DOMINO EFFECT: (Above) A protest meeting in front of the Orissa assembly against the proposed Posco steel plant in Paradip; (Below) Nandigram today, where agitations in 2007 forced the government to abandon its SEZ project

DLF Cybercity, a glitzy glass-and-marble affair, stands tall just outside India’s teeming capital. The 150-acre special economic zone (SEZ) — meant for information technology (IT) and information technology-enabled services (ITeS) in Haryana’s Gurgaon — hums with activity.

Young men and women sit glued to their desks in swank offices. The SEZ has four centrally air-conditioned, earthquake-resistant office towers with 11 blocks, complete with a gym, a swimming pool, a health club, a business centre and a round-the-clock ambulance service.

To an outsider, everything seems to be moving like clockwork in DLF Cybercity, down to the security men at the gate who are screening cars with robotic precision. But then, appearances can be deceptive and who knows it better than DLF, the realty major which has just “surrendered” permission to set up five of its SEZs in the country. Truth be told, DLF Cybercity — one of the 91 operational SEZs — the government formally approved 568 proposals in the country — is a far cry from the dozens of SEZs that developers are struggling to get off the ground.

From Nandigram to Paradip (Posco) to Raigad (Reliance), India’s SEZ dream lies in tatters, torn asunder by intense agitations against land acquisitions. “Farmers all over India are now buoyed by the success of the Nandigram movement and are resisting land acquisition wherever SEZ developers or state governments are trying to acquire land,” says Ulka Mahajan, the Mumbai-based convener of the Action Committee Against Globalisation, which spearheaded a “successful” campaign against the 10,000-hectare SEZ being promoted by Reliance Industries Limited in Maharashtra’s Raigad district.

The Buddhadeb Bhattacharjee government has called off the Indonesia-based Salim Group’s 10,000-acre SEZ (this had received “in principle” approval but no “formal” approval as the state government did not pursue it after the agitation broke out) in Bengal’s West Midnapore district.

As if trouble over land was not enough, Indian SEZs are now buffeted by the global economic downturn. “Our exports are declining because of the global slowdown, so all SEZ developers are delaying these export-driven projects,” Videocon Industries chairman Venugopal Dhoot says. Videocon Realty and Infrastructures Limited, a unit of Videocon, is having trouble getting its three SEZs in Maharashtra off the ground.

To be sure, the SEZ hasn’t reached the end of the road. Indeed, it would be facile to predict its demise at this stage. But clearly, hopes for an SEZ-driven economic boom along the lines of China are fading fast. Struck by the double whammy of a land and funds crunch, despairing SEZ promoters are putting more and more projects on hold.

In an effort to keep the projects alive, the inter-ministerial Board of Approval (BoA), which approves or rejects SEZ proposals, has extended the deadline for 35 formally approved SEZs by one year. Under the SEZ Act of 2005 and the subsequent SEZ Rules, a formally approved project can get a maximum extension of two years if it has failed to take off in its stipulated three-year time frame.

Among the extended projects are: Bajaj Holdings and Investment Limited’s automobile SEZ in Maharashtra, K. Raheja Corp’s multi-serviceSEZ in Goa, NIIT’s IT/ITES SEZ in Greater Noida (Uttar Pradesh), L&T Phoenix Infopark’s IT/ITES SEZ in Hyderabad and Adityapur Industrial Area Development Authority’s auto components SEZ in Jamshedpur (Jharkhand).

Commerce ministry officials blame the delays not on land problems but on the present state of the economy. “Indian SEZs are not immune to the global recession,” says Lalit B. Singhal, director general of the export promotion council for EoUs and SEZs, which falls under the commerce ministry. Since the units operating in the SEZs are export driven, Singhal argues that any global economic downturn would “hit them hard.”

In fact, close on the heels of DLF surrendering five of its 11 SEZs in Delhi, Gujarat, West Bengal, Haryana and Orissa, another realty major, K. Raheja Universal, withdrew from two of its SEZ proposals for Navi Mumbai late last week.

Gokuldas Exports, among India’s biggest export houses, too has given up its proposal to set up a textiles and apparel SEZ in Bangalore. Managing director Rajendra J. Hinduja cites the central government’s order that no state government can acquire land and give it to SEZ developers, unless the landowners consent to this. He explains that the price was to be roughly Rs 30-40 lakh an acre when the state government was to acquire it earlier, but landowners jacked up the price four times. Also, the SEZ guidelines specify that the land being acquired has to be contiguous. This condition made it difficult to buy land, he adds.

While commerce ministry officials put up a brave front and say such denotifications are not entirely unexpected in the present economicscenario, ministry insiders label it as a “disturbing” trend.

DLF Limited says its decision to denotify the formally approved SEZs has nothing to do with the company’s liquidity position. “What’s the point of constructing a property or for that matter an SEZ when there is little demand for it? It is as simple as that,” says DLF spokesman Sanjey Roy.

Few economic issues in recent times have stirred up so much controversy as the Centre’s policy on SEZs — specially delineated duty free enclaves deemed foreign territory where trade, duties and tariffs are concerned. Politicians — from the left to the right — dubbed SEZs the “great Indian land grab,” promoting little but real estate.

India embraced SEZs about four years ago with the objective of increasing investment, exports and employment. To investors, SEZs —offering a 10-year tax holiday and duty-free imports, among other concessions — looked attractive. Singhal of the SEZ promotion council says that exports from the operational SEZs have climbed from Rs 22,000 crore in 2005-2006 to Rs 99,688 crore in 2008-2009.

Again, over the last three years, the SEZs have attracted a total investment of Rs 1,04,867 crore and created 2,52,735 direct jobs. “If you take the indirect jobs into account, SEZs have provided employment to nearly a million people in only three years,” Singhal declares.

Not surprisingly, industry associations support the SEZ policy to the hilt. FICCI secretary-general Amit Mitra says a few land agitations or a few denotifications sought by a handful of developers “cannot and should not detract from the success of the SEZ policy” in the country. “Besides, while there may be agitations in Bengal or Orissa, there are absolutely no agitations in Tamil Nadu or Gujarat over SEZs,” he says.

Critics remain unconvinced. Economist Partha Mukhopadhyay of New Delhi’s Centre for Policy Research says the country’s private SEZ model is fundamentally flawed, from the commercial standpoint. He says it expects the developer to assemble land, provide infrastructure and other services and make it attractive for industry to locate there. This difference between the amount that industry is willing to pay and the cost of development is the surplus available to finance the infrastructure and profits of the developer. This, Mukhopadhyay argues, locks landowners and other project affected people “in a zero sum game” with developers. No wonder, he says, that SEZ developers are already floundering in the country.

Mumbai-based SEZ consultant C.S. Sanghvi agrees. Unlike in China where the SEZs mostly house manufacturing units and operate in a regulated manner, Sanghvi says a large number of private developers plunged into the sector once it opened up primarily to “take advantage of the upswing” in the real estate market. “Now that the real estate market has crashed, SEZ developers are dragging their feet, waiting for the real estate market to recover,” says Sanghvi.

In its attempts to reduce frictions over land acquisition, the commerce ministry has suggested that SEZ developers buy land directly from land owners. It has also asked all states to ensure that land is acquired “through consent.” Yet, for all that, land remains the most contentious issue for SEZ developers.

“You can’t build a factory in the air. You need land for it and that is hard to come by, despite all our efforts and the best package we have offered,” says Posco senior general manager Saroj Kumar Mahapatra.

Posco’s proposed 12-million-tonne, coast-based steel plant, an approved SEZ, being set up at a cost of $12 billion, is delayed by two years over land acquisition. The Orissa government and the South Korean steel giant are facing stiff opposition in its efforts to acquire 438 acres of private land that comes under its plant site of 4,004 acres.

Many moan the loss of government revenue given away by way of tax concessions to the companies in SEZs. Partha Sarathi Banerjee, an independent researcher engaged in an ongoing Indo-French academic project on the politics of SEZs in India, feels a line needs to be drawn between “private interests and the public good.” Or else, says Banerjee, people will form natural barriers to these zones, much as residents of Dhinkia and Gobindanagar — the last two holdouts in the anti-Posco movement — have erected at the entry points to their villages.

For now, though, it seems to be a make or break situation for SEZs.