Special Economic Zones (SEZs) are specifically delineated duty¬free enclaves and are deemed to be foreign territories for the purpose of trade operations, duties and tariffs. A scheme of setting up the SEZs in India was announced in the Export and Import (EXIM) Policy in March 2000. But the implementation of this policy and the task of setting up SEZs on a large scale has gathered momentum only recently after the rules and regulations were clearly laid and amendments wherever required, duly made.
The main objective of SEZs is to develop an integrated world-class infrastructure for exports, including carrying out of manufacture of goods and rendering of services in connection therewith. The component of an SEZ shall include roads, airports, ports, generation, and distribution of power, telecom, hotels, hospitals, educational institutions, leisure and entertainment units, industrial and commercial complexes, water supply, and any other facility required for the development of the zone.
The SEZ enclaves are meant to showcase the country’s manufacturing prowess and its fast developing services sector-especially its world class enterprises in the area of Information Technology (IT), Computer Software and Hardware skills. However, SEZs go beyond the concepts of industrial concentrations as they have a mix of both industrial and human settlements. Conceptually, they are akin to Free Trade Zones (FTZs) which also offer similar incentives and benefits of trade and commerce within the regions.
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The Special Economic Zones are considered to be a part of former Chinese Premier Deng Xiaoping’s economic modernisation programme. China’s highly successful four SEZs are located at Shenzhen, Zhuhai, Shantou and Xiamen and are based on the four principles: (i) construction primarily relies on attracting and
utilizing foreign capital; (ii) primary economic firms are sino- foreign joint ventures, partnerships as well as wholly foreign enterprises; (iii) products are primarily export-oriented; and (iv) economic activities are primarily driven by market.
Encouraged by the grand success of China’s SEZs, the Indian Government has envisaged the SEZs to be the new mantra for the country’s export-oriented economic activity. Thus, the Special Economic Zones Act was brought in the year 2005 with a view to providing an internationally competitive and hassle- free environment for exports.
If we consider the benefits of setting up SEZs we will certainly say they are a boon. The Foreign Trade Policy clearly states that SEZs are growth engines that can boost manufacturing, increase exports and generate sizeable employment. The SEZ Policy also gives an impetus to private sector to overcome the country’s infrastructure problems which are considered to be a roadblock to attracting Foreign Direct Investment (FDI). While foreign investors are attracted towards India’s low-cost labour and strong domestic market, they are apprehensive about moving their products through the country’s poor network of roads, overburdened airports and clogged ports.
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Power cuts can force business to a grinding halt or at least waste sizeable number of working hours each month. The SEZ developers are likely to create necessary infrastructure which would facilitate manufacturing, transportation, distribution and shipments to importing countries.
Manufacturing in the industrial units set up within the SEZs will give a tremendous boost to various types of industries. There will be adoption of latest technologies in all the industries covered under the SEZs. The Foreign Direct Investment will be received in large amounts in various sectors because of tax and tariff exemptions to be given to the SEZs under the policy. The shortage of capital will be more than met by the FDI inflow. The big names in Private Sector like Reliance, Tata, Infosys, and Wipro are likely to participate actively in setting up and operating SEZs. The tremendous impetus given to exports shall make the balance of payment favourable to India. The valuable
Foreign exchange will be earned by millions through SEZ exports, with which the country can import modern technology, machinery in various sectors including services, transportation, health care, heavy industries. There is a proposal to convert the Agriculture Export Zone (AEZs) into SEZs, so that the agriculture sector can benefit from the concessions for export. The export of agricultural products is a part of our EXIM Policy.
India is a vast country with a large population. Despite rapid economic development during the last five years or so, there is persistent poverty and rampant unemployment. The setting up of Special Economic Zones would result in the creation of lakhs of new jobs for skilled and unskilled workers. The number of managerial jobs would increase tremendously. The Information Technology Parks and Computer Software as well as Hardware Parks being created through SEZs shall firmly establish India as an IT and ITES giant.
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There are, however, several disadvantages of setting up the SEZs. In fact, the policy has received scathing criticism from various quarters across many states. The Finance Minister has pointed towards the revenue loss to the exchequer to the tune of rupees seventy thousand crore through tax sops offered to the SEZ units-which will get 100 per cent tax holiday for the first five years and 50 per cent tax break for five years more.
The Commerce Minister, however, is of the opinion that such hypothetical calculations do not constitute actual loss. Even if there is a revenue loss to the exchequer, it is much less, because many units are already enjoying the benefits outside the SEZs. Moreover, the benefits in terms of growth and increase in exports will more than compensate the revenue loss, if any.
The biggest concern about the SEZs policy relates to the acquisition of land for the purpose of establishing the SEZs. The problem is many-fold in this regard. Most of land being acquired is fertile agricultural land whether at Nandigram, Gurgaon, Dadri or elsewhere. The question is whether it makes sense to take away agricultural land for setting up industries and jeopardise the country’s food security.
Agriculture is the only sector which has not been doing well for the last many years. And now it will lose valuable, fertile land. For the farmers whose land is being acquired, raising crops is the only source of livelihood. Losing land would mean losing their livelihoods for ever. Adding insult to injury is the fact that these farmers are not being offered adequate amount of compensation for their lands. Seizing the opportunity offered by the SEZ Policy, an active land mafia has appeared.
These land-brokers are already making a huge amount of money by buying land from poor landowners at cheap rates and selling the same to SEZ developers at much higher rates. In conditions of poverty and dire need and against the organised land-brokers, these landowners hardly have any bargaining power.
Then there is the problem of rehabilitation. The Central as well as the State Governments have been talking about rehabilitation of the uprooted families whose land has been acquired, but nothing concrete has been done in this regard. People’s past experience in case of various projects wherein several people were promised adequate compensation and rehabilitation packages, has not been particularly good.
Then there are environmental concerns. The SEZs which are to be hubs of manufacturing are likely to cause huge amount of air pollution and water pollution. The experience of China in this regard has also been very bad, where the areas around the SEZs are always covered with thick smoke. Our own SEZs are likely to do the same. The chemicals released from the SEZs will pollute the nearby water sources creating acute shortage of clean water. All these factors point towards the dark side of the SEZs and these Zones can be called a bane.
SEZs have been established in many countries as testing grounds for implementation of liberal market economy principles. They can bring about a great transformation through opening up of the economy in the globalised world. Considering the enormous success of China’s SEZs, and given the fact that both India and China have a similar socio-economic set up and are evenly matched in human and other resources, the SEZ model of development can lead to higher growth in India too. But we need to remove the bottlenecks and address the key issues that are closely connected with this model of development.