Sezs in IndiaJoin now to read essay Sezs in IndiaMACRO ECONOMICSSEZsHIGHWAY TO INDIAN ECONOMIC GROWTH?SUBMITTED BY:DEEPTI MITTALINTRODUCTIONThere has been much debate about the role Special Economic Zones (SEZs) play in the economic growth of a country, and whether they should be the first option, or the next best policy.
The promise of Special Economic Zones (SEZs) has captivated entrepreneurs of all hues and sizes. At last count, 263 SEZs had been sanctioned, while another 169 had received in-principle approvals.
The SEZs hysteria is almost similar to what happened with dotcoms in the late 1990s- a hasty rush into sector that held out promise of untold gains. What came next is business folklore.
Are we seeing something similar in making over here as well? The best thing that goes in favour of SEZs is that the creation of infrastructure will shift into the hands of Private players. But are we realizing the serious implications of setting up SEZs and underestimating the risks involved with them. In the two instances where SEZs have worked globally, the Jebel Ali Free Zone in Dubai and Shenzhen in China, the government made the initial investments. The primary motive wasn’t profits, but to create world-class infrastructure that would attract capital.
In contrast, In India it is Private sector who is putting in all the money. According to Industry estimates, Indian SEZs will soak up anywhere between Rs 330000 crore to Rs 550000 crore. This is more than what the entire industry has invested in the past five years- Rs 320000 crore. That is equivalent of pumping 15-175 of India’s GDP into one grand reality development plan.
Along with Puerto Rico, India was one of the first countries in the world to set up an Export Processing Zone (EPZs) in Kandla, Gujarat in 1965. Four decades later India is again bullish on SEZs, and with the SEZ Act of 2005 in place, it is going all out to woo investors. But the question that arise here is Why SEZs now and why not EPZs? While EPZs are industrial estates, SEZs are virtually industrial townships that provide supportive infrastructure such as housing, roads, ports and telecommunication. The scope of activities that can be undertaken in the SEZs is much wider and their linkages with the domestic economy are stronger. Resultantly they have a diversified industrial base. Their role is not transient like the EPZs, as they are intended to be instruments of regional development as well as export promotion. As such, SEZs can have tremendous impact on exports, inflow of foreign investment and employment generation.
The EPZs also help to boost the economic and banking conditions of the region’s population so that investors can continue to find local jobs and a better life for many who have already moved to India. According to a survey of SEZs across India by the Institute of Geography & Planning (INMP) in 2003, the rate of expatriation in India is nearly 40 percent and the rate of migration is less than 5 to 10 percent in the region. With a rate of 30 percent, Indians move in much more quickly than any other minority in India at most of the year – a figure that represents an even 50 to 50 percent increase between 1995 and 2000. While the vast majority of foreign trade is conducted by domestic companies such as UPS, the foreign workers, particularly the middle class who are among the most empathetic Indians, move into the Indian industry in a far more diverse fashion. “There should be an awareness of the new and changing Indian society on both domestic and international level,” says an INMP expert, who has been studying SEZs since the early ’70s. The study found that India has the opportunity to shift more of its industries and labour to the U.S. for the first time in almost 60 years. This is an important development considering India has one of the highest unemployment rates and a poor labour market even under its own political system. It seems that, as part of the new political framework, Indian companies are going to have to play an influential role. But Indians do need a new way of thinking to help them realise their dream of having a more connected society.
* The views expressed by this writer are the author’s own and do not necessarily reflect Republic Report’s editorial policy.
All said and done let us first see how and up-to what extent we have adopted the SEZs policy from our Chinese counterpart as both the countries are very different in term of Size, while China is a manufacturing driven economy India is services driven. I have tried to contrast the points of comparison in SEZs policy implementation between China and India and its implication here.
Comparison of SEZ policies of China and IndiaIssueChinaIndiaVery big. Typically in hundreds of hectares.Even 10 hectares will do.LocationWell thought out and located only on coasts. To facilitate exports and imports easily.Anywhere. No restriction.Labour lawsRelaxed in the SEZs.Flexibility is totally absent.Policy regimeExperimentation of liberal policies in the specified areas while insulating them from the rest of the country.Based on fiscal sops.InvestorsGovernment supportedBasically foreigners who are wooed with sops and promises of stability in policy.No Government support.Internal investment, Not foreign investor driven; which should have been the case.CommencementIn 1979In 1965 with the export processing zone concept. But failed to muster courage in giving these regions foreign territory status till the year 2000 when Murali Maran announced the SEZ policy.
NumberOnly six: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and PudongAny where and any number. So far 28 operational. About 200 received approvals.Tax holidaysPresentLonger