A couple of weeks ago I put up a post about the controversy surrounding India’s attempts to create Special Economic Zones using some sort of ‘home grown’ variant of the Chinese example. In the end I thought I understood what it was that was bothering people, but then I read this piece in the Financial Times and discovered that Sonia Gandhi is now wading in against the idea, although obviously with an entirely different set of objections.
“Since the passing of the Special Economic Zones Act in February, hundreds of businesses have rushed to take advantage of generous tax breaks, causing consternation in the finance ministry, the central bank and even the International Monetary Fund.”
This would be Raghuram Rajan that the FT are talking about, and the consternation refered to here would be one associated with the way the tax breaks were being allocated, and who they were being allocated to, and this concern I fully understand (as I say in the post), but it is not an argument against SEZs *in principle*, only about the way the ones which are presently in preparation are envisioned and administered.
But then along comes Sonia:
In a speech on Saturday, Mrs Gandhi, a key influence on the government, said farmers were being unnecessarily displaced by SEZs. So far, 150 SEZ projects have received formal approval and 117 “approval in principle”.
“Prime agricultural land should not normally be diverted to non-agricultural uses and, even if this was resorted to for unavoidable reasons, this should not jeopardise agricultural prospects,” she told chief ministers of Congress party-ruled states.
Now I’m at a loss here. Again this is not a critique of SEZs in principal, but is there really such a shortage of land in India? I mean maybe a zone would be better here rather than there, but wherever you put it some people are going to be inconvenienced and displaced, is this a debate about levels of compensation?
In comments on an earlier post Nandan Desai raises this important point:
The old problem of ‘concentrated costs, diffuse benefits’: In a democracy, the voices that will be heard in a particular debate……… are obviously the ones which are most-effected by a particular piece of legislation (in this, say the domestic farmers at risk of displacement by an FTA). Since the costs of the legislation are concentrated in this small group, but the benefits spread over an entire population, the small group will obviously lobby a lot harder against the legislation, than all of us will lobby for it.
I suspect what we have here is a clear case of what Nandan is talking about. In the process of economic development there will obviously be winners and losers, unfortunately there is no avoiding that.
I would say one of the biggest legitimate issues which I have seen in the debate concerns size:
But economists believe the proposed SEZs are unlikely to help Indian manufacturers achieve scale efficiencies, since 133 of the 267 are less than 1 square kilometre in area. The average size is just 4.2 sq km.
“Mega-sized SEZs are the ideal solution,” said Chetan Ahya of Morgan Stanley. “We believe that in today’s highly competitive globalised world, the concept of small-sized SEZs is completely outdated.”
Probably Chetyn Ahya is right here, and in respect to the difficulties involved in getting agreement to make them big enough, Nandan is surely right, as Kamal Nath suggests:
In a Financial Times interview, Kamal Nath, commerce minister and champion of the SEZ scheme, said the combination of high population density and democracy made it impossible for India to follow the Chinese model of giant export-oriented manufacturing zones.
This may well be, and there are both positive and negative connotations to the use of the term ‘democracy’ here, the negative ones being associated with the idea that ‘democracy’ sometimes enables small groups of well-organised vested interests to effectively block things. Of course India isn’t China, and development will be different in India, but this having been said some of the same issues will arise, and where to locate the SEZs would seem to me to be an illustration of this, especially in one underlying point which doesn’t seem to be being explicitly addressed: do you take the SEZs to the people, or do the people move to the SEZs? I have a feeling this is the unspoken heart of the problem.