There are other cases elsewhere in India where extensions will be needed/requested. A key issue will be the attitude of the state governments concerned (thought the official decision on whether to grant an extension rests with the BoA in Delhi). It will be revealing, perhaps, to see how inclined state governments are to accommodate the various promoters -- particularly in states where elections have seen a new party or coalition come to power.

SEZs and Labour Laws

A short article on the position of existing labour law within India's SEZs (and the larger SEZ policy regime) highlights the ambiguities involved. The author, Jaivir Singh, calls into question claims made in the 2006/07 and 2007/08 Economic Surveys concerning the allegedly negative impact on employment produced by India's existing labour laws and regulations.

Singh makes the point that businesses have found all kinds of ways of avoiding labour laws -- including contracting out, casualization, and collusion with labour inspectors, among other techniques. This is consistent with arguments concerning the politics of liberalization which stress that India has witnessed over the past two decades a process of policy change that can best be described as 'reform by stealth'. The ability to evade labour regulations effectively, Singh points out, has been 'assisted to various degrees by ongoing executive and judicial practice'.

Singh's larger point is that SEZs take this logic a step further by blurring the formal-informal distinction in practice:

'Given the overall desire of the SEZ endeavour to push for labour-intensive export oriented consumer goods, the entire enterprise is probably best understood as being located at the border between the formal and informal sectors, drawing the labour force from the informal/agricultural sector. At this location, the very act of employment generates a dilemma because the instant a worker is drawn from the informal/agricultural sector and ‘employed’, she becomes eligible for all the benefits provided by law to formal sector workers. If this were indeed to be allowed, it would raise perceived labour costs which would presumably dampen national and international investment. If disallowed explicitly, the political rhetoric associated with the SEZ enterprise would end up being more widely challenged. Given the frontier location of the labour involved, the solution to this dilemma has been to nudge the practice of law in a manner which minimises the coverage of labour law without actually changing the law—a relatively smoothly accomplished step, given the nature of Indian labour law as well as the structure of the enabling law associated with SEZs.

'Though the Special Economic Zones Act, 2005 overrides certain other laws (particularly granting fiscal benefits to firms located in a SEZ), the Act maintains that in relation to labour, standard labour laws are to continue to operate in the SEZs. While there is no change in the laws, under this regime the implementation of labour law is shifted from the control of the Labour Commissioner to the Development Commissioner of the SEZ, a figure who is given substantial power over all aspects of governance of the SEZ. Furthermore, the ability of workers to organise strikes is curtailed by undertaking a general policy measure that labels economic activity within a SEZ as a ‘public utility service’, which under Indian law makes strikes in units labelled as such entirely illegal. All these factors taken together result in the fact that while the ‘speak’ says that labour laws are supposed to be operational in a SEZ, they are almost entirely absent in practice.'

Singh goes on to discuss a variety of studies of labour practicies within SEZs. The literature on India's SEZs is thin, largely because the SEZ Act is so new, having been passed only in 2005. Still, some of the pre-2005 Export Processing Zones (which had been converted to SEZs following a change to the Export-Import policy of 2002) have been around long enough to have attracted the scrutiny of scholars.

Singh cites, in particular, Padmini Swaminathan (2005) “The Trauma of ‘Wage Employment’ and the ‘Burden of Work’ for Women in India” in Kalpana Kannabiran (ed.) The Violence of Normal Times: Essays on Women’s Lived Realities, New Delhi, Women Unlimited). In terms of the net impact on women's well-being, the study paints a mixed picture. But in terms of the application of labour laws to SEZs, the sense is that enforcement mechanisms are even weaker than in the formal economy as a whole, though (in a de facto sense) clearly have more of an impact than the non-existent regime affecting the informal sector. All of this refers to the pre-2005 SEZ Act dispensation, which may be a different animal altogether.

Can Bangladesh Competition Increase Pressure on India's States to Provide More Sops to SEZ Promoters

It has long been recognized that competition between India's states for inward investment (from Indian or foreign capital) plays a significant role in driving state governments to improve their business climates. But of course the original version of this dynamic was international in nature, with national governments seeking to outdo one another with better tax concessions and less onerous regulatory regimes (as well as greater political stability, lower labor costs, more secure property rights, and whatever other factors might motivate investors).

A combination of these two levels of inter-jurisdictional competition -- between countries, and between regions within countries -- appears to be on the rise in South Asia at the moment. Not only has the SEZ policy of Sri Lanka been something of interest to investors (and state governments in India eager to attract them), now Bangladesh has upped the ante. Prime Minister Sheikh Hasina Wajed came out recently with a directly competitive statement, claiming that SEZ promoters who may have wanted to set up shop in India should consider coming across the border to Bangladesh.

Interestingly, it is the SEZ-related political problems encountered by the neighbouring state of West Bengal -- primarily, but not exclusively, stemming from the Nandigram SEZ -- which has animated the Prime Minister's statement. That Bangladesh provides a more conducive and stable policy environment in which to do business is surely a slap in the face of the West Bengal authorities, as well as an indirect slight (palliative words by the PM notwithstanding) to India's Railways Minister, Mamata Banerjee, who spearheaded the anti-Nandigram resistance.

SEZs and Demonstration Effecs, Economic and Political

India's adoption of the SEZ model of promoting infrastructure/investment/development has in the past been justified in terms of its likely demonstration effect. Once it becomes apparent how dynamic firms within these zones are, it is sometimes argued, greater impetus will emerge to adopt similar policies (fast-tracking investment, reducing regulation, streamlining bureaucratic procedures) for the country as a whole.

It is increasingly clear, however, that this logic can cut both ways, particularly when the political dimensions of SEZs are taken into account. First there was the argument, voiced at the time the SEZ policy was first being introduced, claiming that the narrow applicability of these policies (limited only to 'special zones') is an admission that the architects of the SEZ policy were well aware that the country at large was not politically ready for such far-reaching policy change.

Second, the resistance movement that have sprung up during the implementation of the SEZ policy -- particularly with respect to land acquisition -- have led to speculation that the SEZ approach may spur a negative demonstration effect, politically speaking. That is, the SEZ experience has highlighted the high political costs of pushing through these policy measures, even in the geographically circumscribed form they have taken thus far. This can put governing elites off the idea of more radical economic reforms for the economy writ large.

A newer position has been staked out by market-friendly commentators, including two Harvard Business School professors, writing in the Christian Science Monitor. They argue that the political controversies that have arisen in implementing the SEZ policy shows that, in fact, a MORE radical approach to policy reform is needed -- one note confined to special zones. Briefly recapping the opposition to SEZs in a number of regions, they ask: 'Considering how thorny the issue has become...Does India really need them?' Their answer is that 'The best policy for the government may be to provide the benefits of SEZs – low tariffs, reasonable taxes, good infrastructure, little red tape – to all firms in all parts of the country.' The authors do not spell out how opposition to such policies, if pursued nationally, could be overcome.

It is nevertheless intriguing to see friends of liberalization taking the position that SEZs may not be worth the political costs they inevitably impose.

Punjab Passes New SEZ Bill (2009)

15 July 2009

With the SAD-BJP government clearing the much-awaited Punjab Special Economic Zones Bill, 2009, on Saturday, the decks have been cleared for developers to give a major boost to the development of the SEZ’s in the state.

As per the norms laid down in the policy, the requirement of areas for setting up SEZs in case of a multi product SEZ is 1,000 hectare, product-specific 100 hectare, IT-specific 10 hectare and warehousing 40 hectare. Speaking about the policy, state industries & commerce minister Manoranjan Kalia said due to paucity of land and high cost in the state, the government has asked the Centre for relaxation in the aforementioned norms and has also sought permission for development of SEZs as per viability of the project, to be determined by the developer.

Although the new industrial policy is yet to get the Cabinet’s approval, Punjab has now become the 6th state in the country after Haryana, Gujarat,West Bengal, Maharashtra and Madhya Pradesh to enact the SEZ Act.

The Punjab Act is little different from the SEZ Acts in other states, as it provides exemption from payment of any tax, duty, fee, cess or any other levy, whereas the Acts of Gujarat and Maharashtra specify exemption from sales tax, VAT, motor spirit tax, luxury tax, entertainment tax, purchase tax and other state taxes. These exemptions under Punjab Act will be on export or import of goods in SEZ, inter-unit transaction in SEZ, movement of goods in SEZ for value addition and on any service to SEZ developer or unit. All SEZ units will also be given public utility status. Moreover, the Punjab Act will provide exemption from stamp duty, registration fee and social security cess on purchase of land for SEZ and on first transfer or lease of immovable property within SEZ for industrial, commercial or residential purposes. The allocation and transfer of land within the SEZ can be done only by way of sale or lease as per the Punjab Act.

While referring to the over all SEZ scenario, Mr Kalia told ET that the Centre has given formal approvals to 578 projects in the country, out of which seven are from Punjab. Among the 322 notified SEZs, two are in Mohali — QuarkCity India for IT industry and Ranbaxy Laboratories SEZ in the pharma sector.

The total investment envisaged in the SEZs projects on all India basis comes to Rs 1,08,903 crore while the 18 projects to come up in Punjab would entail an investment of Rs 10,182 crore. “QuarkCity would cover an area of 13.75 hectare with a proposed investment of Rs 500 crore and give employment to some 27,500 people, whereas the Ranbaxy Labs SEZ would cover 32 hectare with an investment of Rs 265 crore,” said Mr Kalia.

In order to make the clearance of projects more convenient and hassle free, the state government has made a single-tier approval system instead of two-tier process. A project approval committee headed by the chief secretary, along with administrative secretaries concerned will look after all the SEZ proposals in Punjab. The committee will give in-principle approval, if land is not in possession of the developer and will grant final approval after land possession. After approval by the committee, the proposal will be sent to the Centre. The SEZ Act also provides permission for generation of electricity in or outside SEZ for consumption of units in SEZ, whereas in other states, generation of electricity is allowed only within SEZ. There will be no electricity duty on generation, transmission, distribution and consumption of electricity within SEZ. The state government will also notify the SEZ after approval by the Centre. The SEZ developer will prepare the development plan of SEZ in accordance with the development plan or master plan of the area, where SEZ is to be located.

Mr Kalia further said that the Act enables the SEZ developer to demarcate the sites for industrial, commercial, residential and other purposes in SEZ and also let them free to fix the rates for transfer of land/building within the SEZ to the units. The Act allows the developer to maintain the SEZ and also empowers them to levy charges for maintenance. However, the developer will have to pay the charges to local authority in case its services are utilised. SS Channy, industries & commerce secretary, said that with the implementation of Punjab SEZ Act, the road is clear for proposed 18 SEZs to set up their ventures in the state. This will give boost to rapid industrialisation and will also attract more SEZs in Punjab. He pointed out that Punjab Industrial Facilitation Act, 2005, providing single-window clearance in a time bound manner with the provision of deemed clearance if approval is not granted in the notified time schedule, will also be applicable in the SEZs.

Large SEZs unviable

The Punjab government’s decision to not acquire land for SEZs has sealed the fate of multi-product SEZs in the state which require at least 1,000 hectares, reports Parshant Krar from Chandigarh. The mega size multi product SEZs would remain elusive in Punjab due to the lack of compulsory acquisition of land even though the state government has offered unmatchable list of concessions in the SEZ Act. The policy and high cost of land have affected the land acquisition for proposed product-specific SEZs that are allowed only on 100 hectares. The multi product SEZs mooted by DLF Universals at Amritsar and Ludhiana were stalled by company after the Amarinder Singh government decided against acquiring 1,218 acres of land for the SEZ in Amritsar due to stiff competition by farmers. Ruffled by the hurdles, DLF Universals dropped the plans in Amristar even though the company is believed to be still interested in setting up SEZ in Ludhiana. “There isn’t much land available in Punjab and the land requirement under the SEZ policy is not viable in Punjab,” industries and commerce minister Manoranjan Kalia said while detailing features of the newly formed Act. “Under the Act, the state government has no role to play in acquisition of land for SEZ projects,” the minister said.

Courtesy:- ET dt:- 13-07-09

Stalin Proposes Solution for Nationality Question

No, not that Stalin -- M.K. Stalin, Deputy Chief Minister of Tamil Nadu and likely successor to the current Chief Minister, Mr Karunanidhi. And the 'Nationality Question' in this case is not what to do with the Ukranians and others, but how to accommodate the specialized infrastructure and other needs of investors from a range of nations. The idea is to build country-specific SEZs for firms from particular nationalities.

Orders have been issued for the development of country-specific industrial parks for Japan, Korea, Finland, Germany and France. Each industrial park will be spread over 100 acres and will be developed by the State Industries Promotion Corp of Tamil Nadu (Sipcot)

This would allow the SEZs to cater to not only the sectoral focus of each country's investors, but also, presumably the requirements for social amenities (schools, shops, etc) tailored to each country's cultural background.

Whether such an approach will be perceived as parcelling out Indian territory to foreign entities, or whether it will meet with less resistance (because the new policy approach is also combined with an effort to ensure that the new SEZs are spread more widely across the state), remains to be seen.

Can Pressure from State Governments Bring About Changes to SEZ Policy Norms?

Which forms and sources of pressure are most effective in bringing about changes to existing rules framed pursuant to the Government of India's SEZ Act 2005? This is a question of considerable significance, but not one to which the answer is by any means obvious.

One view is that drivers of policy reform come from within the central bureaucracy -- where turf battles and competing policy priorities between agencies, departments, and other actors combine to produce (or not produce, as the case may be) changes to existing rules. Such claims can be couched in terms of the need for consistency across policy domains, or in order to close enforcement vacuums. For instance, whereas there are rules on sales to the Domestic Tariff Area (DTA), stock tranfers to the DTA are not covered, apparently -- and this, according to some analyses, is the kind of issue that must be subject to constant review. Revenue department officials in the Finance Ministry are a classic source of demands for reviewing the financial implications of various SEZ rules, particularly those that concern the interpretation of tax concessions granted in the Act. Moreover, in some cases gaps in the legislation become evident only once particular scenarios manifest themselves. For instance, the call by the Goa government to denotify SEZs that had earlier been notified met with the response from the Commerce Ministry in Delhi that there was no provision for denotification -- a policy vacuum that surely deserves filling.

A second view is that industry complaints -- about the unworkability in practice of existing rules -- are the key source of effective revision. Here there is a distinction between those reforms that are pushed by a particular firm, and those that are advanced through the lobbying efforts of a sectoral association or even one of the apex business chambers, which of course tend to have their own histories, policy orientations, and indeed sectoral biases. There is also the Export Promotion Council for EOUs and SEZs (EPC-EOU/SEZ), a body constitute by the GoI to resolve issues arising in both types of export-promotion entity. All of these channels can combine to press issues of especially widespread concern, and there are clear cases where the EPC-EOU/SEZ has been successful. The matters arising are often of seemingly minor importance, and mainly of technical interest, but the effects can be significant in terms of bottom-line impacts and the clarity and predictability of the policy regime.

Finally, state governments represent an key channel of influence. State governments play a major promotional and implementation role in the SEZ policy. They are not only in the front lines of dealing with popular resistance to the SEZ policy, but also an important avenue through which firms and business associations can make their voices heard, making the distinction between this level of influence and that exerted by industry (above) difficult to dis entangle.

What is clear thus far is that some states have particular kinds of policy concerns. A recent example comes from Punjab, where the high price of land is (according to the state government) a major constraint on the ability of the state to live up to its implementation potential with respect to SEZs. Eighteen SEZ projects are curently in the works in Punjab, but only two have been notified by the GoI thus far. The Punjab government has highlighted the scarcity and price of land as a key constraint, arguing that the rules on minimum size should be amended so that the business feasibility of a given project -- not its bureaucratic categorization (whether for warehousing, or sector-specific activity, or a multiproduct SEZ) -- should determine how large an area is considered sufficient.

Politics matters in this kind of lobbying, of course. Whether the chief minister of Punjab's voice will carry much weight in Delhi, given the current party-political configuration is an interesting point. If joined by other state governments from regions where the Congress or its allies are in power, it may be that the volume of this particular appeal will be amplified. In this connection, it will be interesting to see whether Railway Minister Mamata Baneree's campaign demand that the SEZ rules be reviewed and revised (especially, not surprisingly, with respect to land-acquisition issues) are acted on now that the Trinamool Congress is part of the ruling coalition.