Implosion (25 page)

When the SEZ Act was passed in February 2005 and introduced with SEZ Rules in January 2006, there was a flood of applications for over 400 zones. Some 230 quickly received initial approval and over 60 were formally notified to go ahead, even though no plans had been drawn up to control acquisition and compensation for the land that would be needed. The applications eventually rose to just over 588,
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but only a handful started successfully in the first couple of years and there are now only about 170, including 19 that existed before 2005. Businessmen paid low prices for agricultural land, whose values quickly rose, benefiting developers, politicians and bureaucrats who were often involved in land scams, but leaving behind the poor, frustrated previous owners. Companies frequently asked for far more land than they needed, so that they could hoard it and later sell or use it for other purposes at massive profits.

Some industry-oriented and comprehensively planned SEZs went ahead
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and boosted inward foreign investment and exports, but there was concern about large projects that looked like rampant real estate speculation without a manufacturing base. This especially applied to two mammoth schemes of up to 20,000–25,000 acres each that were planned by Mukesh Ambani’s Reliance Industries (RIL). One was to be a joint venture with the Haryana state government in a prime development area adjacent to Gurgaon and another nearby area on the Delhi-Jaipur highway, just 11 km from the capital’s international airport. The plans included a cargo airport and a 2000 MW power plant.
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The other zone was with the Maharashtra state government in the district of Raigad, adjacent to Mumbai.
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Both schemes have since been abandoned.

The government’s official aim was primarily to encourage manufacturing investment with good infrastructure, especially in areas where industry might not otherwise go. There was, however, no conceivable economic reason to give Reliance generous taxation and other concessions on the popular Jaipur highway which was already awash with investment, and it looked as if Ambani was more interested in broad-based real estate speculation and development. This typified the group’s overconfident approach to business expansion following the death in 2002 of Dhirubhai Ambani, Mukesh’s politically subtle and better-connected father. The SEZ experience showed that, while Mukesh had good enough contacts and clout to sign up with the state governments, he could not steer the projects through the political storm that was generated when his SEZs became one of the symbols of corporate greed.

Sonia Gandhi, in one of her early populist interventions as leader of the coalition government, sensed a looming crisis and, in September 2006, said that ‘prime agricultural land should not normally be diverted to non-agricultural uses’. She added that ‘resettlement and rehabilitation policies must be strengthened and implemented in an effective and credible manner which will inspire confidence in all the people who are displaced.’
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Her statement ‘had all the major leaders running for cover,’ wrote a former government official in November 2006.
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‘Mr Sharad Pawar, the Minister for Agriculture, himself interested in the SEZs in his political power base of Maharashtra, was quick to give a rejoinder that only marginal lands were being used. The Commerce Minister, Mr Kamal Nath, said that he had already written to all the chief ministers that there should be no acquisition of agricultural lands.’ There was considerable confusion after these statements, until the prime minister, during a visit to the UK in October, said that ‘special economic zones have come to stay’, even though there were ‘certain aspects, such as the use of prime agricultural land, which must be addressed’.

Concessions were proposed, including limiting the maximum land area allowed for each zone to 5,000 hectares (12,500 acres), and requiring that at least half of an SEZ should be used for manufacturing and other core activities. This led Ambani to halve the size of both his schemes. In Mumbai, farmers confirmed their opposition in a 2008 referendum, and his scheme there was scrapped in 2011 after Reliance had managed to acquire only 13 per cent of the site. The Delhi–Gurgaon project became unviable because of investor concerns and potential social unrest, and was shelved in 2012 after Reliance’s six-year approval period had expired. The company said it was facing problems linking up the land areas that it had been given by the Haryana government and those it had acquired on its own.
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Haryana then asked for its 1,383 acres to be returned and farmers demanded the land be given back to them. They claimed that values had rocketed from the Rs 20 lakh per acre they had been paid by the Haryana government in 2006 (along with promises of jobs in the SEZ) to Rs 8 to 9 crore per acre.
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The finance ministry was never happy about Nath’s schemes because it saw that excessive tax concessions were being offered for little return. Other critics said there would not be much additional investment because most companies would build factories already planned for other areas in order to reap the tax and other benefits. ‘Of course, the government says that only new investment will benefit, but who is to judge what new investment is? The poorly paid tax inspector?’ wrote Raghuram Rajan.
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‘If you create perverse economic incentives and then rely on bureaucrats to stand in the way of businesses exploiting them, the outcome will be little more investment than would otherwise have happened and a lot less revenue, but much richer bureaucrats.’ He might have added ‘richer politicians too’, but that would have been a tad too controversial and anyway did not need to be said.

‘In India one has to weave one’s way through the procedures. That’s not just a legal process or a financial process – it’s a social process,’ Kamal Nath told me in September 2008. ‘In a democracy, all the stake-holders have to have a voice – and in India they have a particularly loud voice.’ He was referring to POSCO’s problems and what he called its ‘learning curve’, but it was a lesson he should have also learned over the SEZ debacle.

Singur and Nandigram

‘We have little choice but to move out of Bengal. We cannot run a factory with police around all the time,’ exclaimed Ratan Tata,
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then head of the Tata group and chairman of Tata Motors, when he announced in October 2008 that he was closing the almost complete Nano factory at Singur in West Bengal and moving elsewhere. With that memorable exit line, he marked Tata’s departure after two years of often violent and politics-based opposition over two big industrial projects in the state – his factory, which was almost ready to start turning out 250,000 cars a year, and a 10,000-acre chemicals SEZ planned by the state government for Indonesia’s Salim group at Nandigram, near the port of Haldia. Both disputes blew up in 2006 over the prospect of agricultural land being compulsorily acquired for industry, and together demonstrated growing social unrest that lay beneath the country’s economic boom.

West Bengal had been run for over 30 years by a Left Front government led by the CPI-M, with Buddhadeb Bhattacharjee as the chief minister from 2000 (till he was defeated in 2011). A mild and somewhat scholarly looking white-haired man in his mid-sixties, Bhattacharjee had been feted internationally as a forward-looking economic reformer, who saw the need to modify leftist policies with private sector (including foreign) investment in order to revive his intellectually strong but industrially backward state. An interview with him was a must for visiting editors of foreign business magazines and newspapers who were bemused by his inherent contradictions. But he misjudged people’s growing exasperation with decades of harsh and increasingly corrupt and ruthless communist rule. Amazingly, he expected them to accept that the government, which had implemented admired land reforms earlier in its 30-year rule, was now giving agricultural land to rich private sector corporations such as Tata.
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The storm started at Nandigram, a poor rural area in East Midnapur district, 170 km from Calcutta. Nandigram had a history of opposition to its rulers, initially the British, which had helped it to become a leftist stronghold with relatively low literacy and little industrial activity.
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Bhattacharjee negotiated with the Salim Group, Indonesia’s biggest conglomerate whose interests range from noodles to real estate, to build a chemical complex there in a newly designated SEZ. The deal could ultimately have grown from 10,000 acres to 40,000 acres, but opposition to the transfer of land had been building up months before the deal was signed in mid-2006. By then, resistance was also growing against Tata’s car factory at Singur, which had been announced in May. Bhattacharjee wrongly expected that his party’s political clout and street-level muscle, especially in Nandigram, would push both deals through.

Violent demonstrations and clashes between villagers and police-supported CPI(M) cadres built up at Nandigram in 2007, generating some of the worst riots seen in the state’s history. In January, after violencefirst erupted, thousands of local farmers blockaded the area against government officials. Then West Bengal opposition politicians moved in. Mamata Banerjee, a maverick and temperamental leader of the anti-communist All India Trinamool Congress (TMC) party, realised she could use the growing disputes to rebuild her faltering career as a regional politician. Having set up her Trinamool (grassroots) party in 1997 when she broke away from the national Congress party, Banerjee successfully used the land disputes to burnish her populist image. It led her to victory in the assembly elections in 2011 when she became the state’s chief minister, ending 34 years of leftist rule. Other opponents of the CPI(M) united to fight the Nandigram plans, culminating in 14 people being killed in March 2007 when police clashed with villagers protesting against land acquisition.

A month after those killings, Salim abandoned the Nandigram project. (A local financial associate planned a replacement chemical complex on a largely uninhabited 13,000-acre island in the estuary of Koltata’s Hooghly River, but this did not materialise during the time of communist rule and was cancelled by the Banerjee government.) Violence continued in the Nandigram area throughout 2007, when armed cadres of the CPI(M) tried to reestablish their control by ousting rival political groups and Naxalite extremists who had moved in during the troubles. Houses and shops were burned and ransacked, and fear was spread by patrolling motorbike convoys carrying red flags. Instead of trying to rein in his party’s activists, Bhattacharjee endorsed what they had done, saying they were ‘justified’. Referring to earlier violence by the opposing groups, he said that ‘the opposition has been paid back in the same coin’.
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Reports of the Left Front’s ruthlessness with opponents had often been heard during the previous three decades, but no one expected such an open and top-level endorsement of lawlessness. (Bhattacharjee later publicly regretted having made the ‘same coin’ remark.)
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The dispute over Tata’s Nano factory at Singur was not nearly as violent as the battleground at Nandigram, but it did far more economic and social damage because nothing has happened on the site since 2008 when Tata departed. Originally, the Nano was to have been made in Uttarakhand, a state northeast of Delhi, in the foothills of the Himalayas, where Tata Motors already had a plant. It was switched after Bhattacharjee invited Ratan Tata to Bengal and matched Uttarakhand’s special hill-state investment incentives that included low-cost land, low interest financial loans and substantial tax waivers. At Tata’s request, the 90-year agreement, comprising four pages of text and eleven pages of financial spreadsheets, was kept confidential, though the text briefly appeared on the government’s website in response to a court order till Tata appealed for its removal. It is now back on the website following the change of government.
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Bhattacharjee’s officials proposed six sites, including one at Kharagpur, a town famous for its Indian Institute of Technology (where Telcon, a Tata company manufacturing heavy earth-moving equipment, successfully became the anchor investor in 2010 in a 1,200-acre industrial park). Ratan Tata wanted the Nano plant to be more accessible for staff living in Kolkata than Kharagpur would be, 120 km from the capital. He chose Singur, just 45 km away, which also provided high visibility for the Nano brand name on the busy National Highway 2 from Kolkata to Delhi. He refused an offer from Bhattacharjee to move elsewhere when the opposition began and the site was hit by monsoon flooding.

The drawback, which Tata ignored or did not fully realize, was that the site, divided into 3,500 small plots, mostly less than an acre, was on well-irrigated agricultural land that produced two good rice crops a year plus potato and other vegetables. This was used by opponents as an argument against the project, though the site had already been designated as an industrial park. Three industrial buildings (a cold store and factories for glass bottles and condoms) were already being built and had to be closed and transferred when the state government commandeered the land for Tata.

The government based its land acquisition on the controversial 1894 land acquisition law’s compulsory transfer provisions for ‘public purposes’, which triggered arguments about whether the law could be used for a private sector project. Political opposition, and national and international media coverage, focused on the loss of the agricultural land but the real issue – as elsewhere in India – was the level of compensation received by agricultural owners and tenants. Under the 1894 law’s compulsory purchase rules, compensation was paid according to the market price at the time, which meant it did not reflect later price increases when the value of land escalated, as it did two or three times within six months to a year. There was also resentment that Ratan Tata had given the impression that he was primarily trying to help West Bengal by building the Nano there – ‘almost like a philanthropist’ as one official put it – when in fact he was insisting on the state providing heavy investment incentives.