October - December 2006 Vol 2 Issue 11
Brainwave      Insight      Technova      Perspective      X'Pressions     


Can we really milk this cow?

The government seems to be mesmerized by the success of SEZs in china and is hell bound to establish and imitate several such models in our country as well , government’s economic reformists, promote it(SEZ) as a liberalizing measure that will help boost investment, fix infrastructure and create jobs. As they say SEZs are specified locations with streamlined procedures, tax breaks and good infrastructure, in short tailor made for “export oriented industries”.

Our government is applauding every now and then for Sez but in reality SEZs are under doubt on many fronts. Politically a sensitive blame is that farmers under duress are being forced to sell their land at the price of nuts and lose their occupation and in the name of SEZs government and developers are profiteering. Land regulations are being implemented by central government but unfortunately they become totally impotent in front of state laws.

Many of the SEZs claimed may simply be property deals. Developers intend to acquire cheap land, put in a minimum of infrastructure and sell it. Even the Reserve bank of India seems to have suspicions, and that’s why they are classifying loans to SEZs as real estate lending, it will make them( SEZs) relatively expensive. The investors are in a misconception that terms for manufacturing in SEZs will be too generous. This includes:-
- Five year tax exemption on Profit.
- Exemption from import and excise duties.
- Exemption from some licensing requirements.

Some way or other this gang-ho about SEZ have its inherit limitations and except promoting a very small section of industry its going to be a white elephant for the countries economy, The fear of many economists is that rather than promoting new business, the SEZs will merely attract investments that would have been made anyway. In India most of industrialist are taking it as tax “Holiday Park” and promoting their domestic business. Instead of finding fresh sources of money for its infrastructure, India would thereby have made things worse by depriving itself of huge corporate tax revenue. India with its fiscal deficit can ill afford this loss.

SEZs have been undoubtedly a great success in China, it has provided leapfrog to china economy, poured in huge FDI and gave an international exposure to Chinese economy but one of the big differences between the SEZs of china and India is in terms of size. Although reliance industries is planning enormous, town sized, SEZs near Mumbai and Haryana, most of the others are tiny. The minimum area for a Multi product SEZ is 100 hectares, for a Product specific zone it is 100 hectares, and for Information technology and Biotechnology and Jewellery just 10 hectares. Infact we stand no where in front of Chinese mammoths. By comparison, Shenzhen the biggest and most famous of China’s original SEZs, covers 126 square miles. That scale was a huge factor in its initial success- along with the presence, just over the border of Hong Kong, of labors intensive manufacturers wanting to lower their costs.

Enjoying neither of these advantages, India’s smaller SEZs may do more for their promoters than for India.

by Pulastya Roy, MBA IIITA.

References from Economic Times