Public price of Nokia SEZ’s ‘success’ in India: A Citizens’ Research Collective report
17th June 2009, Chennai/Delhi/Finland: The Tamil Nadu government granted financial sops worth Rs 645.4 crore for the “success” of Nokia Telecom Special Economic Zone located in Sriperumbadur, Kancheepuram. A Citizens’ Research Collective’s report based on information obtained through Right To Information Act 2005 titled -The Public Price of Success: The costs of the Nokia Telecom SEZ in Chennai for the government and workers, reveals how liberal fiscal incentives under SEZ Act 2005/Rules 2006 and an unreasonably favourable Memorandum of Understanding (MOU) signed by TN govt. ensured that Nokia made profit at the cost of public money.
The MOU signed between TN govt. and Nokia in July 2005 reveal that the Tamil Nadu government offered an added fiscal incentive to Nokia by offering to reimburse the Value Added Tax (VAT) paid by the company with a condition that it would not “cumulatively exceed the investment made by Nokia in eligible fixed assets within 3 years of signing of MOU. Which adds up to approximately Rs 638 crore that the TN govt. would have reimbursed to Nokia for its investments in fixed assets, thereby in effect paying for Nokia’s infrastructure investments. The VAT reimbursement also indicates that Nokia all along had planned to sell most of its phones in the Indian market and not for export since VAT is only applicable when a product is sold within India.
Further, the TN govt. cut the price of land by half and assured the company that “no other state/municipal levies would be applicable on purchases/sales made by units within SEZ”. This resulted in a loss of Rs. 7.4 crore for the State Industrial Promotion Corporation of Tamil Nadu, as per a 2007 report by the Comptroller Auditor General. The MoU also exempted Nokia from paying stamp duty on the land which was earlier set to 4% of land value or Rs. 38 lakh. Furthermore, it allowed Nokia to sublet the land at a higher price.
A number of anti-labour clauses were also offered by the TN government to Nokia. The MOU says “[t]he State shall declare the SEZ Site to be a ‘Public Utility’ to curb labour indiscipline” severely limiting the right for workers to go on strike. Frequent use of contract labour and low wages ranging from Rs. 3,400 to 5,400 have also been found. The report also reveals 45-fold difference in salaries between Nokia global staff and workers in its India plant.
That’s not all. The state largesse to Nokia included waiver of various other taxes such as Works Contract Tax, Lease Tax and Entry Tax, and electricity tax for the first five years of commercial production (offered to any investment of Rs 200 crore as per New Industrial Policy 2003).
The report clearly exposes as hollow the various claims of “success” by Nokia as an “export centre” and “driver for infrastructure improvements”. It shows that the generous gifts bestowed on Nokia far outweigh the gains to the state. For all its claims of being a ‘flagship’ SEZ, Nokia has failed to meet the stated objectives of SEZs. This clearly reiterates the fundamental flaws in the SEZ policy and legislation. It demonstrates that the success of an SEZ comes at an enormous public price.
For more information: Citizens’ Research Collective, 42 A, 1st Floor, 5th Avenue, Besant Nagar, Chennai 600090.
Contact No.: 044-45587071
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