Global Policy Forum

By Paranjoy Guha Thakurta

Faced with growing opposition from its political opponents as well as civil society, the Indian government has drastically limited the size and use of special economic zones (SEZs) that are meant to attract foreign direct investments and promote exports.

On Thursday, the government imposed limits on the size of the SEZs, called for an end to compulsory acquisition of land from farmers by provincial governments and proposed a new scheme to provide livelihood to one member of each family that loses land for the setting up an industrial or a commercial venture.

These policy changes were announced in the wake of widespread and sometimes violent protests in different parts of the country against the acquisition of agricultural land for establishing SEZs. The most violent of these protests occurred last month at Nandigram in West Bengal state where police shot dead 15 peasants trying to defend their land from being taken over for a chemical complex.

While the policy changes are clearly a consequence of the controversy generated by the government's decision to establish over 300 SEZs, independent analysts told IPS that popular discontentment over farm land being acquired for commercial ventures would not die down in a hurry.

The size of the SEZs, or designated areas where commercial activities attract generous tax concessions, now cannot exceed 5,000 hectares. More importantly, the limit on the size of each SEZ would be applicable with retrospective effect on zones that have already been approved for establishment, which includes at least two SEZs that have been planned by one of India's largest private corporate groups, Reliance Industries.

"The decision will be applicable to all SEZs including those which have already been notified," Kamal Nath, India's minister for commerce and industry, told journalists after coming out of a meeting of the 'empowered group of ministers' in New Delhi on Thursday.

Another significant decision of the group of ministers was to impose a limit of 50 percent of the land area of a SEZ that could be could be converted for non-commercial activities. This was in response to criticism that the SEZs would be "misused" for real estate development by companies that set up ventures inside the designated areas.

Nath said the group had decided not to allow provincial governments to acquire land for SEZs using legal provisions that were enacted during British colonial rule over a century ago. The promoters of the SEZs would henceforth have to directly purchase land from farmers, he added.

The commerce and industry minister stated the rural development ministry had been asked to expedite the formulation of a new policy on resettlement and rehabilitation of families whose land would be acquired for commercial activity. In addition to the compensation being paid, one member of each displaced family would have to be employed in the project being set up, Nath said.

"The government's announcement is aimed at blunting the edge of criticism of its policy on SEZs," said Amita Baviskar, associate professor at the Institute of Economic Growth in New Delhi. She told IPS in an interview that, if indeed, the federal government ensured that provincial governments would not acquire land for SEZs, "it would mark a major reversal of existing policy that allows local governments to facilitate the handing over of farm land for the benefit of corporate interests."

Baviskar, a sociologist who works on issues relating to the impact of land acquisition on the environment and development, said the Indian government's policy so far had been akin to "land reforms in reverse" whereby rights to land had been transferred from underprivileged sections to affluent business elites.

Another independent analyst, Ashok Kumar Bhattacharya, managing editor of the 'Business Standard' newspaper, told IPS that the new provision -- cutting to 50 percent the land area in a SEZ that could be used for non-commercial purposes -- was a reaction to "a group of smart, rent-seeking industrialists seeking to acquire large tracts of land for real estate development in the name of establishing industrial or commercial ventures."

Like Baviskar, Bhattacharya was of the view that the controversy over the setting up of hundreds of SEZs would not be over quickly with the new policy changes. "A landowning family may be quite willing to sell its land, but what happens to the livelihood of those who are working on the land or so-called share-croppers?" asks Bhattacharya, explaining that the problem of rural unemployment in India is a huge and complex issue that cannot be easily resolved.

Interestingly, criticism of New Delhi's policy on SEZs has cut across ideological lines and divided the government. The finance ministry has time and again expressed its apprehensions that there would be substantial loss of revenues on account of the tax concessions granted to corporate entities operating in SEZs.

A report by the Manila-based Asian Development Bank (AsDB), released Mar. 27, sharply criticised the Indian government for offering "unnecessary" tax incentives to developers of SEZs. These incentives could open loopholes for tax evasion and undermine investments in firms located outside the SEZs, the report argued.

On rehabilitation of displaced persons, the AsDB report added: "Some of the loudest political opposition to SEZ projects comes from the landless, who may not receive compensation for the land conversion and who lack the capital to become self-employed."