Untidy patchwork

The government has moved finally to correct some of the more egregious problems with its hastily announced policy on special economic zones, but not everything that needs to be corrected has been addressed even now. The most important corrective is the increase in the minimum processing area in a zone, from the earlier stipulation of 35 per cent to 50 per cent. Ideally, it should have been raised to 65 per cent, but the change effected should ensure substantially (if not wholly) that the zones are in fact what they are touted to be ("economic" zones), and not a disguise for private company towns next to existing urban agglomerations. The second important change is the new limit on the size of a zone, to 5,000 hectares. At one level, this does not make sense because it is better to have a few large zones (as China does) than many small ones""the policy-makers clearly under-estimate the administrative headaches involved in monitoring the traffic of goods and people into and out of dozens of special zones which are free from domestic tax rules. However, the logic of this amendment would be a political one, in that the government does not want to be seen as creating massive private "zamindaris" all over again, after ousting ordinary farmers from their land. Think Nandigram""which would also explain the rehabilitation measure of asking a zone developer to provide a job to at least one member of each displaced family.

The danger of course is that developers will circumvent the size rules in the same way that entrepreneurs get around the size limit for small-scale industries""by setting up multiple, contiguous units. In fact, the group of ministers that has gone into the issue should have raised the minimum size of all categories of zones in order to address the issue of administrative convenience. A second issue that the government has not addressed is the size of the tax giveaways, raised first by the finance minister (who estimated a tax loss of Rs 100,000 crore). Nor has it done anything about mandating freedom for the zones from today's restrictive labour laws. In that sense, the policy continues to be unsatisfactory. The other issue that raises such second thoughts on policy is the whole business of retrospective action. This may well be legally valid, but it does show the government in a poor light. Among other things, it underlines how badly thought out the first policy was.

Nevertheless, the 83 developers of special economic zones, whose projects have been cleared, have reason to celebrate the end of months of uncertainty; these projects, for which they have already acquired the land they need, can now go ahead. And the Cabinet has decided that there will be no compulsory acquisition of land for such zones, which is the way it should be; indeed, this stance needs to be extended to all acquisition of land for industry. Once the government notifies farmland as suitable for use for commercial/industrial purposes, and companies now have to bid for land, those farmers who want to exit will be able to get the best possible price. However, it should be specified that in a situation where, say, 75 per cent (or any other acceptable threshold level) of the land in a defined has been sold, the remaining owners should be obliged to sell their land as well at the best price fetched till then, so that a small minority does not exercise veto rights.