Vantage point

Tuesday, October 31, 2006

The Ugliness of SEZs

SEZs are ugly in many different ways.

What is an SEZ? An SEZ is a Special Economic Zone wherein the government sets aside a lot of land and attracts companies to set up facilities, usually manufacturing. These SEZs have special laws separate from the rest of the country, which make it easier to do business, bring in foreign investment, generate employment and create an island of prosperity.

Thus an SEZ is, for all practical purposes foreign land with laws of its own. In India, the proposed SEZs will have labour laws and tax regimes which will be more liberal than the rest of the country. The very need to set up SEZs is a tacit confession of the fact that policy and laws in place are draconic, counter-productive, lack any benefit, and actually end up hurting not just the bigger components of the economy but even the common people. If it is an understanding of the sheer wrongness of the laws that results in setting up of SEZs, why not do away with those laws altogether? Why not make the entire country an SEZ?

By now everyone and their uncle has realised that the idiotic labour laws in this country actually end up harming the very common man that they pretend to protect. The labour laws have ended up severely restricting the size of our organized workforce, leading to massive underemployment of people who are forced to work in the unorganized sector, or stick to that treacherous and thankless profession - subsistence agriculture. It has been empirically seen that wherever labour laws are reformed, employment and incomes go up.

The tax regime in this country is also as convoluted and useless as can be. It ends up disincentivizing growth and incetivizing corruption. The implementation of VAT was done in such a haphazard manner that it has not made any difference. We still have excise, octroi, and a score of other tax windows. This has resulted in massive rent-seeking from the players involved.

The process involved in setting up a factory is also similarly harmful. It is a hindrance to the growth of organized sector employment. It benefits no one but the bureaucrats and ministers who line their pockets, and those industrialists who know enough to work the system and get unfair benefits.

And finally there is the ugliest feature of SEZs - land-grabbing. The land "alloted" to SEZs is typically not owned by the government. The government grabs the land like a bully, usually from small farmers and poor people, at a pittance. And then sells or leases it to the industry at an exponentially higher price, paid officially as well as unofficially, pocketing the profit. So the bank accounts of babus and ministers as well as the national or state exchequers are filled at the expense of those very poor and small people whom the socialist Indian state pretends to protect.

This ugliness should be done away with. Reform labour laws, industrial regulations and tax laws for the entire country. Whatever special laws are being drawn up for SEZs, make them applicable to the whole country. Reinstate right to property as a fundamental right in the constitution. Give people the right to negotiate the prices for selling their own property. Enough of using the ruse of "greater common good" to actually cause "greater common evil which benefits only a select few".

Let these SEZs bloom on their own. It makes financial and economic sense for industries to be set up in a common location. It saves the costs involved in providing infrastructure.

But the current way of SEZ-ization is wrong. The prevalence of archaic kleptocratic laws in the rest of the country and the land grabbing from poor people makes the SEZs nothing but pockets of ugly travesty.