Company towns

Company towns by Sauvik Chakraverti 

Date:Aug 21, 2006; Section:Editorial; Page Number:18  The Times of India 

The UPA government’s clearance to private firms for the setting up of over 100 Special Economic Zones (SEZs) has raised loud objections from those who are otherwise defenders of free markets. Noted columnist Swaminathan Aiyar warned that this is a “real estate scam” in the making. A lead editorial in The Times of India echoed his view.

    It is easy to surmise that the transfer of land to these private parties will involve corruption. Each SEZ requires between 25,000-35,000 acres of land. Since they are not buying this land outright, but getting it via the state, politicoadministrative corruption must be expected. However, this is in the nature of a onetime pay-off. That is the full extent of the “scam”. Thereafter, each of these private parties will own vast stretches of land that will have to be developed by them and converted into real estate. They will all have to then compete for buyers. Indian society will have much to gain when this happens.

    There will be an additional 100-plus new cities and towns where Indians can choose to live. These private developers have to mandate only 25 per cent of the land for export-processing purposes. The rest of the land can be developed for the market: Housing, shopping, schools, parks etc. Citizens who choose to shift to any of these areas will definitely be able to find a better quality of life than they do in present-day urban India.

    What is important for the future is that these SEZs remain full-fledged “company towns”, maintained and administered by their developers/promoters, with neither “democracy” nor “bureaucracy” having any say in their internal affairs. Without any “elections”, without the IAS-IPS combo, these 100-plus new towns will mimic the “princely states” of British India: Areas where “sovereignty” is local, while the “suzerainty” of the “paramount power”, the Centre, is formally observed. There were over 600 “princely states”: We can have thousands of such “company towns”.

    There will be a gradual decline of India’s “metro” cities, as more and more people “vote with their feet” and shift to these attractive and functional new towns. This is what happened to Murshidabad, the Nawab of Bengal’s capital, when the Brits built Calcutta. There will be a huge opening up of urban space, with vastly improved choices, and the “government cities” of today will face an exodus. The new “company towns” will blossom.

    It is, therefore, important to view these SEZs as purely real estate projects instead of export processing zones. Only mercantilists see economic advantage in promoting exports. Real economists see economic gain in two-way trade, with imports mattering more than exports. There is thus nothing to gain by treating exports favourably. On the other hand, there is a lot to gain from quality real estate development on a massive scale which is really where the private players intend to make their money.

    It is the government’s intentions and motives that are questionable, not those of the private developers. If there is a “scam”, then the needle of suspicion should point to the politico-administrative apparatus of the state. The private players should be deemed innocent of any ulterior motive. As with all competitive businessmen, they can only gain by serving their customers better.

    Two points need attention. First, there is no reason why FDI in real estate should not be invited in at this stage. Real estate development is an industry in its infancy in India, with little expertise, and not too deep pockets. Everybody from ITC to Manikchand (of “gutka” fame) is in the real estate business. If people like Donald Trump, for example, could invest here, there would be better choice, and consumer interests would be better served. There would be added competition in the market for buying vacant land too, leading to better prices for those selling land.

    Second, the state’s misuse of “eminent domain” must end. Even firms like Infosys have acquired land via the state. Eminent domain should not be used to give land for private purposes; its use should be restricted to “public goods” like public thoroughfares and parks. “Land acquisition” by the state for private businesses, for private mining, for private toll highways and the like should end.

The writer is an economist.

 

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