The New Maharajas of India
by Devinder Sharma and Bhaskar Goswami
New Delhi, India
It took nearly 15 years for Indias first Home Minister Sardar Patel to ensure that the 554 princely estates scattered throughout the country finally integrate with the new nation. Some 45 years later, and in the 60th year of Indias Independence, almost an equal number of princely estates are once again being carved out.
A new breed of Maharajas is all set to grab the crown.
The only difference being that the new princely estates comes within the gambit of a strange sounding acronym -- SEZ -- meaning Special Economic Zones. As the name suggests, these cut out zones will have a special status, very special indeed. Except for floating its own currency, these zones would operate more or less like a princely estate, and would even have special courts to try the economic offences.
Doling out state largesse in the name of production incentives -- no, its not fair to dub these as subsidies -- these SEZ will primarily be duty free zones. Complete exemption from excise duty, custom duty, sales tax, octroi, mandi tax, turnover tax, as well as income tax holiday for ten years, are some of the inducements. Also spelled out are provisions for 100 per cent foreign direct investment, exemption on income tax on infrastructure capital fund and individual investment, and an assurance of round-the-clock electricity and water supply. The SEZ promoters have also been given a waiver from carrying out an Environment Impact Assessment.
Permitted to indulge in commodity hedging, external commercial borrowings up to US$ 500 million without any maturity restrictions, freedom to bring in export proceeds without any time limit and make foreign investments from it, exemption from interest rate on import finance, and setting up off-shore banking units with income tax exemption for three years and subsequently 50 per cent tax for another two years are some of the financial enticements. And if the new Maharajas were to sub-contract production to local manufacturers outside the princely estates, there would be duty drawbacks, exemption from state levies and income tax benefits.
All these exemptions will mean a revenue loss of more than Rupees 1.75 lakh crore (Rs 1,750 billion) to the state exchequer after five years. Although this staggering amount is enough to feed the countrys 320 million people who go to bed hungry stomach for a number of years, or provide guaranteed employment to at least two members of each of the rural families for the next five years, this is a small price that the nation must pay to keep for the royalty tag for the rich and beautiful. In a way, what is being considered as a revenue loss is in reality like the Privy Purse for the new Maharajas.
The Privy Purse was a grant given to the princely states after Indias Independence in 1947. As part of the process of accession to the Indian union, the Privy Purses were accorded in terms of measurement of the revenue and potential of the merging states. These Privy Purses, provided to some 400 princely rulers, were abolished by the then Prime Minister Mrs Indira Gandhi in 1969.
Legally authorized to disallow any inspection, search or seizure without prior permission, and with sanction to operate its own private security system, these princely estates will for all practical purposes be autonomous. That is how the former princely estates operated-- of course, with blessings of the British Empire. The new princes too enjoy the confidence of the ruling Congress-led UPA (United Progressive Alliance) Coalition. Moreover, with the National Democratic Alliance (NDA) and the left parties bending backwards by seeking a few amendments to support the SEZ, the political backing is complete.
No wonder, the State governments are letting no stone upturned to acquire agricultural land and offer it on a platter. With promises of the right kind of environment many chief ministers are waiting with garlands in hand. Take for instance the Haryana Chief Minister who had specially flown to Mumbai to invite a top industrialist. Gujarat government had sent a team abroad to invite investments for SEZ. The Orissa government is moving a step ahead. It is seeking amendment to the Scheduled Area Tribal Immovable Property Act thereby allowing outsiders to come and buy the tribal land. Given a choice, the central and state government would leave no stone upturned to handover the prime land to industrialists -- Tatas, Ambanis, Mittals, and the likes.
Union Commerce Minister Kamal Nath has been going around seeking investments from European countries for the SEZ. After all, he has a huge responsibility to ensure that the Prime Ministers dream of turning India into an international workshop is turned into a reality.
You may call it the biggest land-grab of the century or term it as open-loot, the powers that be are simply not deterred. Prime Minister Manmohan Singh has repeatedly said that the SEZ are the need of the day. No wonder, agricultural land, which is a scarce commodity, is suddenly available in abundance. Unmindful of the fact that the per capita land holding is already at an abysmally low 0.25 acre, the government is using the draconian Land Acquisition Act 1854 to further purchase any land that it sets its eyes on. In the first phase of clearances accorded by the government, a total of 1.25 lakh hectares of prime agricultural land are in the process of being acquired. In the second phase, too, almost an equal area would be obtained.
It was only after an increasing tide of protests that the Ministry of Commerce asked the state governments not to acquire agricultural land and to also ensure prevailing market value to farmers. The State governments are however more eager to make available land to the industries. In Punjab, where almost the entire state is irrigated, SEZs are being set up on prime agriculture land. The Punjab government, for instance, is using repressive techniques to browbeat the agitating farmers near Barnala, who have been opposing the forcible acquisition of land for the private company, Trident. Similarly, farmers have been agitating against the governments repressive policies for acquiring fertile land for an SEZ near Amritsar. Although rules forbid acquiring more than 10 per cent of the double-cropped area for setting up SEZ, the fact remains a majority of the princely estates are coming up on fertile land.
Even in Himachal Pradesh, where the average farm size is about 0.4 hectares, the government is keen to convert 35,000 hectares in the Kangra valley into SEZ.
One of the biggest SEZ is coming up near Mumbai. Spread over 14,000 hectares, it is coming up predominantly on double-cropped land. The Mukesh Ambani group has already acquired 9,000 acres of land in Jamnagar for its petro-product SEZ. It plans ultimately to increase the size of the product to 10,000 acres and convert it into a multi-product SEZ. With provisions for owning 65 per cent more land than required, the government has provided the developers of SEZ an environment to build supermarkets, malls, restaurants, recreation parks and so on -- essentially given permission for building small princely estates. Out of 1.25 lakh hectares allocated so far to SEZ, nearly 31,250 hectares can be used for real estate development. The real estate firms are obviously elated.
Another major SEZ proposed in Jhajjar adjoining New Delhi is spread across 10,000 hectares and is again gobbling double-cropped land. Interestingly, both these SEZ, proposed to occupy a landmass larger than the suburb of Gurgaon, are yet to be officially approved. In Mangalore, one of the promoters is the government-owned ONGC and 2,200 hectares of double- and even triple-cropped land is being acquired for setting up an SEZ.
Take the case of Tata Steel promoted Gopalpur SEZ in Orissa. Originally acquired by the state government for a paltry sum, land was handed over to Tatas for a steel plant. When the plant didnt come up, and the farmers demanded the land to be returned, the company promptly proposed to convert this land into an SEZ. Korean steel giant Posco, which is also setting up a steel unit in Orissa, was provided with 1,600 hectares of land and exclusive access to an iron ore mine despite massive protests by farmers. Posco now wants this land to be converted into an SEZ and the state government is willing.
In another interesting example, the CPM [Communist Party of India (Marxist)] government in West Bengal has acquired some 400 hectares of fertile land for the Tatas to set up an automobile factory at Singur, near Kolkata. Technically speaking Singur is not an SEZ, but what makes the deal politically significant is that the State government has actually acquired the land at cost of Rs 140-crore. It has been made available to Tatas for a-mere Rs 20-crore, which is one-seventh of the cost price. Even that can be treated as a loan for 5 years. Ironically, while the poor rural women in self-help groups (SHGs) in West Bengal pay a minimum annual interest rate of 24 per cent for micro-credit, Tatas will be charged a nominal rate of 0.1 percent for macro-credit.
In Kerala too, the communist government is gung-ho over the promise of SEZ.
The setting up of the princely estates is being primarily justified on account of employment generation. The premise is that it will create 5 lakh (500,000) job opportunities. Does this kind of employment generation mean anything for India? This question has been conveniently ducked and for obvious reasons. Now let us examine the ground realities. It was at the beginning of this century that some 75 lakh (7,500,000) people, more than the population of Switzerland, had applied for a mere 28,000 lowly paid jobs in the Indian Railways. For a country, which is on a fast track information highway, this does not mean anything significant except for statistics. Even if you were to employ five lakh out of these 75 lakh (7,500,000), isnt that a mere drop in the ocean? Millions of assured jobs can be created if the total amount of revenue loss -- Rs 1.75 lakh crore (17,500,000) -- and the several times higher public sector investment to follow is used for employment generation.
Not to discount the achievements in information technology, the fact remains that IT has provided only five to six lakh jobs. The BPO service industry that we hear about every other day actually employs only 2 lakh (200,000) people. Why a large number of IT companies applied for setting up SEZs is not because they intend to provide huge job opportunities but are simply looking forward to take advantage of the tax concessions. The tax exemption currently enjoyed by the IT sector comes to an end in 2009-10. Moreover, since existing contracts and employment can be shifted, it is quite likely that IT units will merely shift their operations into an SEZ, thereby nullifying claims of employment and revenue generation.
With such large-scale diversion of land the first and foremost impact will be through displacements. Our estimates show that close to 1.14 lakh (114,000) farming households (each household on an average comprising five members) and an additional 82,000 farm worker families who are dependent upon these farms for their livelihoods, will be displaced. In other words, at least 10 lakh (1,000,000) people (twice the number of jobs that SEZ promise to create) who primarily depend upon agriculture for their survival will face eviction. The plight of farm labour is surely going to be worse as they will not only witness their source of livelihood being taken away but they will hardly see any employment opportunities for them in the princely estates. All they can do is to stand outside the tall gates of the SEZ and dream to be born in such families in their next birth.
Now let us take a stock at the annual loss in income for those displaced. As per the latest report of the National Sample Survey Organisation (NSSO 2005), the average income of a farming household stands at Rs. 2,115 per month (income from cultivation - Rs. 969; farming of animals - Rs. 91; wages -- Rs. 819; and non-farm business -- Rs 236). Of these, income from the first two sources (Rs. 1,060) will be immediately lost. Therefore, each farming household will lose Rs. 12,720 every year. The total loss of annual income for the 1.14 lakh (114,000) displaced farm families works out to Rs.145 crores. While it remains a fact that most of these displaced farmers would earn more for their land, several studies have shown that unless a rehabilitation policy is in place a majority of these farmers would ultimately end up further marginalized over a period of time.
As per the National Rural Labour Commission, an average agricultural worker gets 159 days of work in a year; and as per NSSO (2005), the average daily wage of agricultural labour in rural areas is around Rs. 51. Considering this, the estimated 82,000 agricultural labourers households will lose Rs. 67-crore in wages. And put together, the total loss of income to the farming and the farm worker families is to the tune of Rs. 212-crore (2,120,000,000) a year. For the marginalized, the loss of income -- even if it hovers around the poverty line -- has disastrous implications. After all, the small piece of land is his only economic security.
Food security too is no longer the national priority. Otherwise, no sensible government would have at any cost tinkered with the countrys dwindling ability to produce food for its own population. Our own conservative estimate shows that the nation will suffer a loss of Rs. 250 to 400 crores (4,000,000,000) from the reduction in area under cultivation of food grains alone. Foodgrain production is expected to drop by at least 4 to 5 lakh (500,000) tonnes a year. (1) Remember these are only conservative estimates. In case of land under high value crops, the losses would be much higher.
Tall promises of employment generation notwithstanding, who will be held accountable if the promise of job creation remains unfulfilled? First of all, the Ministry of Commerce has no true basis for telling us how many jobs will be created. It is merely a guess- estimate. Secondly, if the past experience is any indication, the real jobs that are added by the industries are only a miniscule of what they promise. Take the case of Pepsicos entry into Punjab in the 1980s. The multinational giant promised to create 50,000 jobs. In reply to a 1991 parliamentary question, the Ministry of Food Processing acknowledged that the company had created only 482 jobs, of which 210 were unskilled workers.
It is primarily to avoid embarrassments at a later stage for promises un-kept that industrial houses are seeking the advise of consultancy firms like Price Water House, Ernest & Young, and Feedback Ventures among others to prepare master plans for the promoters. Basically the job of these consultancy firms is to write the proposal in such a format using the right vocabulary so that its gets the governments nod. At the same time the State governments too are utilizing their services to ensure that the land transfers do not invite unnecessary litigation. In essence, if you are rich and can afford to hire a consultancy firm to write a proposal on your behalf you can aspire to be a modern-day prince.
It is therefore a free for all activity. If you can mobilize political support by hook or by crook you can be rest assured that you are on the right path to royalty. Whether you finally deliver what you promise is something that you can leave to the consultants to take care of. What is more significant is that where in the world will you find a pliable government and a supporting bureaucracy like India that helps you to not only identify the place where you want to set up your princely estate but also provide you all the necessary sops, support and protection.
In China, from where India drew inspiration, only six SEZ -- at Shenzhen, Shantou, Xiamen, Zhuhai, Hainan and Pudong -- have been set up so far. These economic zones, all in public sector, came after a lot of debate and deliberation, and all of them are situated along the coast. Faced with shrinking cultivable land, the Chinese SEZ have come up only in wastelands. In India, all these norms have been thrown to the wind. World over, there are only some 400 special economic zones. If it was such a productive and useful activity, why hasnt the world woken up to the promises that Dr Manmohan Singhs government has been making?
Creating an economic magic has not been the reason for setting up the SEZ. It is essentially aimed to create a series of affluent islands amidst the cesspool of poverty, hunger and deprivation. An oasis, or call it a pocket of effluence for the rich and elite. After all, the rich and the elite find the poor an eyesore. They have to be therefore translocated elsewhere.
For the rest of the country, exploited in the name of development, sub-Saharan Africa is the only comparison.
About the authors: Devinder Sharma is a New Delhi-based policy analyst. Bhaskar Goswami is his colleague.
Published in In Motion Magazine December 19, 2006
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