Table 1: Additional Incentives

Comptroller and Auditor General specified how the actual acquisition cost for the government had been between Rs 4 and Rs 14 lakh per acre, plus an additional 30% to the previous landowners who went to court for better compensation. The result was a loss of Rs 7.4 crore for SIPCOT and thus the Tamil Nadu government.14

Apart from the lower land price, the second MoU also removed the need for Nokia to pay stamp duty on the land which was earlier set to 4% of land value or Rs 38 lakh. Written by hand in the lease deed is the added statement regarding the lease rent for Nokia:

The Lessee shall have to pay the annual lease rent of Re 1 per year for 98 years and Rs 2 for the 99th year and the same has been paid in advance in consideration of occasion of the lease deed.

While the state makes loss by leasing the land to Nokia at a lower cost, it gives the company the possibility to make profit by subletting the land and charging a higher price if it so desires.15 At the time when

the deputy chief inspector of factories, in July 2008, showed the company employed 4,548 people, or significantly lower than the number of workers reported in the press.17

The Contract Labour (Regulation and Abolition) Act, 1970 is a central government act originally put in place to limit the use of contract labour in manufacturing. The Tamil Nadu government has weakened its provisions in favour of companies on a number of occasions but to date such labour remains banned in manufacturing. Contract labour has been found to be prevalent in all non-manufacturing forms of work in the Nokia SEZ, with 2,893 contract labourers hired in 2008 according to an inspection report from the inspectorate of factories. Thus, in the Nokia SEZ, it seems like staff has come to be contract labour with very low job security whenever possible including warehouse staff, security personnel, drivers, cleaners, etc.18

The issue of controlling strikes in SEZs have been dealt with in many states by declaring zone operations as public utilities. This has been done for all SEZs in states like Andhra Pradesh, Maharashtra and Karnataka. In Tamil Nadu public utility status is not part of official policy but i nstead hidden in the specific MoU. In the MoU signed on 6 April 2005 the TN government promised that:

[t]he State shall declare the SEZ Site to be a ‘Public Utility’ to curb labour indiscipline.19

The text does not offer any explanation

Sources10

phone market, while the tax incentives have prevented the state from recover ing the expenses. Is this a case of attracting investors by paying for their investments?

Land Deal

Land was allotted to Nokia from SIPCOT11 Industrial Park at Sriperumbudur on the outskirts of Chennai. SIPCOT had acquired this land earlier through a government

o rder in February 1997.12 In the original MoU Nokia was supposed to pay Rs 8 lakh per acre as a lease charge on 99-year leasehold tenure but somehow the sum got renegotiated down to Rs 4.5 lakh per acre in the second MoU for a total of Rs 9,48,91,500 for 210.87 acres (85 hectares) of land.13 A report from the Nokia got control over the 210 acres of land for setting up the SEZ, public m oney had already been invested by S IPCOT to develop infrastructure at the industrial park.

Employment: Whose Benefit?

Information on actual working conditions is very limited due to the nature of the zone as a sealed off entity. The available documents do however point to a number of troubling aspects with the working conditions. Nokia initially promised direct employment for 1,200 workers but later, as the production increased, scaled this up to 8,000, including those employed by contracting agencies. Out of this number, 70% are reported to be women between age 19 and 22.16 An inspection report from

on why there is an a priori need to “curb labour”.

Another measure of “success”, in terms of employment generation, is to see if this multinational provides a decent salary. But even in this case Nokia seems to have failed. As per Nokia’s own admission “employees are paid well above the minimum wage…. Salaries vary from Rs 5,400 for experienced operators, around 70% higher than the minimum wage, to around Rs 3,400 for apprentices.” If this is compared with what Nokia pays to its employees globally, which is Euro 44,624 per a nnum, or Rs 29 lakh, in wages and salaries per employee during 2008,20 it works out to be 45 times what the workers in Sriperumbudur plant receive. Even adjusted to the different purchasing power of India compared to Finland, the global average

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COMMENTARY

employee has a salary 10 times21 that of the Indian workers indicating that there is an enormous gap between the different employees of the global Nokia family.

Conclusions

The public costs for the Nokia SEZ are of two kinds; the first is the direct expenditure by the Tamil Nadu government, among other things in creating infrastructure and reimbursing Nokia’s VAT payments; the second is the loss of income if normal taxes would have been applied. Of the known direct costs for the public the VAT reimbursements dominate. Together with the subsidised land the Tamil Nadu government is estimated to have paid N okia Rs 645.4 crore.

The main objectives of SEZs according to the national SEZ Act are to (i) generate additional economic activity, (ii) promote exports of goods and services, (iii) promote investment from domestic and foreign sources, (iv) create employment opportunities, and (v) develop infrastructure facilities. Our findings indicate that the Nokia zone, like other SEZs, are mainly for the Indian market, and there are loopholes in existing laws which allow domestic sales of mobile phones to count towards export (objective ii). The Nokia SEZ and other electronics manufacturing has lead to investments in Chennai to set up the plants (objective iii). But every rupee invested in fixed assets by Nokia is paid back by the Tamil Nadu government via its offer to reimburse VAT leaving only the operational costs to be covered by the company. In effect the government is paying for the company’s infrastructure investment and we have every reason to believe this type of agreement is standard for Tamil Nadu (to achieve objectives ii and iii the state government paid for objective v). The relatively poor pay of the workers and unmet employment protections make the employment creation argument weak ( objective iv).

In sum, for the benefits given to Nokia, very little reciprocity exist in benefits for India. We can only congratulate Nokia on getting an amazing host of concessions and freebies to enter what is now the world’s fastest growing market for mobile phones. Its profitability is certain to be significant although actual data on the

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