Why we must oppose Special Economic Zones

A Perspectives presentation

Special economic zones were introduced in India by the NDA

government in 2000. The SEZ policy was announced in 2000 and 19
SEZs operated under provisions of the foreign trade policy till 9
February 2006. The SEZ Act and Rules came into effect from 10
February. Between then and July 2007, in just one-and-a-half years, the
Board of Approval has granted formal approval to 341 SEZ proposals
and in-principle approval to 171 SEZ proposals. Out of the formal
approvals, 130 SEZs have already been notified. It should be noted
here that the rest of the world has only 400 SEZs.

Special economic zones are mushrooming all over the country. This is
despite events like Nandigram and widespread protests by farmers,
activists and a section of economists in the country. To understand why
there has been such large-scale opposition, and why the government is
still continuing with its SEZ policy, we need to understand what is so
‘special’ about these special economic zones.

According to policymakers, India is a large country which lacks the

level of infrastructure required for industrial growth. It is governed by
too many taxes, laws and regulations which ‘discourage’ foreign and
domestic investment. To overcome these barriers to development, it is
necessary to create enclaves or islands within the country where all
these laws, rules and regulations would not be applicable; where
infrastructure can be developed specifically for promotion of industry;
and where private industry can be given substantial incentives to
invest its capital.

A SEZ, therefore, is a specially demarcated area of land, owned and

operated by a private company, which is deemed to be a foreign
territory for the purpose of trade, duty and tariffs. It is outside the
purview of many laws of the country, notably the environment
protection laws and the different labour laws. The company owning and
operating the SEZ, known as the Developer, is given huge subsidies
and tax concessions for setting up the SEZ. Companies which set up
their units within these SEZs are given similar exemptions. The central
government ensures that single window clearances are given to all SEZ
applications, thus reducing approvals like those required for pollution
control and from the inspectorate of factories to meaningless
formalities. State governments ensure that local taxes are abolished
for these SEZs and that water, electricity and other services are
provided to the Developer and units without any hindrance.

Private capital, thus ‘encouraged’ by the aforementioned incentives, is

supposed to take the country on the high road of economic growth and
development. Apart from displacement, loss of livelihood, acquisition of
agricultural land and its implications for food security – questions
which accompany all development projects – there are many other
reasons why we must oppose special economic zones.

I. THE ATTACK ON LABOUR

SEZs blatantly attack whatever little rights labour has in our country
today. In tune with the global domination of finance capital over labour,
they take away from labour even the minimum rights to unionise and
protest. Indeed, SEZs have been declared to be public utility services
i.e. they are considered to be similar to the railways and power
services, indispensable for the daily life of the Indian public. What this
essentially means is that workers working in SEZs would have little
scope to protest, undertake collective bargaining or go on strike
against their employers.

All disputes between the management and labour in a SEZ are decided
by the Development Commissioner, the highest authority within a
particular SEZ. In non-SEZ areas, this is the responsibility of the Labour
Commissioner. Considering that one of the main functions of the
Development Commissioner is to promote the growth and functioning
of his SEZ, it is anyone’s guess what chances the workers have of
getting justice.

Different labour laws like the Industrial Disputes Act, Factories Act,
Contract Labour Act and Trade Union Act are relaxed or made
inapplicable in these SEZs. An officer placed under the supervision and
control of the Development Commissioner functions as Registration
Officer, Conciliation Officer, as well as Inspector under the various
labour laws to provide single window services. Quarterly and half
yearly returns which have to be filed under different labour laws, such
as the Workmen’s Compensation Act and Payment of Wages Act, have
to be filed only once in a year to the Development Commissioner in the
SEZ.
Different states, in the race to attract private capital, have gone a step
further. Each state’s SEZ policy promises to ‘simplify’ labour laws and
exempt units and SEZ developers from their mandatory requirements.
Since SEZs are supposed to be the model of development for the rest
of the country, this is the first step for initiating countrywide ‘labour
reforms’ through the back door.
Of course, majority of the workers working in SEZs won’t even come
under the purview of the aforementioned laws. These ‘informal’
employees of the SEZs, working on a contract basis, would never even
have the guarantee of minimum wages, let alone any kind of security
of employment.

The Indian State forgets that labour laws are not a result of its
benevolence, but the product of a long and hard struggle fought by the
international working class movement. Instead of extending labour
laws and social security benefits to the millions of unorganised sector
workers in the country, the State is taking away the basic rights of
even the organised workers in order to augment the profits of private
capital through SEZs.

II. REAL ESTATE SPECULATION

Earlier, only 25 percent of the area of a SEZ had to be compulsorily

used for manufacturing purposes, and there was no limit for the
maximum area over which a SEZ could be built. Due to strong
opposition from people across the country, the government was forced
to bring in amendments wherein 35 percent of the SEZ area has to be
earmarked for manufacturing purposes, and there is now a ceiling of
5000 hectares for multi-product SEZs. However, these are merely
cosmetic changes.
The 35 percent rule can be brought down to 25 percent by the central
government on the recommendations of the Board of Approval. And
the 5000 hectare limit is easily being circumvented by companies like
DLF who are simply substituting one large SEZ by two smaller ones
(each individually adhering to the ceiling of 5000 hectares).

75 percent of the SEZ area can thus be used for non-industrial

purposes, for building hotels, apartments, shopping malls and
entertainment parks. SEZs will inevitably become a way for the
accumulation of land banks by private developers and property dealers
for the purposes of real estate speculation. A direct proof of this is the
fact that the RBI itself has directed banks to treat lending to SEZs at
par with lending to real estate.
This prospect also explains why real estate giants like DLF and the
Ansal group are so keen on developing SEZs. According to an
ASSOCHAM study of November 2006, real estate developers are
developing nearly 130 SEZs. Furthermore, allowing 100 percent foreign
direct investment in real estate has left the door wide open for massive
amounts of international speculative investment in property.

It seems that SEZs is one part of the government’s effort of removing

all ceiling on the ownership and use of land in order to serve the
interests of big business.

III. DISCRIMINATION AGAINST SMALL CAPITAL

One of the sections which will definitely lose out in this process is small
business; small capital which does not have the wherewithal to
relocate to the SEZs. Big capital will relocate to SEZs in order to take
advantage of the tax concessions, subsidies and the absence of laws
and regulations. For them, SEZs will be the instruments of privileged
access to the vast domestic markets of India.
Small capital in the non-SEZ Domestic Tariff Areas will suffer the
consequences, even as big capital, aided by the State accumulates
higher and higher profits.

IV. LOSS OF PUBLIC REVENUE

According to the Finance Minister P. Chidambaram, SEZs would result in

revenue losses to the tune of Rs. 1,00,000 crores between now and
2009-10. Of this, Rs. 57,000 crores would be lost on account of direct
taxes and the remainder would be on account of exemptions from
customs duties, income tax, sales tax, excise duties and service tax
enjoyed by units operating within these enclaves.

The commerce ministry’s calculation, that these losses would be more

than offset by the gain in tax collections due to greater economic
activity in these enclaves, is flawed. It assumes that there would be
new investments in SEZs, which would not have taken place otherwise.
The fact however is that a substantial number of new SEZs are devoted
to IT and ITES sectors, sectors which have been growing at the rate of
30 percent per annum. It is obvious that these sectors would have
anyways attracted fresh investments, even without SEZs.
The sectoral break-up of SEZ approvals shows that 61 percent of
approvals has been in the IT sector. The manufacturing sector accounts
for only one-third of total approvals. To take an example, out of the 52
SEZs planned for the Gurgaon district of Haryana, 36 are in the IT and
ITES sectors.
In reality, as mentioned earlier, existing industries will migrate to SEZs
to take advantage of the subsidies and concessions and the state
exchequer will lose the taxes, they would have otherwise paid.
V. MYTH OF INDUSTRY, EXPORT PROMOTION AND EMPLOYMENT
GENERATION

The definition of manufacturing, as given in the SEZ Act, includes

everything from agriculture, animal husbandry, pisciculture and
mining. As discussed earlier, only 25-35 percent of the SEZ area has to
be devoted for such ‘manufacturing’ purposes.
Unlike the earlier Export Oriented Units, units located within the SEZs
have no obligation to manufacture for the purpose of exports or earn
foreign exchange. The only requirement for qualifying as an exporter
and enjoying special concessions in SEZs is to ensure net positive
foreign exchange earnings.

These facts nail the lie that SEZs are meant for promotion of industry
and exports. The government’s claim that SEZs would generate 30
lakh jobs is farcical. These many jobs have not been created in total in
fifteen years since economic liberalisation began in our country. As is
well known, the growth of employment in the entire organised sector in
these fifteen years has been negligible. The total employment in IT and
ITES, the boom sectors of our economy, is only 1.5 million.

Increasing automation and capital-intensive techniques of production

imply that very few jobs are created by modern industry and services.
The few jobs that will be generated in SEZs will be for highly skilled
labour, which is in a minority. The majority of unskilled labour force will
get, at best, jobs like construction work which are temporary, low-paid
and without any security of employment. While talking about the jobs
that will be created, the government conveniently forgets to talk about
all the jobs and livelihoods that will be destroyed due to displacement
and the ruin of traditional economies.

CONCLUSION

To conclude, special economic zones will be completely anti-labour and

therefore anti-people. Apart from labour, they will also discriminate
against small capital in the non-SEZ areas of the country. The large
tracts of fertile agricultural land that is being acquired for them will be
used, not for generating employment or promoting industry and
exports, but for increasing the profits of private corporate sector and
for speculating in real estate.
It is for these reasons that all democratic-minded individuals, groups
and organisations concerned with India’s economic development must
oppose special economic zones.