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Small is Beautiful, But Is It Economical?


Small is Beautiful, But Is It Economical?

Last updated: April 19 2007
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  • Small is Beautiful, But Is It Economical?

    The SEZ experience in India so far has been riddled with controversy of one kind after another. The earliest critics bemoaned that Indian SEZs, with their size much smaller than those in China, would never attain the economy of scale and hence, were doomed. Detractors then focused their attention on issues like tax breaks and diversion of investment to avail them. Then came concerns about real estate scam-stemming from the real or imagined poor business ethic of real estate players in the country.

    Finally, the turning point came when farmers went on a rampage in Singur and Nandigram, claiming that acquisition of their farm land for an industrial project (incidentally, Singur is not an SEZ) would leave them impoverished.

    Political intervention at the highest level put brakes on further SEZ approvals for some months. Now, with the decision taken by the empowered group of ministers (EgoM), the issue has come full circle. SEZ size is now capped at 5,000 hectares and State Governments can set even lower ceilings. While the Government's concern about the welfare of farmers is understandable, one fails to see the logic in this blanket cap on SEZ size. In a democracy, political compulsions often override economic rationale and the recent EGoM decision amply demonstrates this.

    The EGoM has also stipulated that State Governments must not acquire land for SEZs and that SEZ developers would have to directly negotiate with land owners. If acquisition of land for SEZ development has to be on commercial terms and rates, why put a ceiling on the size? This decision seems more like a knee-jerk reaction to recent farmers' agitation rather than a well-thought out policy decision.

    The restriction on size defeats one of the stated objectives of the SEZ Policy -to boost development of infrastructure facilities. It will be counterproductive to building new industrial and social infrastructure viz new industrial towns on a cost efficient basis.

    Some people have even said that SEZs is return of the old 'zamindari' system and that it would discriminate against industries in other areas. These are alarmist views, without any basis on facts.

    There is no scope for an SEZ to become a fiefdom of the developer-enough safeguards have been put in the policy. Here the role of the Development Commissioner (DC), a central government employee, becomes important. The DC has the right to approve every activity in the zone and has the right to address grievances of units etc.

    Land acquisition for industrial projects has always been a daunting task and given past experience, without the State Government's intervention, it would be impossible to do any large land acquisition. The government could restrict its role to intervening only for isolated pockets in order to bring about contiguity, which is an important aspect for approval of SEZs.

    Also, we need to work out a rehabilitation policy for all acquisitions of land, not only for SEZs but for all projects. This is not for the first time that land acquisition has been done for industrial capacity creation. The state governments have been assisting in acquisition of land for industrial purposes since independence. If, for other industries (for example, Posco or setting up of SIDCs) the state government can acquire land, why discriminate against SEZs?

    A good rehabilitation policy that enables expeditious land acquisition for industry while at the same time ensuring farmers' interests, is the need of the hour.
  • #2


    Re : Small is Beautiful, But Is It Economical?

    Government willing to Increase the size of SEZs in Future

    In my opinion Happy, certainly SEZ development will boost the Indian Economy. Though the boost will not be as much as due to the limit of 5000 hectare. Government is willing to be flexible on the limit of 5,000 hectare land area of Special Economic Zones, but not now as decided by EGoM.

    Reliance Industries are one of the heavily affected developers, from the limit of 5,000 hectares as it is already acquiring land for two SEZs spread over 10,000 hectares each in Haryana and Maharashtra. So at this stage this policy will definitely affect there plans. Now once again they have to rework on all the plans. Reliance Industries is still optimist on the SEZ issue, and they have demanded the government to re-evaluate this issue and thus lift the cap on size of SEZ.

    The limit put on the size of SEZs was one of the compromises reached at the last meet of Empowered Group of Ministers early this month that led to lifting freeze on them.


    Have any questions or thoughts about this?