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India's economic policy-making seems to be displaying itself in the full glory of its aberrations and uncertainties, on the issue of special economic zones (SEZ). First it was the difference of opinion between the finance and commerce/industry ministers over the tax concessions being offered; predictably, the winner was the one who wanted to give cash away. Then came the missive from the Congress party president""prompting everyone to quickly modify positions. Meanwhile, a BJP politician did some serious research to show the flaws in the approval process, prompting a wholly unconvincing response from the government. In some cases, the land allocated for an SEZ was tribal land, in some it came under the Coastal Regulation Zone. Despite land acquisition having started in Maharashtra, there was no rehabilitation policy in the state.

None of this, it seemed, would stop the clearances for the flood of applications. What has now dammed the flood of unthinking approvals and giveaways is an ironically unconnected dispute over the land for a car plant in West Bengal. What that did was to bring land acquisition issues into focus, and it gave momentum to the agitation in the same state against land acquisition for an SEZ. You can give away the taxpayer's money by the thousands of crores because eyes glaze over when it becomes a fiscal issue on a macro-economic plane, but land (as the finance minister said) is sacred to the farmer""who has votes. And so politics trumps economics.

The Prime Minister has been forced to respond by saying that the whole business needs review and that a comprehensive policy has to be worked out. With pulls and pressures in different directions, the government is now putting the issue on ice by deferring meetings that were to decide on fresh SEZ applications. But after having exhausted all the options and brazened it out in the face of perfectly valid criticism, it seems too much to hope that the government will at this late stage evolve a policy that is magically blessed with good sense. In any case, the early birds have got away with the worm.

Although the entire gamut of SEZ issues is not up for review, the government would be well advised to go beyond the land issue, and ask itself what is the best way to develop special zones, to maximise advantage at minimum cost. The land issue itself is best sorted out by the government staying out of the whole business of transferring land from one owner to another, and not going beyond the basic governance task of determining zoning""with an eye on the agricultural productivity of the land in question. It is not a great idea to argue that farmers should have a stake in the businesses that are built on what used to be their land because the returns are unpredictable and no one can be sure that promoters will not find a way to rook semi-lettered farmers; many farmers may simply prefer to sell for cash. Nor is it a practical solution to argue that no agricultural land should be alienated from farmers, because then no industrial development will be possible. The decision to sell or not sell, and at what price, should at the end of the day be left to individual decisions. More important for the government to review is its decisions on how much of SEZ land should be used for processing/industrial activity, and how much for residential, commercial and other activity""and what is the minimum size required for a zone so as to make it feasible for tax officials to effectively monitor what goes in and comes out of a tax-free zone. At the moment, the policies that exist are sub-optimal in every way, and administering them will prove to be a nightmare. But one suspects that the government will be seized with just the political issue of land, and will leave the other issues in their present imperfect state.