SEZ APPEAL: The view from the states

Janardan Mhatre, 72, guards his three-acre land in the coastal village of Pen in Raigarh district the same way he would guard his grandson. Mhatre, who received a state government notice with 2,090 fellow villagers to sell their land to make for Reliance Industries' mammoth Mahamumbai Special Economic Zone (SEZ), is ready to die defending it.

"We are ready to make a Nandigram right here in Maharashtra," Mhatre said after receiving a notice from the Maharashtra government making it mandatory for farmers to hand over land and accept the compensation offered by India's largest private company.

Nandigram, a village in southern West Bengal, was the location of some brutal police action last month following farmer protests over land acquisition by the state government for a large SEZ and has since become synonymous with farmer protests over land acquisition.

Resistance by farmers like Mhatre has meant that Reliance has been unable to acquire even four per cent of the land for its 10,000-hectare Mahamumbai SEZ.

Back in the pyramid-shaped headquarters of Reliance SEZs in Belapur in Navi Mumbai, nervous Reliance officials are tight-lipped. "Please read our compensation offer... it is the best for them," says one of them. The offer include Rs 5 lakh for barren land, Rs 10 lakh for land under cultivation or giving 12.5 per cent of developed land back to the farmer. A monthly payment of Rs 5,000 and a job for one person per family is also on the table.

Reliance's best, however, is not enough for the farmers who are teaching their children to work in white-collared jobs in the cities. "All these offers are bogus. They will make our children to work as security guards. As for giving developed land back to the villagers, the government's record is bad," says Thakur.

From the prosperous west coast to the poor east, such land-acquisition problems appear to be almost endemic to SEZs. The central and state governments and industrialists have embraced the concept with unqualified enthusiasm as future engines of economic dynamism. But the aam admi, whose land will be required for these model enclaves of industrial efficiency, seems less than enamoured.

Ever since the SEZ Act acquired Parliamentary approval on February 10, 2006, land acquisition and compensation acquired such mammoth dimensions that the government froze all approvals for a month a half starting mid-January. As Mhatre's experience shows, things have not changed significantly after the government cleared proposals and changed land acquisition norms on April 5. Given what looks like an intractable problem, is the SEZ concept destined to be a non-starter in India like its predecessor, the export-processing zone? Surprisingly, as reports from Business Standard correspondents suggest, the answer is by no means negative.

Trouble-free in Tamil Nadu
In contrast to other states, there have been no major issues over SEZ development here. The state has five operational (three manufacturing and two IT) SEZs. Eleven have obtained final approvals, while 22 have received in-principle approvals.

The early birds to scramble on to Tamil Nadu's SEZ bandwagon "" Nokia for handset production, Flextronics for electronics manufacturing services, and Mahindra World City "" are moving full steam ahead. Others who put in their applications for facilities in the second half of 2006 were bogged down by the embargo on fresh SEZ approvals, which the central government lifted on April 5.

So what has Tamil Nadu done differently? Senior government officials say most of the big projects have come up on land acquired by the State Industries Promotion Corporation of Tamil Nadu Ltd (SIPCOT), the nodal agency for infrastructure development schemes. This land is leased to investors or companies on the periphery of Chennai and smaller cities like Coimbatore, Trichy, Madurai and Tirunelveli. These are mostly dry-lands acquired by the government about a decade ago.

Where government land was not involved, the government resolutely stayed out of land acquisition deals. Farmers haven't done too badly out of recent acquisitions in pockets like Sriperumbudur, where Nokia has its plant. The per-acre cost of land here is Rs 90 lakh to Rs 1 crore (comparable to prices in the Mumbai's suburbs.

Tamil Nadu has also been successful in its SEZ policy because, in stark contrast to king-sized units elsewhere, SEZs here are spread on 200 or 250-acre plots (approximately 100 hectares). The total land area for a single SEZ in Tamil Nadu does not exceed 500 acres.

That said, the government has also announced four multi-product SEZs in a few districts with land requirements ranging from 2,000 to 3,000 acres (800 to 900 hectares) per multi-product SEZ.

Overall, the SEZ message appears to have percolated well here. There is a wide appreciation of the benefits of SEZs in terms of development of rural and semi-urban areas and their contribution to employment generation and the ripple effect on the economy of the state.

For instance, last year, Hong Kong-headquartered Growth-Link Overseas Company, a leading supplier to Nike, had announced plans to invest Rs 300 crore in a shoe manufacturing facility at Cheyyar, 90 km from Chennai. The SEZ, located in an industrially backward area, is expected to create job opportunities for 5,000 people, especially for women, in the first 2-3 years. This project has been on the backburner after the Centre's January freeze.

Smooth sailing in Gujarat
Unlike the controversy in Nandigram, Gujarat is busy developing its 33 approved SEZs with virtually no opposition from farmers (barring some minor protests against Reliance's SEZ and a small protest in Por near Vadodara).

For instance, work on the 2,600-odd hectare Mundra SEZ, which was notified last year, has progressed at a rapid pace "" roads and water, power, telecom, gas, drainage and sewage connections are already nearing completion.

Chief Minister Narendra Modi has chosen to make SEZs the cornerstone of his government's economic development plan. So much so that the state enacted an SEZ Act in April 2004, one year before the Centre came up with its SEZ policy.

An evolved business culture has also made it easier to sell the SEZ concept here. Said S N Sharma, chairman and managing director, Diamond and Gem Developing Corporation, "In Gujarat, non-agricultural land is available in plenty and the local population is supportive of economic activities since it is a business community."

Like Tamil Nadu, the state government does not intervene between the SEZ developers and the farmers.

Said Arvind Agrawal, Industry Commissioner, Government of Gujarat, "There is no opposition by farmers as there is no intervention by the state. Farmers are free to sell their land if they get a good deal and can refuse to sell if they don't."

Under the Gujarat SEZ Act an SEZ developer can deal directly with farmers and pay compensation under the Land Acquisition Act. The other way is to buy land belonging to Gujarat Industrial Development Board (GIDC) or wastelands belonging to the government.

Agrawal said farmers who sold their lands to the Reliance SEZ near Jamnagar became millionaires overnight and are now buying larger plots 10 to 15 km from the SEZ site.

The opposition to SEZs has mostly come from political and NGO sources who have voiced concerns about environmental degradation and labour rights (Gujarat promises labour 40 per cent cheaper than other states) following such mass industrialisation.

Landlocked in Karnataka
Karnataka probably best exemplifies the criticism that SEZs can foster land-grabs and real estate plays.

The state has 27 approved, 17 in-principle approved and 10 notified SEZs that will cover around 5,000 acres (2,000 hectares). Of these SEZs, five are operational. Information technology forms the bulk of the SEZs, followed by biotechnology, textiles, automotive and food processing.

Land is acquired by the Karnataka Industrial Area Development Board (KIADB) and then handed over to the SEZ developer. But there are numerous cases, especially for information technology SEZs, where private developers have acquired land and subsequently applied for SEZ status. Many analysts have suggested that domestic IT companies will simply relocate their operations to SEZs to avail of tax breaks once their tax-exempt status expires in 2009.

Though there have been no major protests over land acquisition in the state, senior officials in the Karnataka Industries and Commerce Department say land acquisition, compensation and rehabilitation remain major issues.

The principal concern is over the pricing of land acquisition and the compensation for displaced people. Added Shivaram Malakala, Executive Director of Habitat Ventures, a private real estate developer, "The policies are not completely clear in terms of the conversion of land use processes.

Developers who have acquired land on their own and then applied for SEZ status have often faced delays in notifying their land because of this ambiguity.

The lack of a practical policy for compensation and rehabilitation has also opened the door for politically powerful groups, not necessarily with corporate interests, to build land banks using SEZs as a proxy.

Meanwhile, the state is working on alternative modes of employment as a suitable rehabilitation measure. However, it is yet to define an adequate alternative source of livelihood, keeping in mind that if employment in SEZs is to be considered, the nature of employment would be skilled.

Chhattisgarh's small scale
As one of the most backward states in India, Chhatisgarh sees SEZs as a source of economic transformation. But, having suffered popular protests over land acquisition for non-SEZ industrial projects for the Tatas and the Ruias, the state has limited its SEZ ambitions.

Chhattisgarh has two SEZ proposals "" one in IT (20 hectares) and another in gems and jewellery (30 hectares). The first is pending central government clearance and the latter has in-principle clearance. Additional chief secretary (industries) P Joy Oommen said work on both would start within two months of receiving all clearances.

Oomen maintained that land acquisition problems here are minimal because the SEZs will come up as part of the expansion project for the new capital city. However, acquisition for the new capital project is already showing signs of problems with farmers and NGOs raising doubts about compensation and benefits.

The state government has a rehabilitation and compensation package that minister of state for industries Rajesh Munat claimed is "the best and most attractive ". Farmers receive up to Rs 5 lakh per acre, Munat said, adding that the amount is fixed as per the cost of land in the area and its utility.

Former minister and senior Congress legislator Satyanarayan Sharma has demanded Rs 25 lakh as compensation for farmers. Many villages identified for the capital project come under Sharma's Assembly constituency, Mandir Hasaud.

Munat, however, claimed that land prices had gone up because the land mafia had cornered land and pushed up prices. "It is the mafia that is worried about compensation, not the farmers," he said.

Workers and dispossessed farmers are less than enthusiastic about the concept, however. A group of workers at a steel plant in Mandir Hasaud said the SEZs will employer fewer workers and require higher skills that they may not possess.

Orissa on its 'metal'
Orissa has received 17 SEZ proposals of which the Union commerce ministry has given formal approval for five and in-principle approval to eight, including Korean major Posco's showcase 12 million tonne steel project at Paradip. The total land requirement for these 13 SEZs is 12,325.821acres (a little under 5,000 hectares).

Most of these SEZs are in steel or alumunium with IT a close third. Of the five SEZs to receive formal approval, four are to be set up by the state-owned Industrial Infrastructure Development Corporation (IDCO). The only other SEZ to receive formal approval is the Jindal Stainless Ltd's project at Kalinga Nagar. None of these SEZs is operational.

Not surprisingly, industry ranks land acquisition as the biggest hurdle in developing these SEZs. To add to the problem, the Orissa government has made it conditional for all standalone SEZs like Posco, Jindal, Vedanta, Hindalco, Saraf Agencies and so on to develop a minimum additional area of 250 acres (100 hectares) as a downstream hub near their SEZ to provide infrastructure and offer local entrepreneurs preferential allotment of sheds.

"When we are facing problems in acquiring land for our original SEZ area, getting an additional 250 acres to set up the downstream hub will complicate our problems," said a top executive of a company with SEZ commitments in the state.

Part of the land acquisition problem is political in origin. For instance, of the 3,956 acres (1,582 hectares) required for Posco's SEZ in Paradip, 3556 acres are government land. But hundreds of families have encroached on this land over the years and now eke out a living illegally cultivating betel vines.

Similarly, in Kalinga Nagar, people who had sold their land to the government in the mid-1970s for a steel hub and received compensation are now demanding higher compensation for the same land. In January this year, their protests turned violent following the construction of a boundary wall for Tata Steel's 6 million tonne plant here and 13 tribals were killed.

After the Kalinga Nagara incident, the state government raised compensation rates and promised jobs to at least one member per displaced family. Significantly, the state government also offered industry the option of directly negotiating with people for their land.

In Orissa, no one rejects the SEZ concept but the political opposition and NGOs continue to highlight the compensation issue. There are also concerns about agricultural growth in this primarily agrarian state. Said J B Patnaik, former Chief Minister, "SEZs should not be set up at the cost of agriculture. They should be permitted only in those areas where government land is available or where people are willing to give up their land."

Though the Orissa government is following the Centre's SEZ Act, it intends to frame its own rules soon. The proposed state policy may not allow exemption of state taxes like electricity duty, entry tax, VAT and stamp duty although the SEZs coming up in the state can avail of exemption from Central taxes.

Overall, the mood in the states is one of determination to forge ahead despite the problems. And as Gujarat and Tamil Nadu have demonstrated, the key lies in implementation as much as policy.

As Sunil Rallan, managing director of J Matadee Eco Parks, pointed out, "The Indian government's SEZ policy is superior to China's in terms of legislation but has failed in the implementation process." n

Reports from Dev Chatterjee in Maharashtra, Balachandar G., Ravi Menon & Vidhya Sivaramakrishnan in Tamil Nadu, Kamlesh Trivedi in Gujarat, Anil Urs in Karnataka, Krishna R Das in Chhatisgarh, and Dillip Satapathy in Orissa 

AT A GLANCE
No. of valid formal approvals:	234
No. of notified SEZs:	63
No. of formal approvals pending notification:	171
No. of in-principle approvals:	162
Land requirement: SEZs notified 67 sq km SEZs formally approved 350 sq km In-principle approvals 1400 sq km Total area for proposed SEZs (FA+IP) - 1750 sq km
Investment made in 63 notified SEZs Rs 13,435 crore
Employment created in 63 notified SEZs 18,457 people
Expected investment and employment from SEZs (by December 2009)
By the 63 notified SEZs: Investment Rs 53,561 crore Employment 15,75,452
If 234 formal approvals become operational Investment Rs 3,00,000 crore Employment 4 million additional jobs
Exports in 2005-2006 Rs 22,840 crore
Source: Government of India