SEZs: It's really a damp squibs?

By M H Ahssan

A study by the Hazards Centre shows that only 19 of an approved 366 SEZs are functional. And within many of these, the number of manufacturing units actually set up and the number of people employed is much lower than expected

A village elder, evicted from the village of Akalmegh in West Bengal in order to facilitate the creation of the Falta Special Economic Zone (FSEZ) located on the banks of the river Hoogly at Diamond Harbour, is still trying to pick up the threads of his life.

“Before moving here, I do not remember a single villager having to go to bed on a hungry stomach. We had paddy, fish from the pond in front of our house, palm, coconuts and different types of citrus fruits. There were few quarrels and if one took place, an elder helped resolve it,” he said.

“Moving to High Land (the name of the resettlement colony) has seen a change of lifestyle. Everyone is worried about his livelihood and there are frequent disputes,” he added.

Around 420 families were resettled in High Land 25 years ago. Today, 12,000 people live in the colony and they echo the regret and pain expressed by all those who have been displaced by the Special Economic Zones (SEZs) being created by governments across the country ostensibly to boost development and increase revenue.

In 1992-93, villagers belonging to eight villages outside Jaipur in Rajasthan were forcibly evicted so that the Sitapura Industrial Area could be created. Land began being bought from farmers in 1992 at the rate of Rs 1 lakh per bigha (though some claim they were paid just Re 1), much below the market rate.

The displaced villagers regret that the peace and harmony that marked their earlier lifestyle has been replaced by what could at best be described as a slum life.

“We were assured we would be given employment in the factories that came up here and that RIICO would provide us with water, electricity and good roads, but all these promises have been belied,” said Ram Singh, a villager from Khusdar village.

The Jaipur Special Economic Zone (JSEZ) was set up primarily to decongest Jaipur by removing the gems and jewellery industry from the heart of the city. But the jewellers chose to move the workers along with the units, so that although 4,200 workers are working here, only 2% of them are local villagers, employed mainly in menial positions as sweepers or daily wagers.

These are some of the findings of the first systematic study on the functioning of SEZs financed by Action Aid and undertaken by the Delhi-based Hazards Centre.

‘Special Economic Zones: How Special and how Economic’ highlights how SEZs, which are 30-40 years old (they were earlier known as Free Trade Zones), suffer from several major drawbacks, the main one being that they have not attracted the kind of foreign direct investment (FDI) that the government had anticipated.

The study quotes extensively from an American study of FDI flows in China (Lee and Fritz Foley’s study ‘Facts and Fallacies about US FDI in China’, 2007), which shows that FDI flows into China have been grossly overestimated. Moreover, 90% of the production from these SEZs caters to the local market and is not export-oriented.

Although the Indian government has approved 366 SEZS, only 19 are functional. They have attracted FDI worth Rs 525.70 crore against private investment of Rs 4,649.94 crore. Investment by the central and state governments till 2007 was Rs 1052.25 crore.

Of the 19 functioning SEZs, the Hazards Centre monitored the performance of Kandla in Gujarat, Falta in West Bengal, Vishakhapatnam in Andhra Pradesh, Jaipur in Rajasthan and Manesar in Haryana.during 2007-08.

According to the study, four of these SEZs were not manufacturing the goods they had originally set out to manufacture. Kandla was developed as a textile and garment hub but had switched over to manufacturing chemicals and fertilisers. Falta, set up to export plastic and rubber, was presently doing business in textiles and garments. Vishakhapatnam, set up to manufacture fine chemicals and engineering goods had switched over to export of high value gems and jewellery. Jaipur alone continued to fulfil its original objective, which was to work in gems and jewellery.

Says Dunu Roy, director of the Hazards Centre, “It is obvious that there was poor assessment of market demand at the time these SEZs were created because today they are making something completely different.”

The older SEZs with the lowest per unit investment (Jaipur and Kandla) were found to have the best export figures.

The survey also found that not enough market research had been done before setting up these zones. The result is that in most SEZs, the number of manufacturing units has come down drastically.

In Kandla, only half of the original 362 units that were set up are functioning. Prestigious units belonging to the Mafatlal and Milton groups have shut down. And while the SEZ claimed to employ 16,581 people, a field visit to the district commissioner’s office in Kandla showed the exact figure was 14,299.

In the same way, the Falta SEZ has 127 functioning units although more than 200 units had been approved originally. Local workers pointed out that only 90 units run on a daily basis. The factory inspector admitted that only ten industries in this SEZ have been registered under the Factories Act.

Vishakhapatnam has generated direct employment for 4,200 people, though the state government had promised employment in a ratio of 60 persons for every acre of land that was acquired. This, the report points out, would have meant the creation of 21,600 jobs.

The Sitapura Industrial Area near Jaipur has been developed on 1,646 acres of land. Villagers from eight villages were evicted to create this SEZ. Lack of employment and gross underpayment of those who do manage to find jobs continues to be a major problem.

In Falta, casual labourers were being paid as little as Rs 30 per day and if a worker took two days of leave, he was fired. “Six months ago, workers launched an agitation and blocked the roads preventing goods carriers from entering FSEZ. Under pressure, the SEZ authorities increased the daily wages to Rs 68 per day and provident fund of Rs 10 per day would be deducted from the salary of the more experienced workers. No industrial unit is willing to take responsibility for on-site accidents,” says Dunu Roy.

In no SEZ is labour hired on a permanent basis, nor is any healthcare provided, the report found. Children are known to be employed in several industries in contravention of labour laws. They are being smuggled in early in the morning and smuggled out late in the evening. Since labour inspectors are not allowed to inspect SEZs, increasing numbers of children are being sucked into the labour pool at lower wages.

Another big source of concern according to the report is that these SEZs are producing huge amounts of toxic waste that is being dumped indiscriminately in the agricultural fields of villagers living outside these zones. The official stance is that only ‘non-polluting’ units have been permitted in SEZs, but this is belied by the complaints of villagers who find a huge reduction in agricultural productivity in their fields which have been inundated by industrial effluents.

The Development Commissioner of West Bengal admitted that no treatment plants have been built to treat solid or liquid waste, and that effluents were flowing out “anywhere outside the boundary wall”, draining into agricultural land and ponds where fishing was practised. Fisherfolk in this area complain that the fishing stock has been hugely depleted in the past one decade.

Villagers complain about the deterioration of their natural environment and the sharp increase in diseases. They also point out that while the state authorities have developed some infrastructure within the economic zones, they have failed to provide any facilities for the surrounding areas.

The Manesar SEZ has been allotted to a private developer -- the Uppal group -- and is not yet functional. The Uppal group had proposed an investment of an estimated Rs 6,500 crore but given the way the market has crashed, it is difficult to see how the group will raise the money to start the numerous knowledge-based industries visualised earlier.

Roy points out that “SEZs begin with high public investment and only when they stabilise does the private entrepreneur step up his investment. Foreign investment comes in at a much later stage when the risks have been covered. It is for this reason that most developers want to use these zones for the purposes of land transaction so they can cover their investment.”

He adds, “Export growth has been slow except in the case of dedicated single-product SEZs that have remained true to their objectives. It can therefore be said that they have fallen far short of their stated objectives.”

The report concludes that SEZs prove categorically that private profits cannot be married to public benefit. The government is using a fallacious argument when it believes that public benefit will come out of private enterprise because this has not been the case.