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India’s Growing Pains

Prepared by: Lee Hudson Teslik
April 4, 2007

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India’s torrid economic expansion over the past five years delighted investors internationally, but the inevitable shakeouts of rapid growth are starting to rub some nerves raw at home. Thousands of Indian farmers battled police (Telegraph) in the country’s West Bengal state in March, protesting government plans to confiscate their land and turn it into a special economic zone (SEZ). After fourteen deaths and chastisement from groups like Amnesty International, the state abandoned its plans for the SEZ. But after reviewing the SEZ policy, India’s Prime Minister announced in late March that new zones will continue to go up across India (Jurnalo).

Special economic zones typically offer tax breaks to encourage multinational corporations to set up shop in a developing country. The companies in turn help the host country by bringing jobs, tax revenues, and direct investment. China has nurtured SEZs with great success since 1980 (People’s Daily), most notably at a massive 126-square-mile economic zone in Shenzhen. Launching SEZs often requires large swaths of land to be set aside—or forcibly confiscated, with reimbursement rates dictated by the government. Although India’s SEZs have used much smaller pieces of land than China’s, India’s population density makes clearing space for businesses a politically incendiary proposition, as is detailed in this paper by the Society for the Study of Peace and Conflict (SSPC), an Indian think tank.

Compared to China, India joined the SEZ game quite recently. The country first implemented SEZs in 2000, but the zones only exploded in popularity after the 2005 SEZ Act (PDF) expanded the program of benefits they offered. Applications for new SEZs spiked, and as of January 2007, the Indian government had approved plans for 237 projects (Economic Times).

At the time of the 2005 bill, India’s commerce minister predicted new development spurred by the act would create five hundred thousand Indian jobs (Frontline) by the end of 2007. Business leaders gave even rosier projections. The chief executive officer of Reliance Industries, an Indian manufacturing conglomerate spearheading two major SEZ projects, said in an interview with India's Rediff news agency that each of Reliance’s twenty-five-thousand-acre projects could create up to five million Indian jobs.

But controversy swirled around the zones from the start. Some analysts doubted the noble-sounding goal of job creation, wondering whether SEZ projects might be little more than a “land grab” (World Bank PSD Blog). Others questioned the business rationale for the projects. Some economists, for instance, said that rather than promoting new business, the zones might simply be granting tax breaks to companies already eager to build in India (Economist).

The most aggressive opposition by far, however, has come from the farmers and other Indians whose land stands to be taken. The Reliance project alone aims to swallow up forty-five villages, according to the SSPC paper cited above. With more than two hundred SEZ projects approved, and over three hundred more applications pending (IPS), March’s riots were a grim reminder that patience could quickly wear thin on one of India’s most ambitious development initiatives.

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