Three inter-related policy issues that have been in the news recently have significant implications for citizens and taxpayers. First, a group of ministers has recommended that the government can acquire up to 30% of the land needed for Special Economic Zones (SEZs) on behalf of promoters. The government’s earlier stand, in the wake of the Nandigram incidents, was that it should not acquire more than 10% of the land, and that SEZ approvals would only be granted after the developer had aggregated at least 80% of the land required. Second, it has now reiterated its commitment to legislation for a new relief and rehabilitation policy, a draft for which has been in public domain for nearly a year. Third, a report on the contentious issues of tariff subsidies in SEZs submitted to the finance ministry by the research organization Icrier (Institute for Research in International Economic Relations), seems to refute earlier arguments by the National Institute for Public Finance and Policy (NIPFP) about significant revenue losses.
The entire emotional debate on SEZs over the past year was on the acquisition of agricultural land, and the plight of those dispossessed. West Bengal’s agitations were as much about inadequate compensation, as about denial of livelihoods. Maharashtra and Haryana, too, saw such agitations. As a result, the government backtracked, and withdrew from its acquisition efforts. This, naturally, doesn’t suit the developers, as only awards under the Land Acquisition Act of 1894 (yes 1894!) can grant undisputed title. They have been lobbying hard for a rethink, as several projects are held up. Now that the GoM has been persuaded, there will be compulsory acquisition again. To deal with widespread criticism, the government plans to go ahead with its relief and rehabilitation (R&R) policy.
For all its strong words and rhetoric, it is a curious document. It defines the bad guys (those who want projects) and the sad guys (the landowner, labourer, and his kith and kin) in detail. It spells the need for a commissioner for R&R to take care of the latter and threaten the former. The clauses breathe brimstone and fire on development projects, and the need to take care of those affected. This can’t be done by anyone except the government, which is to decide what is good or bad R&R.
Two serious flaws in the draft are striking. First, those dispossessed of land by private developers, have to be given government land—an indirect subsidy for the developers. If that is not available, private land will be compulsorily acquired to rehabilitate them. For those dispossessed by such acquisition, the same process again. The outcome will be much more compulsory land acquisition, not less. Besides, the draft nowhere defines what measures of ‘relief’ or rehabilitation are adequate and leaves this to a group of officials. This implies incentive for rent seeking, by the officials and on behalf of the developers, to the detriment of the dispossessed.
So much for the aam admi.
The finance minister has criticized tariff concessions under the SEZ Act, while the commerce minister has insisted that indirect gains through jobs, exports and eventual growth would mean net revenue gains, not losses. The finance ministry’s views were supported by a report of NIPFP, which quantified revenue losses at around Rs1 trillion. A recent Icrier report, however, argues that these are overstated, that exports are already eligible for duty drawbacks even on the value additions, and that, on balance, taking direct and indirect taxes together; there would be no significant revenue loss. This is a shot in the arm for those who want more of these tariff-free islands.
The debates on tariff concessions have all been about the goods and services created in the SEZ, their exports and local sales. Export processing zones already exist, and duty drawbacks have been part of policy for several years. But little has been said about the developer’s role. He gets duty-free import of raw material, steel, cement, equipment, power plants, fuel, etc., and then sells or leases the facility to ‘units’ that would engage in the actual creation of goods and services. The pricing of the infrastructure—sheds, power, water, et al., is in the hands of the developer, a clear case of monopoly pricing. And the units must bear the costs—that’s how these concessions distort markets and prices within the zones. Regulations here are weak, with much discretion in the hands of the development commissioners. The real exploiters of the concessions are the developers, not the units.
Such concessions and the costs of acquisition will be borne by us, whether through higher government subsidies or levies. A pity that policymaking is so skewed towards those with access that, in spite of all good intentions, the short end of the stick is with the general public. You and me.
S. Narayan is a former finance secretary and economic adviser to the Prime Minister of India. We welcome your comments at email@example.com