India's Special Economic Zones bring rags and riches

Omkar Sharma knows that halfway across India, villagers like himself have sparked rioting in the countryside. Enraged by a government plan to buy farmland for private industry, they have destroyed bridges and blockaded roads outside Calcutta in clashes that have left several people dead.

Yet here, west of Delhi, where Mr. Sharma once worked the parched plains and a large global industry is also gobbling up acres of farmland, there is only quiet contentment. Until a few months back, Sharma's family of 12 had only a broken-down tractor to its name.

Now, after selling their land to one of India's largest companies, every member wants to buy a car – preferably an SUV.

Indians have greeted the country's most controversial economic reform, the Special Economic Zone (SEZ), from two contrary perspectives. Established a year ago as a cure for India's industrial woes – an überindustrial park offering up-to-date infrastructure and tax breaks – the zones have been hailed as economic saviors and denounced as thinly veiled land grabs.

The scene in Pahisaur is evidence that the zones can work, supporters say. But the mounting, sometimes violent, agitation among farmers outside Calcutta is creating momentum for reform.

With 200 zones already approved and hundreds more in the pipeline, economists acknowledge that the process is spiraling beyond its original intent. Moreover, the upheaval from West Bengal to Maharashtra in the east is a reminder that despite India's rising economic profile internationally, it remains a nation of poor farmers who are uneasy about the country's transition away from an agrarian past.

"A right balance has to be struck," says D.K. Joshi, an economist at the Indian credit-ratings firm CRISIL.

The balance, so far, has tilted in favor of developers, say critics. When India borrowed the SEZ concept from China last summer, it hoped to stir activity in its lagging industrial sector, offering companies "islands of excellence" amid India's pitted roads, unpredictable electricity supply, and punishing tax laws.

The response has surged beyond expectation. In the 27 years since China began its SEZ policy, it has established five such sites. In little more than a year, the state of Maharashtra alone already has approved more than two dozen.

What's more, many of the approvals have been less about industry and more about real estate speculation. According to his figures, only 25 percent of the SEZ approvals have gone toward industrial zones, with the rest for real estate, says Shameem Faizee, secretary of the Communist Party of India.

"It needs to be reversed," he says. The concern is that the zones are taking prime agricultural land and displacing farmers who have worked their land for generations. In India, where some 70 percent of the population still works in the agricultural sector, this is no small matter.

Sonia Gandhi, the head of India's governing party, has already warned developers about building the zones on the country's most arable land. But activists worry that even in less fertile areas, the zones take away the only means of support not only for thousands of farmers, but also for merchants in nearby villages.

"SEZs would only lead to widespread displacement and the loss of livelihood for those who have nowhere else to go and no other way to earn a living," says activist Rajendra Ravi.

Pahisaur seems to fit Ms. Ravi's description of provincial Indian village life at its most mundane – a small collection of crumbling brick-and- plaster structures surrounded by cracking and sunbaked dirt extending to every horizon. Water shortages have already forced most farmers around Pahisaur to rent their land to brick-kiln owners. Sharma himself has given up farming, instead commuting to Delhi to pick up odd jobs.

In the face of such destitution, most of Pahisaur's farmers are only too happy to welcome Reliance, a company that has not yet decided what kind of industries it will invite to its SEZ. The company, which is based in Mumbai (formerly Bombay), paid Sharma 10 times the value of his land, and he was glad to take it. "This land has been with us since the time of my grandfather, and we could hardly break even cultivating it," he says.

Instead of displacing local villagers, Reliance is starting medical-outreach and primary-education programs in the area. To make sure those who sell their land aren't careless with their money, it has also called in banks to provide investment advice to all of the beneficiaries.

"Now, everything will change," Sharma says. "The entire face of the village will be transformed."

The scene in Pahisaur stands in marked contrast to those that have emerged in West Bengal, where the government buys both farmland and entire villages before selling them to businesses. Critics charge that the provincial government is essentially kicking both farmers and landless villagers off their land without proper compensation or rehabilitation.

Recently, one anti-SEZ activist went on a 25-day hunger strike to protest the land policies of the local government. "Government needs to get out of the business of acquiring land for zones and let the private partners negotiate among themselves," says economist Mr. Joshi.