Special Economic Zones(SEZ) of India and The "Chaina Model": What is going to Happen?
Strong protests and resistances have developed all over the country against the drive of land-acquisitions in the name of Special Economic Zones (SEZs). These protests and resistances were dealt with massive state terror, sometimes together with the terror unleashed by the cadre forces of the so-called left CPI(M) as happened in Nandigram of West Bengal. The mayhem in Nandigram is so barbaric that the governor of West Bengal, a representative of the state of India, expressed the incident as "cold horror". The struggle of the villagers and the peasants of Nandigram, Raigad, Paradip, etc. became so resolute that it halted the ruling classes of India in implementing their projects of SEZs. Barring 63 SEZs ("which have no problem of land acquisition"), all of the SEZs had been postponed. But the investors of domestic and foreign origin became restless about the temporary freeze on the SEZs. The chief ministers of several state governments and even the governments of several countries fervently urged (read: pressurised) the Government of India [henceforth GoI] to "clear the water". In the midst of this fiasco, Nandigram witnessed ghastly killings of the protesters in 14th March. Interestingly, this carnage perpetrated on behalf the ruling classes and their cohorts could not deter the resistances of Nandigram. Hence the stalemate remains. There are assembly elections of Uttar Pradesh also. But unfazed by these circumstances, and under tremendous pressure of the national and international capitalists, the GoI has announced few cosmetic changes in the policies of SEZs, and promised a "human" package of rehabilitation on 5th April. More than 80 SEZs were cleared to be operated soon.
It is beyond doubt that the blueprints of the SEZs have been prepared to serve the interests of the big capitalists of India and that of the imperialist capital (on which the India's big capital is overwhelmingly dependent). To serve their interests, the BJP-led NDA government incepted the SEZ policies in 2000. Soon after the inception of SEZ policies, several state governments (including the left-ruled West Bengal) jumped to the bandwagon and made state-level editions of the SEZs. In 2005 the Indian parliament adopted the SEZ Acts with the support of all the parliamentary parties including the lefts. In February 2006, the government started to implement it. From the very beginning these gained such tremendous momentum that almost 10 projects per week on an average had been granted. Within October of 2006, 403 SEZs projects had been approved. 63 SEZs were notified ("which have no problem of land acquisition"), 174 SEZs were formally approved (which have received green signal from the respective state governments to acquire land), and 166 received in-principle approval those have to acquire land within three years from the date of approval (this time-limit has been revised on 5th April as one year). 650 applications were submitted till October 2006 (more had been submitted later). The speed of approval of the SEZ projects suggests how aggressive the big capital & finance capital are for the SEZs.
Indian SEZs: A Historical Perspective
In 2000, when the blueprints of the SEZs had been drawn, it was proclaimed by the commerce ministry of GoI that India must emulate the path of "export-led economy" of China for the following reasons: to progress within the fierce competition in the era of globalization; to accelerate the rate of growth of economy; to create jobs, etc. At the same time, the big houses of business like CII, FICCI, ASSOCHAM, etc. endorsed this policy-statement with whole-hearted support. Even the imperialist countries/agencies supported these policies of the GoI. Some of them (World Bank, McKinsey, several international financial organizations and the USA), in fact, helped to charter the path of moving forward with the blueprints of SEZs (see footnote 1).
Why do the ruling classes of India so much interested in the 'model' of SEZs? Why are the ruling classes rushing with break-neck speed to ape the 'export-led economy' of China?
It has been shown by the analysts of the big capitalists of India (including the imperialist capital) and also by the parliamentary parties of all hues (including the so-called leftists) that 'industrialisation' and 'development of infrastructure' are the primary needs of the country at the present moment to accelerate the economic growth. But these said ventures require vast amount of capital. This massive demand of capital cannot be met by domestic capitalists. The GoI had also withdrawn itself from taking initiative to set up public sector industries and infrastructure since the inception of New Economic Policies (NEP) and/or 'liberalisation'. Hence these require vast amount of foreign capital. Though the caps and regulations on foreign investments (both foreign direct investment & foreign institutional investment) had been lifted substantially during the last 16-17 years, the FDI in particular, remained at one-tenth of that of China. They are trying to show that China attracted huge amount of foreign capital by setting up SEZs which had accomplished the 'industrialisation', 'development of infrastructure' etc. Hence, India must develop 'export-led economy' like China to attract FDI. More measures must be taken to catch China with respect to attracting FDI. These measures must be SEZs, said these ideologues of the big capitalists and the imperialists.
Moreover, it was strongly proclaimed: Though an internal market has been developed within the country which lure many foreign companies (including the domestic companies), it is imperative to grow the export on a massive scale to grow the rate of profits. In these export markets there are strong competitors like China & other 'tiger' countries of east and south-east Asia which are enjoying the bigger pie. Hence to compete in this foreign market under steep competition, it is necessary to arrange certain measures which are nothing but SEZs.
Several measures have been proclaimed two of which are very important according to these ideologues:
1. Tax-rebate: It was shown that during the period of 'liberalisation' and/or 'reforms', regulations on investment of both private and foreign capital had been lifted considerably; several incentives/subsidies have been doled out to both the foreign and domestic capital; tax-structures have been changed drastically to favour the big business houses; the compulsions of WTO made the duties/taxes to be reduced to a considerable extent; etc. Hence, the 'space' to offer more sops & concessions are being limited. But these sops & concessions (in the form of tax-rebates) alone can attract foreign capital on a "massive" scale "as happened in China". Hence the tax-waiving policies of SEZs are a dire necessity for India.
2. Labour Laws: The labour laws of the country cannot be changed in a drastic manner due to several factors. For this reason, the capitalist classes (including the TNCs operating in India) cannot achieve full freedom of hire-and-fire; taking only part-time workers in the permanent nature of jobs; buying labour-power at any conditions completely favourable to them; terminating the benefits of PF, pensions, etc. Hence, the big capitalists and particularly the foreign capital are looking for avenues of complete scrapping the existing labour laws which can be accomplished only in certain zones like SEZs. In this case also, the ruling classes of India are striving to emulate the "path of China".
These two factors are very much crucial behind the recent frenzy of SEZs. More factors are there which will be discussed in later part of this article.
The SEZ policies of the ruling classes of India (including Latest Changes)
India developed 'Economic Processing Zones' (EPZs) to boost exports long ago. In 2000, during the tenure of NDA government, these EPZs were transformed into SEZs when the GoI had formulated the SEZ policies. These EPZs enjoyed several concessions/incentives from the very beginning which were increased further in the later years. These are also nearly duty-free enclaves. Some sort of labour laws were there but de-facto only in papers. Though these EPZs enjoyed fabulous discounts/incentives, the share of exports of these zones is a mere 5% of total exports of India. In the last five years the exports of India are growing at an average rate of 20%. In spite of this 'spectacular' growth, the share of exports of India in world exports is a mere 1% increasing from 0.8% in the last five years.1 These figures amply testify that to occupy a 'respectable' position in the world export market (where China has a share of 8% just only second to USA; India being at the 31st position), India has to run with an extraordinary speed.
To take part in this marathon race, the ruling classes of India formulated the SEZ policies. Some important part of it is given below:
a) The SEZs of India are of three types: 1. Multi-product SEZs occupying minimum 1000 hectares of land (in 5th April the maximum limit of these zones is earmarked as 5000 hectares); may produce garments to automobiles; 2. Sector-specific SEZs occupying minimum 100 hectares of land, e.g., garment- , leather- , electronics-SEZs etc; 3. Gems & jewellery, IT-ITeS-BPO & biotech-SEZs occupying minimum 10 hectares of land (may be reduced to 4 hectares in special cases). Backward states have options of relaxation of minimum criteria of land. (Taking 1 hectare = nearly 2.5 acre, one can comprehend the real sizes of the SEZs.)
b) The country is divided into two territories; one of which is SEZ and another is 'Domestic Tariff Areas (DTAs). The area outside of the SEZs is DTAs where the laws of the country will be applicable. On the other hand, in the SEZs the laws & courts of the country may be applicable only partially. In fact, The SEZs will enjoy special laws. The Act on SEZs clearly states: "An SEZ... is like a foreign territory within a country".
c) Private developers can build the SEZs and fabulous incentives will be provided for them. Even the local contractors/promoters can also enjoy the same benefits. 'Processing units' set up in the SEZs will also enjoy several incentives/concessions. The state governments can build SEZs themselves according to their wish.
d) Minimum 35% of SEZs must be 'processing area' (i.e., industry/factory/projects including infrastructures). Rest of the 65% area will be provided for developing housing complexes, hotels, restaurants, hospitals, shopping malls, entertainment centres, multiplexes, playgrounds, and even golf courses, etc. It is clarified that each of the SEZs will be a 'township' which is developing in Maha Mumbai, Navi Mumbai or near Gurgaon of Haryana (the area of which are near to that of greater Delhi or greater Mumbai). To douse the flames of resistances and protests developing against the SEZs and land-acquisitions, and to silence some critiques, on 5th April, it is announced by the GoI that the minimum 'processing area' in the multi-product zones will be 50%. It is added that in "special cases" these restrictions may be relaxed. Interestingly, the term "special cases" is not explained till now.
e) It was decided earlier that the developers/promoters would be provided land of any sizes by the state governments. Land will be acquired by Land Acquisition Act (1894) of British colonial era. Under the protests developing all over the country, it is declared that the developers will have to buy land on their own.
f) The (fiscal) incentives given to the developers of the SEZs are as follows: The developers will get income-tax exemption for a block of 10 years in 15 years at the option of the developers; Imports/domestic procurement of goods for development, operation and maintenance will be duty-free; Exemption from service tax. The (fiscal) incentives given to the industries/enterprises operating within SEZs: 100% income tax exemption for a block of five years, 50% tax exemptions for two years; Exemption from excise duty on procurement of capital goods, raw materials, consumable spares, etc. from the domestic market; Exemption of import duties on the same if exported from abroad without any license or specific approval; Exemption from service tax, state sales tax, octroi, mandi tax, turnover tax, and other duties/cess or levies on the supply of goods from DTAs.
g) Other incentives: 100% FDI in manufacturing sector through automatic route; Exemptions from industrial licensing for manufacture of items reserved for small sector industries; Full freedom for subcontracting, including subcontracting from abroad and DTAs; The area incorporated in the proposed SEZs is free from environmental restrictions; Profits allowed to be repatriated freely without any dividend balancing requirement; Water, electricity and other services would be provided as required; Private generation, transmission and distribution of power in SEZs allowed; Developers are even permitted to build ports, airports, roads etc. at their requirement.
h) The goods sold by SEZs in DTAs will be regarded as imports in the DTAs. An example: Reliance Industries set up a new refinery in Jamnagar SEZ (Gujarat) and that could end up 'exporting' bulk of its output in DTAs (or India). Hence, the people of India (DTAs) have to cough up import duties to buy the Reliance petrochemical products.
i) In these SEZs all the units will be declared as 'public utilities' where existing labour laws will not act. Besides this, the state governments can enact new labour laws for the respective state-SEZs which were already done in Maharashtra, Gujarat, Tamilnadu and UP. Hire-and-fire, employing casual and/or contract labour under any conditions will be allowed. The workers/employees are stripped off the rights of strike.
j) A 'development officer' will govern the SEZs. This non-elected officer will govern each inside-affair of the SEZs including the municipal, labour etc. According to a bourgeois analyst, "democracy" or "bureaucracy" nothing will be applicable here. The law of the 'mainland' India may be applicable partially. In fact, there are no words about any criminal courts in the SEZ Acts though provisions of civil courts are present. A special security force will look into the internal security of the SEZs. It is not clarified whether the police forces of 'mainland' India can interfere here.
Besides these, the ruling classes of India have more plans which will have dangerous implications for the country if implemented. Few months ago the bureaucrats and big business houses of Gujarat held a meeting in which a proposal was passed to make whole of the province of Gujarat a single SEZ. This proposal was sent to GoI for discussion. In the mean time, Narendra Modi (the CM of Gujarat) and some big capitalists went to Japan and proposed to make the entire Gujarat as a "country-specific" SEZ with the patronage of Japan.2 Is a neo-colony developing?
This outline of the SEZ Act amply clarifies what amounts of incentives/concessions are being offered to the domestic and foreign capital. This is also vivid how several 'foreign enclaves' are to be created within the 'mainland' India to make tax-havens for the big domestic and foreign capital. In the SEZs, the 'sacred' 'Law' and the 'Constitution' of the country are overlooked and this also have a political aspect also. But we are not discussing this aspect here. It is interesting that in the name of building 'foreign enclaves' within the country each state government and parliamentary parties raise the hue and cry about 'industrialisation' and 'development'. They are promising the people of 'better future'. It is being declared that billions of dollars will be invested; more than four million of jobs will be created, etc. Even the state governments are promising high. It is claimed that only Navi Mumbai will create three millions of jobs. Will these promises be fulfilled? Even the bourgeois pundits are not sure. Though the critical analysis made by them has a definite class-angle, their criticisms have some noteworthy points.
Salient points of these criticisms are: Though the export-led industries in the period of 'reforms' after 1990 had been given massive exemptions and incentives, exports had grown marginally. Even the EPZs could not deliver the desired results. On the other hand, the exports of China have been increasing by leaps and bound and reached 8% of the world-exports. Moreover, the share of Chinese SEZs are 23% of all China-exports (in Philippines it is 50% and in Indonesia or in Thailand it is more than that). Hence the question developed: Will the Indian SEZs deliver? The SEZ projects may have some sinister designs hidden under the carpet.
Secondly, China has 6 SEZs in total whereas India has approved 403 SEZs and 650 applications in total have been submitted till October 2006 (more are coming). Are these large amount of SEZs required? What are the real interests behind this mammoth approval of SEZs.
Thirdly, the government of China built their SEZs and the modern infrastructure investing huge amount of public capital whereas the GoI has withdrawn himself from this responsibility and handed over this to the private real estate developers giving unbelievable sops. But who will invest in the industries/units in the newly built-up SEZs? If to draw huge amount of foreign & domestic capital is the sole motive, why are 65% (now 50%) of the SEZs gifted to the developers for 'non-processing' activities? Is it not a real estate scam?
Fourthly, it is reported in the media that more or less 70 SEZs are slated to be operated within a short time (which has no 'land-disputes'). These SEZs will have to get Rs. 1 lakh 75 thousand crores [100 crore = 1 billion] or Rs. 1.75 trillion [approximately $39 billion] of investments within 2009-10. But for these SEZs the GoI will have to lose more than Rs. 1 lakh 2 thousand crores or 1.2 trillion due to exemptions!3 What will happen when all of the SEZs are functioning?
To give proper merit on these questions we have to go through the experiences of Chinese SEZs which are emulated and imitated by the ruling classes of India.
What really happened in China?
The ruling classes of India, with the support of the imperialist patrons are claiming loudly that China has 'progressed' so much because it started its programmes of 'reforms' in 1979 whereas India had started it only in the early nineties of the last century. If India takes more measures of 'reforms' and several 'tough' steps right now, it will also be 'successful' to develop an 'export-led' economy like China. Are these logic and/or statements of the ruling classes of India correct?
This is well known to all that in economic terms China was well behind India in 1947 when India gained its 'independence'. Not only China, the countries like (present) South Korea, Taiwan were well behind India at that time. But after the World War II, under the direct intervention of US imperialism, drastic programmes of basic land reforms had been taken in South Korea and Taiwan (along the Junker path and from above). Due to these reforms, these countries not only caught up with India quickly but also overtook it rapidly (though in the Junker path or path from-the-above dictated by imperialism). Though the 'export-led' growth had a remarkable 'success' in these countries, it is to be remembered that these countries could surge ahead so rapidly due to the development of capitalism, accumulation of capital and internal markets (though heavily depending upon the US imperialism) mostly as a result of the basic land-reform measures taken in drastic way.
It is also 'forgotten' by the ruling classes of India that China also performed basic land reforms programmes though in a revolutionary way. For this reason (accomplishing land reforms in a new-democratic revolutionary path), China overtook India and surged far ahead than India. This could be accomplished by China in a rapid manner because it uprooted the feudalism and control of imperialism from the Chinese soil in a revolutionary way. So China was placed in 1979 on a solid foundation when it started its journey along capitalist road openly. This has not happened in India. India has taken a complete different path to that of China taking the half-hearted measures of land reforms in a bureaucratic way (from above) with an explicit understanding with feudalism and imperialism. Even the path taken in South Korea and Taiwan was not taken in India (imperialist-dictated reforms to counter & halt the march of communism and revolutionary movements) for several reasons. As a result, the development of capitalism in India is going on but very slowly; it is advancing, but in a limping and painful manner (with the bourgeoisie having an understanding with feudalism and dependence on imperialism). Hence, the desire of the ruling classes of India to accelerate its 'economic growth' to catch China must be fallen flat as China is running with full steam along the path of capitalist development completing its democratic revolutions. Many learned people and pundits have forgotten this bitter fact.
Moreover, another bitter fact must be mentioned here. The engine behind the 'miracle growth' of China is not its 'export-led economy'. In fact, the exports have served only a partial booster to the China's economy. A strong internal market developed within China is in fact the real motive force behind the 'development' of China as elaborated in the next discussions.
The line adopted in the 11th Congress of the Communist Party of China held in 1978 to move along 'capitalist road' is the forerunner of the SEZs in Chinese soil. Within 1980, 3 SEZs had been built in the province of Guangdong whose geographical locations are very much strategic ? Shenzhen (near Hong Kong), Zhuhai (near Macao), & Shanton (a major home of overseas Chinese). Another was set up at Xiamen in Fujian province (across Taiwan). During the 1980s two more was installed one of which was the largest covering whole of the Hainan Island. It is notable that all of these SEZs are located along the coastline which have easy access to sea transports over centuries and are very near to Hong Kong & Taiwan. In 1984, enthused by the experiences the SEZs were extended by opening fourteen coastal cities to FDI. Moreover, several economic and technical zones were installed in different cities & provinces. In 1985, three coastal areas (Pearl River Delta, Fujian Delta, and Yangze Delta) were opened up making them as free Economic Zones offering special incentives to FDI. Further, whole of the Shanghai city and adjoining areas were also opened. Before the beginning of 1990s, these tasks had been almost completed. [footnote 2]
It must be noted that the Government of China did not set up these SEZs with the aim of developing 'export-led economy'. Rather the real motivation behind these ventures was to attract foreign capital to 'progress' along capitalist lines. For this reason, the SEZs were installed near Hong Kong and Taiwan enabling them easy access to capital, information, technology, management know-hows, communications, transport, etc. Primarily, the non-resident Chinese of Hong Kong invested massive amount of FDI in these zones (almost 60%). The primary motivation of these FDI coming from Hong Kong and Taiwan firms was to sub-contract the products in the Chinese SEZs with a goal of re-export4 and also to sell the products in fast developing Chinese markets. Hence, the geographic locations of the Chinese SEZs acted as a booster for their 'development'.
Several incentives & concessions were offered gradually to attract FDI. Some of which are: a) At first FDI was attracted only in joint sectors; later opening of wholly-owned foreign private units were encouraged with full steam. b) The provincial governments were given vast autonomy to attract FDI. c) Exemptions from export & import duties and from after-tax profit remittance were allowed. d) Other tax-rates were 15% which was withdrawn totally in later phase. e) Foreign personnel had to pay no taxes. f) Wages were 75-80% lower than Hong Kong. g) Free movement of labour from other regions was fully opened. h) Strikes were prohibited in 1982 in mainland China which was extended to SEZs also; Labour Laws concerning minimum wages & 8-hour day are frequently violated; temporary contracts are made with individual labours for particular orders of exports. (The labour conditions are similar to the ages of 'Charles Dickens'.) i) Flexible environmental clauses. k) Easy access to huge raw materials. l) Low costs of construction. m) Strong internal markets, etc.5
It is mentioned earlier that primarily FDIs came from non-resident Chinese of Hong Kong, Taiwan, & Macao. From the mid-1990s, large amount of FDI was being poured in from Japan, USA & European countries [footnote 3]. The nature of this trend of FDI will be explained by the following facts. During the period of 1960-70s ? well before the installation of Chinese SEZs ? the EPZs were set up in South Korea & Taiwan on a large scale. These EPZs were used as export-base of TNCs. The products were sold mainly in the US, Japan & European markets not barring the growing home-markets of those countries. As the wage-level in those EPZs became 'uncompetitive', foreign capital (including the capitals of S. Korean and Taiwanese origin) were flown to the low-wage EPZs of Indonesia, Thailand, Mexico, etc. Within two decades the labour of these zones became costly as these countries 'developed' further. Hence the next destination of FDI became the soil of China where labour was cheaper in compared to those countries [footnote 4]. As a result, from the mid-1990s, Chinese SEZs became advantageous for FDIs. Therefore, barring the geographic locations of the Chinese SEZs, cheap labour became the powerful magnets of FDI.
In the meantime several measures of capitalist reforms were undertaken which propelled the 'development' of China. From the beginning of the decade of 1980s, the rural communes were being dismantled. Opening of sale of agricultural commodities in the market was allowed. By 1983, 98% of the all peasant households were operating according to the new system.7 Due to these massive reforms undertaken in agricultural sector a huge unemployed labourforce was created in the countryside over 100 million of them have became part of the massive migration to the cities?seeking work in construction sector and in the dirtiest and most dangerous jobs outside and within the SEZs8 (they are called as 'mingong' in Chinese). Many bourgeois analysts called these incidents as 'long march'. At the demise of the communes, a new system of rural industries ('Township & Village Enterprises' or TVEs) had been developed by the initiative of Chinese government in which 25 million of workers were engaged in 1993. During the 1990s, these TVEs were either beginning to crumble at the altar of the 'market-economy' or being privatised.9 Most of these were bought up by the managers and top officials of the said enterprises (most of these new entrepreneurs were either the members or close persons of the CPC). Thus, not only a large unemployed labour force had been created but also accumulated massive amount of capital in hands of these elite sections of the society. The state-run industries and enterprises were also undergone 'reforms'. These mostly became bankrupt and eventually crumbled facing the competition of industries run by private and foreign capital. Soon started the process of privatisations and large numbers of workers were laid-off. Through these processes of 'reforms' of the whole economy along capitalist lines a new class of entrepreneurs had been emerged mostly comprising of the old managers-officials and leaders of the CPC. Therefore, one the hand, a new capitalist and/or entrepreneur class was developed; and on the other, large masses of cheap unemployed labour-force developed. A Government of US commentary said: "For the United States, China is now its 3rd largest trading partner (2005), its 4th largest export market and its 2nd largest source of imports. Many U.S. companies have extensive manufacturing operations in China in order to sell their products in the booming Chinese market and to take advantage of low cost labour for manufacturing products for exports. These operations have helped U.S. firms remain internationally competitive and have supplied U.S. consumers with a variety of low cost goods."10 In fact, a big market was created within China which is far larger than India. [footnote 5] These consumers were the real purchasers of the products of the industries set up in the mainland China and in the SEZs. Actually, the 50% of the products of the Chinese SEZs are exported and rest of the products are being sold in the domestic market.11 Hence, the claim that China has 'progressed' so far solely depending upon its 'export-led economy' is absolutely wrong. China is able to leap 'forward' on the basis of its capitalist development triggered by the democratic revolution accomplished in the past. On the other hand, India, where vast remnants of feudalism still remain along with overwhelming dependence on imperialism, cannot run fast as China.
Export-led economy in India?
It is clear from the above discussions that the internal market of China is far bigger than India which is acknowledged by the above-mentioned US report ("fourth largest market of US commodities"). It is also clear from the same report that China is now a solid base of manufacturing exports of the US companies. The share of exports in China's national economy has surpassed quickly not only that of India, but also of other countries. This spectacular 'success' of China is not solely dependent on its SEZs. It has been discussed earlier that the share of exports from SEZs is 23% of total exports. Rest of the exports owe to the mainland China.
Here are some facts: Firstly, exports of China were 34.3% of its GDP in 2005. Exports were far bigger in the export-led countries such as Thailand (61.8%), Malaysia etc. whereas in India it is a mere 13.1% and the growth of it is much slower than these countries. [footnote 6]
Secondly: The above-mentioned US report shows that the US manufacturing companies located in China have a large market within China. Moreover these US companies use China as a backyard of manufacturing exports. In fact, manufacturing is the main basis of China's industry. If manufacturing becomes the basis of the economy of a country ? it is widely acknowledged even by the bourgeois economists ? the 'development', exports, generation of new employments, etc. will also grow on a large scale. But India has a poor record in this manufacturing sector also. In 1990, manufacturing had a share of 17.1% of GDP. In the fifteen-year period of 'reforms' this share came down to 15.9% in 2005. On the other hand, manufacturing in China had a share of 37% of GDP in 1990 which was grown to 41.8% in 2005. [footnote 7]
In 1979, primary products were the main composition in exports of China. By 1990 manufacturing became 80% of Chinese exports.12 By 2005, it was grown further to 93%.13 On the other hand, the share of manufacturing in the total merchandised exports of India is reduced from 74.7% in 1995-96 to 70% in 2005-06.14
In the mean time drastic changes occurred in the composition of manufacturing exports of China. In 1990, the manufacturing exports of China were composed of low-tech toys, shoes, garments, leather-products, etc. By the end of 1990s, these manufacturing exports became overwhelmingly high-tech (electronic goods & chips, computer parts, automobiles and spares, etc.)15 On the other hand, the manufacturing exports of India are predominantly low-tech (gems & jewellery, apparels etc.). Therefore, China is not only far ahead than India in manufacturing, exports, & FDI, etc. but also they has transformed their industrial products immensely from low-tech to high-tech. [footnote 8]
It was observed earlier that huge amount of FDI are being invested in China each year. The foreign capital occupied 57% of the export-led industries in China16 (including the mainland China & the SEZs). India is far lagging behind China either in total FDI and FDI in export-led industries. During the last few years there were sporadic spurts in FDI & FII flowing in India. SEZs policies can also boost this trend further. But these foreign capitals are unlikely to be invested considerably in manufacturing. The condition for this investment in manufacturing is nothing but development of the internal market or in other words, the development of capitalism in large scale (which is in fact going on slowly and in a limping manner). China had accomplished democratic revolution and basic land reforms long ago which was its basis of capitalist development.
SEZs in India: What is waiting to be happened?
In the above discussion regarding the SEZ policies of the ruling classes of India, two salient points are raised by us: 1) SEZs are designed to offer more concessions/subsidies for the big capitalist classes as well as for the imperialist capital; 2) SEZs are for the total de-regulation of any labour laws (including the 'right' of hire-and-fire, random application of contract and cheap labour).
It is also observed in the above discussion: Though trying to emulate China in this respect, except in flexible labour laws and concessions/subsidies given to the capitalists and/or TNCs, India is far behind than China in other aspects. India has a much smaller domestic market than China. Moreover the geographical locations of the SEZs of India will not enjoy the advantages that of China (located near to Taiwan, Hong Kong, etc.). Rather the GoI are going to set up 57 & 23 SEZs in landlocked Haryana & Punjab respectively which are far away from the nearest coastline of Gujarat. Another scandalous fact: The SEZ Rules of India nowhere mentioned that the SEZs have to export their bulk of the products in the overseas markets. When questioned, it is reported that the GoI "is toying with a proposal to introduce 'export obligation' for SEZs so that serious players remain in the field... and revenue loss due to tax concessions be stemmed".17 Will it be happened? If the units set up in the SEZs fail to compete in the overseas market there are a strong possibility of their closures/insolvency as the growth rate of the domestic market remained sluggish.
Interestingly, out of 237 SEZs, which are approved formally, 148 or 62% SEZs are IT, ITeS & BPOs, 28 (12%) are textile/apparels, and 17 (7%) are electronics SEZs. Moreover, out of the 160 SEZs, which are approved in-principle, half of them are IT, ITeS & BPO SEZs. Therefore, out of the approved SEZs (403) till October 2006, more-or-less 55% are going to be IT-related SEZs (besides this, a substantial amount is slated for low-tech textile/garment sector). We have discussed earlier only on the composition of merchandised exports of India. In fact, at present, a bulk of the exports of India (in value terms) is IT services (of $24 billion in 2005).18 Therefore, the new SEZs will only consolidate the trends of IT exports in place of the exports of manufacturing. It is funny that these export-led IT services are enjoying no-tax benefits during the last ten years. They are mainly located in 47 'Software Technology Parks' (STPs) where 6500 IT units had been set up. Out of these IT service providers (and exporters), there are five biggest IT houses which are enjoying tax-rebates of Rs. 1000 crore per annum.19 By 2009, scope of tax-holidays for these STPs will be terminated. For this reason, the IT units are beginning to scramble to the SEZs. Moreover, after the declaration of minimal taxes (MAT) on the exports of these IT companies in the budget of 2007-08, these IT behemoths are making hue and cry to relocate to the SEZs. Interestingly, these IT companies have recruited just 1.8 millions of super-tech jobs.20 Hence, it is crystal-clear that these IT SEZs cannot absorb the ocean of unemployment in the country.
Nevertheless, the sops and concessions offered to the SEZs may attract investments. But it is ironic that these concessions will attract the existing industries/units located in 'mainland' India. These existing units will have to show only expenditures on new machineries and/or new investments (which must be 20% of the Company's fixed assets). Hence, in the near future the old units of 'mainland' India may relocate to these SEZs. Another trend is developing ominously. The POSCO of Korea applied to set up an iron & steel unit in Orissa in 2005. After the declaration of SEZs Rules in February 2006, they rushed an application for SEZ status and were approved by the GoI. The TATAs grabbed land in Gopalpur of Orissa in 1997 under the cover of state-terror perpetrated on the peasants and fishermen. After the acquisition of land the international prices of steel had been crashed and the land acquired was lying vacant. The peasants/villagers demanded their land back. But the TATAs also applied for SEZ status which was quickly granted by the government.
Ominous signs
But there are more factors behind the SEZ policies of the ruling classes of India (barring the rebates on taxes and absence of labour laws). One of these factors may lead to a massive scandal. This scandal is waiting to be happened in the 'development' of SEZs. Some bourgeois economists also have expressed their anxiety about the possibility of failure of the SEZs where enough investments may not come to set up units/enterprises for business. They apprehend that these 'development' projects of the SEZs are going to be a "real estate scam". In the mean time some of the biggest real estate TNCs of Singapore, USA, UAE, etc jumped to the business of SEZs. Dubai-based real estate baron Emmer Group has secured the contract of developing 10 SEZs. George Soros, the world's wealthiest speculator, is also landing India. Besides this, the real estate wings of the domestic big capitalist houses (Ambani, Tata, Baba Kalyani, DLF, Mahindra & Mahindra, Godrej, and even the IT-famed Infosys) jumped into this lucrative business to make quick bucks. These real estate barons are now busy to grab lands from the peasants/villagers with an unprecedented aggression. According to a source, initially 4 lakh acres of land will be acquired all over India which is four times the size of Mumbai and double the size of Hong Kong21. [footnote 9] In this process, random and aggressive speculation on land is going on. It is estimated that between Rs. 40 thousand crores to 2 lakh crores of cashes will be flowing in the whole transaction.22 Thousands of hectares of land are now being acquired at far below the market-prices using the muscles of goons and even by applying massive state-terror. But the peasants/villagers are trying to resist this state-violence in most of the cases. If failed (as in Nandigram in West Bengal), the real estate barons (in collusion of the state) rush with cashes and sops to lure the oppositions what has happened in Gurgaon of Haryana. The Ambanis have purchased the 'gram-pradhans' (heads of the village) and employed a good number of agents distributed in several tiers to break the resistance with cashes in Haryana. In Raigad of Maharashtra, facing the strong resistance built up by the villagers and the fishermen, the Ambanis are now offering sops of lucrative compensation, rehabilitation, promises of jobs to break that resistance. Even the probable land losers are promised with offers of certain percentage of share in the SEZs. The governments also are reworking their resettlement & rehabilitation packages more attractive. Thus, big businesses and speculations are going on in name of developing SEZs.
The changes brought in the SEZ policies on 5th April will do nothing but strengthen the speculation on land purchases. According to the new policies, henceforth, the state governments will not acquire land for the purpose SEZs to save their skin from the growing unrest among the land-losers. In fact, the acquisition of land will be done now by the speculators/agents of different sizes with nefarious connections with the big real estate barons of both domestic and foreign origin.
These speculative activities are connected not only with the purchase of land but also with buy-and-sale of real estate properties which are to be developed in the SEZs. The SEZs rules approved that the SEZs must be 'separate townships' in which roads, ports, airports, housing complexes, power generating stations (including shopping malls, hospitals with modern facilities, hotels, entertainment centres) may be built by the developers and run on commercial basis. A SEZ-corridor is being built up between Delhi & Mumbai with funds from Japan. Who will control this corridor? Is it Japan or GoI? In fact, the SEZs are giving a massive booster to the real estate businesses. A recent survey of ASSOCHAM projects that "the real estate market will grow to US$60 billion by 2010 from the present $16 billion" in which "FDI's share" will be considerable "because of global real-estate players [are] hugely interested in the Indian market".23 The GoI opened the construction sector for 100% FDI in 2005. Since then there are huge spurt of FDI in this sector. In 2003-04, FDI in Indian real-estate was a mere 4.3% of the total FDI. By 2006-07, it has been grown to 26.5% of total FDI.24 Another report said that the most of the foreign investment in the Indian real-estate market will come in the form of portfolio investment (FII). It is expected that these investment will extract a minimum 20% return (which is decreased to 4.5% in the markets of Japan & Europe). Nearly 50 FII funds are going to invest nearly $15 billion.25 Moreover, the public sector banks are beginning to expose more and more in the property markets. Between 2004-05 & 2005-06 the debt given out by these public sector banks in real estate markets was grown by 77% making the total debt in this sector to 11% which was very much 'sensitive' declared the Reserve Bank of India (RBI).26 Alarming at this level of risk in the real estate sector, the RBI has declared recently that 'development' of SEZs will be treated as real estate business and the banks will take extra caution in lending the developers of the SEZs.
It is well known that one of the factors behind the 'sudden' downfall of the economies, mass bankruptcies of many renowned companies, crashes in the stock markets, sky-rocketing inflations, etc. occurred in 1997 in the south-east and east Asian countries were due to the 'crony' capitalism developed around 'real-estate' boom. Billions of dollars were being invested by the speculators taking 'bad loans' from the banks to set up office-buildings, townships, housing complexes, etc. which were lying vacant due to fall in demands. Within few days the foreign portfolio investments had been vanished. The banks were collapsed. The people of these countries paid the price of this disaster in real life. Even in China, early signs of stagnation are observed recently in the property markets where real-estate boom had reached astonishing height during the last ten years. A hardcore 'reformist' editor of the Economic Times commented on the Indian SEZs: "The SEZ bubble will burst, and it will be a large explosion".27
Hence, the SEZs of India are big bonanzas in the form of speculation and profiteering for the big capitalists and foreign investors (both FDI & FII). Their real interests lie in the speculation of lands and real-estate businesses developing in the name of SEZs. In fact the current destinations of the imperialist finance capital are the 'booming' real estate market of the world. This recent feature of finance capital is being elaborately discussed and analysed within the Marxist as well as bourgeois circles. So, we are not going into the details about this recent trend of finance capital. In short, real estate market in Japan & Europe is squeezing fast and also the rate of return is decreasing. Moreover, the real estate market of Indonesia, Malaysia, Taiwan, Singapore, South Korea, etc. is either in a glut or in a gloomy situation. Thus, the next lucrative destinations of the finance capital are the 'emerging' countries of Asia of which China is the most attractive and is swallowing massive amount of capital in its real estate market for the last ten years. According to these investors, India has also a big 'potential' in this respect, particularly in the 'development' of the SEZs. Hence, the global real estate majors along with the domestic realty barons jumped into the bandwagon.
Thus the Indian economy is going to be dependent more and more on the international speculative capital and/or imperialist finance capital. What happened in east and southeast Asia in 1997 or the course of 'development' taken at that time in those countries were named as "crony capitalism" by the bourgeois experts. Interestingly, the PM of India hinted the chance of developing 'crony capitalism' on and around the SEZs in a discussion organized by CII.28
SEZs and the working people
It is clear in the earlier discussion that the majority of the SEZs will be IT, ITeS and BPOs. After the reductions of quotas on certain commodities (e.g. garments & textile) under the dictum of WTO, it may be possible for some export-led textile/garment companies to flourish in these SEZs. But these low-tech textile-related manufacturing SEZs cannot be growth-engines of the industrialisation in India. The Indian big bourgeoisie are also optimistic about the development and exports of automobiles and auto-parts. But this market is already dominated by high-tech products of China. In the above discussions it is observed that the high-tech components in the manufacturing facilities in India are abysmal. Hence these types of SEZs may create some semi- and low-skilled jobs only.
Moreover, the SEZs developed emulating the 'Chinese Model' will aggravate the miseries and exploitations of the toiling people of India. The march of SEZs policies of the ruling classes of India already initiated bloodsheds in the countryside through forced land-acquisition. Millions of peasants, labourers, bargadars, ryots, tribals and other people — dependent on agricultural activities in any form — are being uprooted with violence. The ruling elites of China are pioneers in this respect. During the last 14/15 years — particularly along coastline of China — where SEZs and other zones had been established — and where cities of ultra-modern facilities are developing on a rapid scale — the peasants were uprooted ruthlessly. Thousands of protests of the peasants of China were dealt with state terror perpetrated by the armies, police-forces and thugs hired by the neo-capitalists of China. In 2005 alone, 87,000 peasant unrest shook China and most of these unrests were linked with the incidents of land-grab for the so-called development.29 According to the deputy minister of finance department of China government, the half of the mass-incidents occurring in Chinese countryside were related with land acquisitions.30 In the last 20 years, 16 million acres of land had been grabbed for SEZs, 'urbanisation' and 'development'.31 In these twenty years period developed the SEZs along the coastline of the province of Guangdong, established the high-tech cities of Pudong and Yangee which were the former land of thousands of fishermen and peasants. These lands had been grabbed before the bayonets of the armies. This is the 'China Model' followed by the ruling classes and parties including the CPI(M)s, etc.
On several occasions beforehand and particularly after the genocide in Nandigram, the leaders of CPI(M) lectured the ruling classes of India to emulate the 'Chinese Model' strongly. The Chinese SEZs are loudly projected as 'Model' to be followed by these leaders. What are the conditions of the working masses in the SEZs of Chinese brands? There is existence of labour laws in these SEZs — but only in papers. In most of the cases, these laws are being violated. The labour condition existing in these SEZs remind the Dickensian age or the 'Conditions of the working class of England' written by F. Engels. Some of these are as follows:
a) 12 hours work in place of 8 hours; in most of factories/units overtime of 4 hours are mandatory. 7 days of work in place of 6 days. Contracts of jobs depend upon the orders received by the management. In the peak season there are instances of 24-hours of work. Many workers become senseless on the floor of the workshop due to overwork; and even die.
b) Employments are available according to orders. After the expiry of the orders, the workers are retrenched.
c) Workers are collected from pool of (100 million) labour coming from countryside since their labour power are remarkably cheap. 60% of the workers engaged in the SEZs are female aged between 15-25 years who are cheaper than the male workers. Most of the female workers have not right to be pregnant. If so, they are retrenched.
d) Each worker has to sign a contract form at the time of joining. But most of the workers do not know what are written in these contract forms giving more leeway of exploitation and deprivation. A certain amount of money must be deposited in hands of the managers/owners of the units at the time of joining lest they should run away. Many of the workers want to flee due to unbearable workload and torture meted by the supervisors and security forces. There is no scope of taking extra holiday. If taken they are retrenched.
e) The wages are very much low (discussed earlier). The wages are one-seventh of the US level.
f) Workers have to sleep in dormitories with little space to move. Most of these dormitories are abysmally unhygienic. The meal allotted (for which a part of wages is deducted in most of the cases) to them cannot feed them properly. Health of most of the workers breaks due to overwork. Female workers, when they reach 25 years, are retrenched generally citing the cause of ill health. The male workers are exhausted before 30-35 years of age. These workers return back to the villages where uncertainty and poverty loom over them. They have 'rights' of getting pension after retirement — but only in papers in most of the cases.
g) There are no environmental standard in these SEZs. Workers are forced to work in unhealthy & unhygienic conditions. Industrial accidents are regular features. In most of the cases the owners of the units do not take any responsibility of the treatment of these workers. Even the government sheds its responsibility in many occasions.
h) In spite of these hazards, the workers are forced to toil according to the orders and/or contract because same conditions prevail in other units/SEZs. Moreover, a huge unemployed labour force is waiting to take his place.
These are the standards of the SEZs of 'China Model'. This 'model' clearly narrates the impending future of the waiting for the working masses engaged in the Indian SEZs.
In sum: The SEZ policies advocated by the Indian ruling classes in name of 'industrialisation', 'development', etc. are nothing but means of plunder and exploitation. The dependence on imperialist finance capital will accelerate through these SEZ programmes. The capitalist development of India that is 'progressing' in a limping manner (in Junker path from above) will go on as before. Moreover, the lives of millions of working people and people of countryside will be jeopardized more vigorously as happened in China.
Footnotes:
1. In March 2006, a document prepared in the apex summit of the US-India business forum, "sees new possibilities in building Special Economic Zones (SEZs) to cater to overseas as well as domestic markets". It also stressed on US investments in these zones and Indian markets. Moreover, this meeting visualized India as a frontrunner in the near future as a strong economic force. For these ends, some recommendations/directions were given to the Indian counterparts.
2. In 2003, these open zones had an area of 20% of China and were residents of 450 million people (almost equals to the residents of 25-member EU). The GDP of these zones were $630 billion (40% of total GDP of China). [Source: Asia Times Online, 25.01.05]
3. Between 1979 and 2005, FDI of $633 billion came to China in total. The leading investors were Japan, USA, Taiwan & South Korea investing $53.3 bn, $51.1 bn, $41.8 bn, and 31.8 bn respectively. [Source: China's Economic Conditions, 12 July 2006, W.M. Morrison; Foreign Affairs, Defense And Trade Division, USA]
4. Per hour compensation in manufacturing (in $) — USA: 21.3, Canada: 18, Mexico: 2.1, Philippines: 0.7, China: 0.7, India: 0.4. [Source: Beyond Cheap Labour: Lessons For Developing Countries, McKinsey Quaterly, 2005, No. 1]
5. Market of China is estimated at $550 billion whereas that in India is $150 billion. [Source: Dancing With Giants: China, India And Global Economy, World Bank]
6. Exports as percentage of GDP:
Country | 1990 | 2001 | 2004 2005 |
China | 13.3 | 22.6 | 35.9 34.3 |
Indonesia | 23.4 | 34.9 | 27.8 30.7 |
Malaysia | 65.0 | 100.0 | 107.0 108.6 |
Thailand | 26.8 | 54.6 | 58.7 61.8 |
Philippines | 18.5 | 44.0 | 45.0 41.2 |
India | 5.7 | 9.3 | 11.3 13.1 |
[Source: Development Indicators 2006, Asian Development Bank; http://www.adb.org]
7. Exports as percentage of Manufacturing GDP:
Country China Indonesia Malaysia Thailand Philippines India | 1990 37.0 20.7 23.8 27.2 24.8 17.1 | 2000 43.6 27.7 31.1 35.6 22.2 15.6 | 2005 41.8 28.1 29.4 34.7 23.4 15.9 |
[Source: Development Indicators 2006, Asian Development Bank; http://www.adb.org]
8. High-tech components in manufacturing exports (%)
Country China Indonesia Malaysia Thailand Philippines Mexico India | 1990 -- 1 38 21 -- 8 2 | 2005 27 14 58 30 74 21 5 |
[Source: Human Development Report 2005, UN]
9. According an estimate of the GoI (up to October 2006), approved 403 SEZs require nearly 1 lakh 75 thousand hectares (or nearly 4 lakh 37 thousand acres) of land. [Source: Update 13]
Source:
1. Business Standard, 04.03.2007
2. Economic Times, 26.03.07
3. http://www,businessworld.in/issue/news02.asp
4. The Business Line, 07.05.2001
5. The Role of Special Economic Zones in As Compared with Asian Export Processing Zones; 1979-1995, T. Otai, Tokio University; http://www.iae.univ-poitiers.fr; "China And Socialism", Monthly Review, July-August 2004; Source 4.
6. China And Socialism: Market Reforms and Class Struggle, Martin Hart-Landsberg & Paul Burkett, Monthly Review, July-August 2004
7. Do
8. Conditions of the Working Classes in China, Robert Weil, Monthly Review, June 2006
9. source 5
10. China's Economic Conditions, 12 July 2006, W.M. Morrison, Foreign Affairs, Defense And Trade Division, USA
11. source 5
12. source 4
13.source 10
14. Economic Times, 16.10.06
15. source 3
16. Business Week Online, 22.08.05
17. Business Line, 23.01.07
18. Economic Times, 09.05.06
19. http://www.indiataxsolutions.com
20. Economic Times, 08.03.07
21. http://www.businesworld.com
22. Do
23. Asia Times Online, 09.01.07
24. Do
25. Outlook Business, 20.01.07
26. Economic Times, 19.02.07
27. Economic Times, 05.08.06
28. Economic Times Online, 26.03.07
29. http://mews.bbc.co.uk/; 19.01.06
30. http://www.asianews.it/; 31.01.07
31. http://mews.bbc.co.uk/; 07.03.06
32. These data are collected from different websites. See also the sources 6 & 8.
Other data are collected from UPDATE 13.
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