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As promised, we are publishing the same below:
To the readers:
Please read the entire post and send us your comments (read our disclaimer first) and we will publish it. The intent of the article was to question the economics of the deal. No aspersions were intended.
Last week, Senior BJP leader Subramanian Swamy had tweeted that Department of Economic Affairs Secretary Shaktikanta Das was involved in a controversial land deal connected to P Chidambaram. Finance Minister Arun Jaitley stepped in quickly to give a good certificate to Shaktikanta Das. The matter seemed to have died down, with no follow up from the media on what deal this might be referring to. Here is one possible deal that took place in that area and time period:
In July 2007, Das, during his stint in Tamil Nadu cadre as Industrial Secretary approved 100 acres of land to a United States (US) company called Sanmina SCI Corporation at a pittance of a price, fixed at 1970 rates. The land was allotted in Oragadam Industrial Park, 50 kilometres south of Chennai for Electronic Accessories manufacture. The price of the land allotted was a jaw dropping Rs.19.5 lakhs ($30,000) per acre with a subsidy of Rs.4 lakhs ($6,000) per acre. That means the US company had to pay only Rs.15.5 lakh ($23,000) per acre. (Page No: 3, Clause 4 (g) of the order, shown below). This was a price that was prevailing in 1970 and the Tamil Nadu government was under the DMK patriarch Karunanidhi, who gave this extra-ordinary largesse in July 2007.
The clearances from Center and State were obtained at lightning speed. As per the order, Sanmina was offering to invest just Rs.250 crore ($37.2 million) initially. It also says that it may increase it to Rs.350 crore ($52 million) later. Additionally, the order says that the company expects to employ around 4000 people, which never materialised (Page 1, Clause 2 of the Order).
Why did the State government give such huge benefits to a company with such modest targets? The land was allotted to the US company’s newly floated Indian unit. In 2007, the market price of Oragadam industrial area was not less than Rs.4 crore ($595,000) per acre. Then why give it away at a pittance for Rs.15.5 lakh ($23,000) per acre? The current market price is around Rs.10 crores ($1.49 million) per acre.
The jobs promise of 4000 never materialized. At present the company has only around 550 persons. The US company offered very low salaries to labour ranging from Rs.6000 ($89.3) to Rs.8000 ($119) per month. That is around 3-4 dollars a day or 50c an hour! Sanmina ranks low in terms of their salaries in GlassDoor site, so this low balling of salaries does not come as a surprise. Sanmina’s not-so-labour-friendly attitude has created a series of strikes in the Chennai unit. Recently the company retrenched several workers by offering a Voluntary Retirement Scheme (VRS) between Rs.2 lakh ($3,000) to Rs.4 lakh ($6000) compensation and are now left with around 550 employees and workers, say trade union leaders.
Within a year of inking this controversial deal, Shaktikanta Das landed in Finance Ministry under Chidambaram in 2008.
To understand the merits of this deal, let us do some number crunching – To get a foreign investment of Rs.250 crores ($37 million), the government subsidized $572,000 * 100 = $57.2 million! How does this benefit the citizens? Sanmina got the natural resource, land in India at cheap price and pays low wages and never kept their promise of hiring 4000 persons. Thanks to the low headcount, Sanmina is probably losing money and the government has already subsidized the land cost, which means they too are missing out on lost revenue. Then who benefited?
1. The conversion rate used in this article is 1 USD = 67.20 Rupees.
2. Text in Blue points to additional data on the topic.
3. Error in calculation of differential price per acre ($595,000 – $23,000 = $572,000) in the first version of the post. Corrected.