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'Rivalry between business houses has blown up the SEZ issue'

Commerce Secretary G K Pillai, who also heads the Board of Approval of Special Economic Zones in India.
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February 21, 2007

In the rarified world of Central Delhi's super-bureaucrats, Gopal Krishna Pillai, a 1972 batch Kerala cadre IAS officer, holds a key position. He not only the chairman of the explosive panel known as the Board of Approval for Special Economic Zones, but being the Commerce Secretary, he also has a crucial role in choreographing the United Progressive Alliance government's ideology, tactics and strategy on the subject.

He is chairman of the Grievances Redressal Committee on matters relating to foreign trade and regional trade arrangements (RTAs)/free trade agreements (FTAs)/preferential trade arrangements (PTAs).

More importantly, he is also India's chief negotiator at the World Trade Organisation (WTO), too.

By any yardstick, his is an unenviable task. The job requirement involves taking up cudgels with his peer group in the sister ministries of the government, especially the finance and agriculture departments.

The ruling party is having nightmares as farmers have begun to lash out at the government plans to create SEZs. For the farming communities, who form the 650 million-strong majority of rural India, SEZs have become a symbol of tyranny.

However, Pillai is undeterred. He strongly insists that the government's vision on SEZs has tremendous potential to succeed. Suave and articulate, Pillai has the persuasive power to convince his interlocutors that the government policy is sound and sustainable. And he has facts and figures on his fingertips to substantiate his points.

The million-dollar question, however, is whether the hundreds of millions of rural poor would be convinced. More importantly, how will the politician assess the balance sheet in the saga of SEZs that is being played out, especially with the country lurching toward elections?

In an exclusive interview with Managing Editor Sheela Bhatt, Pillai demystifies SEZs.

What are your arguments in favour of Special Economic Zones?

The SEZ Act has brought in foreign direct investment. Nokia, Flextronics, Ascendas, Foxconn Tech, Apache Software and Brandix (a Sri Lankan textile company) have already invested in India because of SEZs. In the first year of SEZs, investment to the tune of $3-5 billion has been committed.

That is almost 60-70 per cent of the total FDI coming into India. I am quite sure that we will be able to bring in about $20-25 billion in next 3 years from the companies that have shown interest.

Second, SEZs are going to create jobs. Private investment in SEZs, before the enactment of Act, was merely Rs 3,600 crore (Rs 36 billion) and 1 lakh (100,000) jobs were created in the last 15 years. In the last 11 months alone, I have already got Rs 11,600 crore (Rs 116 billion) in investment in SEZs, creating 15,000 jobs. This will create 8.9 lakh (890,000) jobs in the next three years.

It also simplifies many procedures. For the first time, all the State governments are enthusiastic about getting SEZs. It is an opportunity to get more business. That's why I have 17 States and two Union Territories having SEZs.

As you know, concept of SEZ is being seriously contested. The finance ministry has said that there will be an actual loss of more than Rs 1 lakh crore (Rs 1 trillion). Businessmen are not coming here for free. . . you are giving them a lot of concessions. Are you not worried that regular tax structure will be hit hard if you give so many tax concessions to a select few?

Let me put it this way. A lot of loss of revenue that is estimated due to SEZs is reimbursable for exports. In terms of export income, we will continue earning.

Even for 100 per cent export-oriented units (EOUs) and software technology parks, you already have a tax holiday up to 2009-10.

What is offered in SEZs is not much different than what is already available outside SEZ.

Forget even that, consider a simple calculation. You think that Rs 100,000 crore (Rs 1 trillion) will be the revenue loss. . . that's what the finance ministry says. Tax is free only on your exports.

Businessmen in SEZs will have to pay tax if they sell it in the domestic market. Loss of tax is on the profit. So assume what would be the profit if Rs 100,000 crore is loss on profit? Unless the profit is Rs 300,000 crore (Rs 3 trillion) you can't get the Rs 100,000 crore of tax loss. And, if your profit could be Rs 300,000 crore, what would be your turnover?

Assuming that you make 20 per cent profit on your actual turnover. . . nobody makes 20 per cent profit on exports, but even if we take that estimate it means that Rs 15,00,000 crore (Rs 15 trillion) should be the turnover inside the SEZ.

Do you know the turnover of current SEZs which is giving jobs to 1 lakh people? Total turnover is Rs 23,000 crore (Rs 230 billion). If I can increase the economic activity from Rs 23,000 crore to Rs 15,00,000 crore in India, it will generate Rs 150,000 crore (Rs 1.5 trillion) of indirect taxes.

Critics are wary of your statistics. Your concept and the thrust behind SEZ have divided India. You are killing one type of livelihood for another type of livelihood. You are turning owners of farmland into labourers in an SEZ factory. Why?

I think it's a misnomer. What you are not seeing is the overall effect. Let me give you a simple example of Sriperumbudur near Chennai. 700 hectares were acquired in 2002, much before SEZs came. Farmers who were displaced were paid Rs 5 lakh (Rs 500,000) per acre of land as per the market price at that time.

Now, Motorola, Flextronics, Foxconn, Samsung and Dell have come. All of them are saying that they have come because of SEZs. Don't go by my viewpoint, you may ask them. These companies will provide 1 lakh jobs in about three to four years. These 700 hectares of land had about 1,500 farmers.

Second, look at those 15,000 farmers who are living outside and around the SEZ.

Their land which was Rs 5 lakh an acre is now fetching them Rs 80 lakh (Rs 8 million) per acre. I have generated wealth for 15,000 farmers by doing nothing. By bringing an SEZ, overall growth of area is evident.

I met a farmer who had two-and-a-half acres of land some 3 km away from SEZ. I asked him what does he think of the SEZ? He said it is the best thing to have happened to him. He said he is going to sell one acre, get Rs 80 lakh and put it in the bank. He says his own pension, his daughter's marriage and son's education will be taken care of.

He said that in remaining land he will do cultivation because he doesn't know anything else. I asked him what was his earning from the land? His land is in rain-fed area. They don't have irrigation. He said he earns around Rs 6,000-7,000 per year per acre.

Tell me, when is he going to get Rs 80 lakh? This benefit that has gone outside the SEZ is not noted by anybody. I have created wealth apart from the investment of $3 billion.

But a fundamental question is regarding the government's way of thinking vis-�-vis India's development. As a wing of the government, you are out to acquire land belonging to a private citizen, with the help of an archaic weapon named Land Acquisition Act, to help private people who are going to make huge personal profit. Why is government helping private people in making money at the cost of the government and the farmers?

This is not something that has happened because of SEZs! Since Independence, all the State governments are acquiring land for industries. In fact, in the first 235 SEZs not a single farmer has been displaced! All the land -- measuring 35,410 hectares in the 235 SEZs -- is land that was acquired by various Industrial Development Corporations.

You must understand that on February 10, 2006, the SEZ Act and Rules came into force. I have given clearance to 235 formal approvals by November 2006, which is less than six months back. Will any acquisition get completed in six to seven months between February and November 2006? No. All the 235 SEZ are on land of the state government that was acquired many months before the SEZ Act came into force.

About 162 SEZs have been given the formal go-ahead, besides the 235 SEZs. These 162 SEZs will need another 60,000 hectares of land. The next lot will need a bigger chunk of land because it is a multi-product SEZ. The Maharashtra Industrial Development Corporation still has 15,000 acres of land in its possession, which can be used for industries. Maharashtra has been acquiring land since the last 40 years.

You haven't answered my question. Isn't it wrong to acquire land by use of laws and government machinery for the private people to facilitate them to make profit.

Sitting here, you know who makes profit and how. Let me put it this way. First, the question is whether farmers are getting the right compensation or not. Kakinada SEZ is one of the 162 SEZs which are only approved in-principle. 5,000 hectares of land is acquired by private developers. In fact, I feel that the State need not acquire the land for the industries because industry can go directly to purchase the land from farmers.

But private people can do small bits -- like 10 to 100 acres, but if they need 1,000 acres what do they do? SEZ land has to be contiguous. If an industrialist acquires 990 acres land and somebody is unable to acquire 10 acres in the middle of the plot he can't get an SEZ. It would be a waste of efforts.

In my opinion, the State should intervene only in such cases where small bits of land are yet to be integrated. Reliance in Jhajhar bought 6,000 acres directly from farmers. There is no opposition. Prima facie, yes, acquisition should be only the last step. But I am only saying that for the first 235 SEZ, whether you like it or not, the acquisition was done prior to the SEZ Act coming into force.

I have got 100 proposals where the land is already in hands of private parties. In some 30 to 40 cases, there is a problem. Land acquisition problem is concerning the States and they have to solve it. As West Bengal Chief Minister Buddhadeb Bhattacharya said, 'If people of Nandigram don't want the industry and if people in other places are willing to take it, then fine. SEZ is only a facilitating environment to do business.'

One of the common allegations against SEZ is that industrialists are padding up demand to get land. There is an allegation against Tata that in Singur they need much less than 1,000 acres. How can you take away land that has great emotional value for people under the pretext of designer swimming pools and artificial landscapes?

There is a study that shows that most farmers whose land is being acquired are subsistence farmers. I am not denying that they have an attachment to land and all that. But do you want them to continue to be a subsistence farmer and earn $1 a day? Or you want to give them an opportunity to move out of it?

No country in the world where 65 per cent of the population is dependent on agriculture can be helped to raise their income.

There is a limit to how much you can improve their income by tilling one acre of land. Industrial development takes place not only for these 650 million farmers, but everybody.

Near Pune, Bharat Forge is acquiring 7,000 acres. They have gone about it systematically. They have gone to villages. They have mapped the area. They have kept residential areas out of it. Each family has been contacted individually. They have taken two ITIs from the State government. They are training the family members of affected families.

By the time their training is over in 18 to 24 months, the factory will come up. It is prudent to take people from surrounding villages to save transportation costs and to nurture an affinity in local areas. You are not hearing about any great agitation against Bharat Forge.

Earlier, farmers whose land was taken were given jobs of security officers or peons or gardeners. . . now their jobs have been upgraded. Because of the skill, instead of the Rs 2,000 salary as a gardener, he now stands to command a salary of Rs 15,000 as a skilled worker.

We have brought the percentage of agriculture in the nation's GDP to 20 per cent, but 65 per cent Indians still depend on farming. In most countries, with 20 per cent of GDP from agriculture, not more than 25 per cent people are dependent on it. As a long-term strategy, if I want to take off 100 million people from agriculture, I need SEZs.

This is the commerce secretary speaking. The agriculture department is struggling to maintain stocks of produce. If you take out such a big chunk of land, in the next ten years what will be the impact on food security?

If you consider the percentage of arable and cultivable land and what percentage of it is going to SEZs, you will realize that only 0.000012 per cent of cultivable land is going to SEZs! And, you should know that out of the total acquisition done by the State government only 10 per cent is going to SEZs.

States are doing it anyway to build irrigation projects, ports, airports, national highways, irrigation channels, schools and colleges. State governments are acquiring land all over. I think the SEZ controversy has been blown out of proportion. I think a part of the fault is ours. We didn't anticipate that the SEZ thing will come up as a major issue.

For industries, States have been acquiring lands for the last 50 years. You never had any problem then.

In that case, why do think has this controversy erupted?

I think it is because of a few major industrial houses which have presence in these areas. . . and the rivalry between these business houses has blown up the whole issue. Even the issue of processing area and non-processing area has been blown out of proportion.

Once I notify the SEZ, the developer cannot sell the land. People say he will develop it and create real estate and then make money out of it. He can't do that.

Second, if you look at the urban development guidelines for industrial townships, the processing area is 10 to 12 per cent: but I am putting it at 35 per cent. Then, 40 per cent of area will remain green.

The SEZs are deemed to be 'foreign territory' only for the purpose of the Customs Act. It means, there you get duty-free items. But otherwise every single law of the land will be applicable to SEZs.

Some NGOs have come and told me that if a murder is committed in an SEZ, you will have to file a complaint with the Interpol!

You have seen the articles stating that Jamaat-e-Islami thinks that 'SEZs are against Muslims.' In Gujarat, people are saying that SEZs will increase the flow of liquor. Someone else said that you are bringing back the East India Company. All these allegations are not true.

Every single law of India will apply there (in SEZs). After getting SEZ land, the developer will have to get environment clearance. He has to do the Environment Impact Assessment. A gate pass is required only in the processing area, the rest of the area will be open for the public. Hospitals and schools in SEZs will be partly used by people outside the SEZs too.

We didn't anticipate that there will be so much of misinformation on the ground. There are now 63 notified SEZs and 23 have become operational. Please go and see it yourself and show me one case if anybody has misutilised anything.

Tell us, in black and white, aren't SEZs an excuse for land-grabbing by people with a profit-motive?

SEZs is not land-grabbing. If you think that setting up of industries which provide employment is land-grabbing, then it is one interpretation. . . in some cases, land has been given on lease to the party by the State. Like in Mundra, in Gujarat, 7,000 acres of land has been given on a 30 year lease to the Adanis.

Do you know that barren land costing Rs 20,000 per acre and now the land outside the SEZ is Rs 1 crore (Rs 10 million) an acre! In that distant corner, you should go and see how poor people have become millionaires. In that totally barren land, there is a port, there is a railway line, there is an airport and all that due to development of the SEZ.

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