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'SEZs are the law of the land'

G K Pillai, chairman of India''s Board of Approval for SEZs.
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February 22, 2007

Part I: 'Rivalry between business houses has blown up the SEZ issue'

Gopal Krishna Pillai, a 1972 batch Kerala cadre IAS officer, is the chairman of the explosive panel called the Board of Approval for Special Economic Zones. He is also India's Commerce Secretary and has a crucial role in choreographing the United Progressive Alliance government's ideology, tactics and strategy on the subject of SEZs.

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.

G K Pillai demystifies SEZs and the controversy surrounding them in the second part of an exclusive interview with Managing Editor Sheela Bhatt.

In his research paper titled 'Origins and Performance of China's SEZs,' Prof. James Kai-sing Kung says that in China people's perception is that SEZs are like 'rented territory.' To some they are a selling of the nation. And, second, they increase economic crime and augment inequality.

As I said, just a small portion of India's land will turn into SEZs. First 235 SEZ are taking 35,000 hectares where no farmer issue is involved. I will create 8.9 lakh (890,000) jobs by 2009. The SEZs will create 2 to 3 times more jobs outside the SEZs.

Nokia produces about 2.5 lakh (250,000) cell phones a month. In the first year, 3,700 girls have been employed from the local area. All the girls have passed their higher secondary examinations. They have a steady income now.

Mobile phones need packaging material. Nokia is buying that from the local market. Local people are getting the business of supplying packaging material for 2.5 lakh cell phones. Every mobile phone has an instruction book, so the job of printing 2.5 lakh booklets has been created. The phones, the raw material, etc come in and go out in trucks, so the transporters get business. The canteen for 3,700 girls creates other employment opportunities. To support 3,700 employed people, another 10,000 gets jobs outside the SEZ.

Because of Nokia seven ancillary industries have come from abroad. In one SEZ, a total of 20,000 jobs will be generated on 100 hectares of land.

Same is the case with other companies in Sriperumbudur. In China, most of the investment came from outside. In India, like in Mundra in Gujarat, the investment has been made by a Gujarati businessmen: the Adani family. In Kakinada, the investment has been done by an Andhraite. Likewise, investments made by Reliance in Jamnagar and by the Tatas in Gopalpur are not foreign investment.

There are some SEZs where FDI has come in, but it is a certain proportion of the total.

The entire land in China belonged to the government because there is no private ownership, therefore the Chinese can do certain things. If the Chinese government displaces 1 lakh (100,000) people, nobody hears about it. . . Here, if five people are displaced it is a matter of concern. . . it is democracy. However, we have no problem with that.

I haven't seen any economic crime inside any SEZ so far. We will have to wait and see when large SEZs come up. When employment is generated in areas around the SEZs, rural inequality will come down. The Sri Lankan company Brandix is going to recruit 60,000 people. They have begun by giving employment to 400 local people in Tamil Nadu.

For the information technology sector, we need one million square feet of built-up area in SEZs. Out of the 235 approved SEZs, 142 are SEZs for IT and will employ a million people.

Only in Sriperumbudur, I am guaranteeing 1 lakh jobs in the coming three years. I am ready to stake my reputation on it.

Argument goes that the Chinese needed the ring of protection via SEZs to balance the fear of political uncertainties. In India, the legal system is in place and it is a democracy, so no need to go out of the way to provide extra protection to lure investment in SEZs.

We are living in a globally competitive world. Why should Nokia come to India? Why should Flextronics come to India?

To make money.

They have factory in China. Sending mobile phones to India is easy. They have labour flexibility there. Why should they come here? In the leather industry, 200 acres of land is being given to Nike. We are nowhere in women's sports shoes. . . Nike is coming with sports shoes and Adidas too is following suit. Why didn't Adidas and Nike come in the last 50 years?

It is because of the SEZ that they are coming. If the decision on the Nike matter is delayed by the Group of Ministers, Nike will go to Vietnam or the Philippines or Thailand. It intends to create 25,000 jobs.

We never had electronics hardware. Why is Foxconn Tech -- that is worth more than $60 billion -- now coming to India? They are the largest manufacturers of electronics hardware. Their exports from China are to the tune of $18 billion. Why are they coming to India? The jobs they create will be Indian jobs.

Please go to Gems and Jewellery Park in Hyderabad. About 700 girls and 300 boys are employed from the surrounding areas there. I requested Members of Parliament to see them, meet them and then tell me if SEZs are not required. All these boys and girls employed in the gems and jewellery SEZ are from landless labourers' families.

These boys and girls were unable to get two square meals a day. See their faces and you will know how underfed they are. They were running around rudderless for last the three years. But, now they have a job. The SEZ has given them self-respect.

And a very surprising thing is that although they have only one full meal a day, all of them have mobile phones! They say smilingly it's a fashion and their family is also happy because if they are late at work or elsewhere, they can call up home to inform. Cell phones are a part of new social system.

Why would SEZs succeed where the Export Processing Zones failed?

All the EPZ were set up by the Central government and the infrastructure was funded by the State governments. In SEZs, you are giving the private developer infrastructure, power and tax benefit for ten years. Forget about SEZs, outside them too -- in the infrastructure sector -- you get the same tax holiday under section 80-I-A of the Income Tax Act. In SEZs, the extra benefit is in customs duty. . . but if the manufacturer sells his product in the domestic market, all that benefit goes. If someone builds roads, power plants, water supply facilites, housing colonies, schools, colleges, airports, etc, we want to encourage that.

Your rehabilitation policy is not yet in place. Displaced people are cheated. It reads well on paper, but people are not getting what is due to them.

In the case of rehabilitation, I agree that displaced persons get a lowly paid job because they don't have proper skills. But in Chennai, an NGO is now working to train people. Farmers' sons are being trained and will be sent to work in industries.

But, if you look at the ground reality wherever farmers are made watchmen and gardeners in factories in SEZs, the government is surely bound to lose votes. . .

I look at it this way. We made a proposal for an SEZ. It went to the Union Cabinet. There was some disagreement. Then it went to Group of Ministers. They discussed and made a lot of changes and then the Cabinet approved it. Then, the Bill was introduced in Parliament.

Again the Lok Sabha made some amendments. Then it went to the Rajya Sabha. There too some amendments were done, and then the Bill was passed.

Then those changes were ratified in the Lok Sabha, where the Bill was passed unanimously! We got Presidential assent in May 2005, then we made draft rules, we put it up on the Web site. I held hearings in seven cities of India. I got more than 800 suggestions, we incorporated many of them into rules. Then the Rules and Act were notified on February 10, 2006. A full 10 months after the Act was passed.

We were never in a hurry to have SEZs. The Board of Approval for SEZ has 17 members. Three members are from the finance ministry, the home ministry and the IT ministry. (The agriculture ministry does not have a say in the committee).

In the BoA of SEZ, every decision is taken only if it is a unanimous decision, otherwise the decision goes to the GoM. Formal approval for the 235 SEZ is always by consensus. We need State government approvals in each case before we consider any case. Without them we don't move an inch.

Why do you need Chinese and Singapore companies to build SEZs?

The Singaporean company has set up world-class SEZs in China and Thailand. They will set up a benchmark in the multi-product SEZs, they go in detail. From training labourers to designing restaurants, they are giving attention to every detail.

To attract Japanese investors they have done a survey of Japanese restaurants in Chennai. They have brought Japanese businessmen to Chennai and have asked their food preference to decide about the menu within the SEZs.

What will happen to people who are going ahead with building the SEZs?

In the case of Brandix, they have already recruited 400 women and they are asking how long we can hold on? If we delay it by 3 months, they will terminate the contract with these 400 women. The way farmers are committing suicide these women will commit suicide too. Then you have a problem. You decide who are more important farmers or women?

In Tamil Nadu, there is no involvement of farmers because the land belonged to the government. I think the way we handle the issue matters a lot. You have to go around in the area, show the people the master plan and share data with them. Nandigram wasn't handled as well as South India has done the SEZ issue.

Now, do you agree that there is farmer's backlash against SEZs? Megha Patkar says they Special Exploitation Zones.

Let her go inside an SEZ and see for herself. SEZs are exporting units where foreigners come and inspect it. If we do any exploitation of children or don't pay wages as per rules, the export orders won't be placed. In Panipat, out of 280 labourers, two were children and we witnessed such a huge furore in Europe.

There are people with a certain ideological position, they just can't change. SEZs should be judged by the final results. In Madhya Pradesh, farmers came to us and said: 'We don't want this land, please take it.' A developer got 2,000 acres of land. Most farmers want higher price, only few are denying this.

Now that SEZs are on hold, and, if SEZ notifications are cancelled in view of the severe protests or because of serious political implications, who will bear the expenses?

You can't cancel it. I don't think there is a possibility of cancellation. It is an Act. There is no clause of cancellation of notification, unless the developer has defaulted.

Also, only fresh approvals are on hold. 63 SEZ are going on in full swing, 44 SEZ have completed formalities and the rest are in the process of getting non-encumbrance certificates and other things.

When a developer gets the formal possession of the title of the land, we give formal approval. He normally shows the land given to him by the State government. After that he has to give us the map of the land, survey numbers certified by the Revenue department of the State and then he has to give me a certificate of non-encumbrance to certify that the land is free from any encroachments.

Then my Development Commissioner goes for physical verification. Only then we notify and once we do that it becomes an SEZ. The Bharatiya Janata Party, the Left parties and the Congress have made representations to the government asking to increase the ceiling on the built-up area. They want better rehabilitation, they want an increase in the processing area, they have also demanded that certain type of land should not be given to SEZ. . . some 22 objections have been raised and now the list has been sent to GoM.

Almost 75 per cent of the suggestions are due to some apprehension. In the master plan, we will be going phase-wise. The developer cannot build only houses or malls. To attract people, building of houses will be allowed but everything will be done step by step.

Tax-related fears are not valid. We have 4,000 export-oriented units that enjoy tax holiday in India, and the tax structure hasn't suffered.

We have 200 software technology parks: they have 100 per cent tax benefits, but we haven't been affected. In one sense it is linked to India's credibility. SEZs offer single-window clearance, tax concessions, simplification of procedures and give stability to business environment.

After the Budget, the GoM will take a decision on SEZs. Any fine tuning needed to be done will be done by the ministry.

We have seen the enthusiasm in investors and in the State governments and our efforts so far have shown the results. As far as I am concerned, SEZs are the law of the land. Why one should be afraid of them?

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