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Indias policy on Special Economic Zones under fire

By Jake Skeers 27 October 2006

Only eight months ago, when the Indian governments Special Economic Zones (SEZ) legislation commenced, it was touted as a lever to modernise Indias infrastructure and economy for the coming decades. Today, business and political commentators are already branding the SEZ law a failure. The SEZs were promoted by Commerce Minister Kamal Nath as creating a large flow of foreign and domestic investment that would bridge the gap between China and India in infrastructure and exports, and create massive employment opportunities. The Congress party-led government sought to attract companies to the zones by exempting them from licenses and duties on imported goods and allowing the free repatriation of profits. The commerce ministrys web site described the SEZs as designated duty free enclaves to be treated as foreign territory for trade operations and duties and tariffs. In addition, the government offered companies operating in SEZs a tax holiday for the first five years and a 50 percent tax reduction for the next five years. SEZ developers receive ten years tax-free. Although the commerce ministry continues to tout the zones, the International Monetary Fund, Indias finance ministry and the Reserve Bank of India have criticised the

policy in recent weeks. All have pointed to hundreds of proposed or approved SEZs that are far too small to improve Indias performance in the long term. These SEZs have proved to be little more than tax loopholes for real estate speculators and developers. The commerce ministrys Board of Approvals has authorised 181 SEZs and endorsed another 128 in principle. A developer can set up an SEZ on as little as 10 hectares. The average size of the approved SEZs in Indian is only 420 hectares, compared to zones of 40,000 hectares or more in China. On September 14, the IMF research director Raghuram Rajan described Indias SEZ policy as a tax give-away that was likely to shift Indian production to SEZs rather than create new economic activity. He said the zones would be viable only if they focused on providing superior infrastructure, business-friendly regulations and exemptions from labour laws rather than offering often misdirected subsidies, guarantees, and tax sops that a stretched budget can ill-afford. Business leaders are pushing for more pro-corporate labour laws, regulations, land zoning and taxation across the country, not just in the SEZs. In many cases, the SEZs are little more than real estate ventures rather than production zones. The rules require only that 35 percent of a SEZ be devoted to productive activity. A developer can use the rest of the land to build apartments, hotels and commercial offices. Significantly, the SEZ Act facilitates the forceful acquisition of land for conversion to other uses, providing a massive windfall to the developers. This measure has already provoked opposition from farmers.

The finance ministry complained that existing or planned investment would simply be diverted into the SEZs. According to its calculations, the resulting loss in direct taxes, customs and excise duties would be 900 billion rupees ($US19.5 billion) by 2009-10. On September 21, Congress party president Sonia Gandhi also expressed opposition. She said, prime agricultural land should not normally be diverted to non-agricultural uses and called for satisfactory compensation to be paid when land was taken over. Her comments were followed by a string of similarly empty comments by other Congress leaders designed to quell growing discontent among farmers. The government sought to dispel the media speculation about the SEZ policy by presenting a united face at an October 7 meeting. Finance Minister P Chidambaram said he and the commerce minister had agreed on the SEZ policy. Prime Minister Manmohan Singh declared that the policy would not change. Despite the governments determination to proceed, the flaws and criticisms of the SEZs are a significant blow to the Indian corporate elite. New Delhi designed the SEZ policy to give an impetus to the private sector to overcome Indias massive infrastructure problems, which are widely acknowledged an impediment to investors. A recent Financial Times article described the situation. While manufacturers are attracted to Indias low-cost environment and burgeoning domestic market, they are worried about moving their goodsbe it cars, mobile phones or textilesthrough the countrys poor network of roads, overburdened airports and clogged ports. Power cuts can force business to a grinding halt. Indian economic planners have long envied China which has devoted large swathes of land to SEZs and provided

government-financed infrastructure to developers. Commerce Minister Nath tried to put a positive spin on his policy, declaring: India will have a very India specific model as we do not have large lands available. Unlike India, Chinas nationalised land and police state laws have facilitated the forcible acquisition of areas for SEZs. Indian farmers are protesting against the forced acquisition of their lands. In the Raigad district of Maharashtra, the state government has served acquisition notices on 20 villages with 1,200 farmers to make way for the Mumbai Special Economic Zone (MSEZ), to be developed by the giant Reliance Group. The villagers have stopped Reliance officials setting foot on the land. This land is particularly valuable to the farmers because of the promised, but not delivered, irrigation water from the 1980 Hetwane Dam project. Now the state government is forcibly buying the land for a pittance even though its market value is expected to jump by over 15 times when rezoned. Thousands of farmers have attended protests addressed by the Communist Party of India (Marxist). The CPI(M) and other Left Front parties claim to oppose the SEZ Act, but in reality are proposing minor modifications to the policy. The CPI(M) calls for the allocation of 50 percent, rather than 35 percent, of land in an SEZ to productive activity and an end to the forcible acquisition of prime agricultural land. The CPI(M)s opposition is particularly hollow given its crucial support in passing the SEZ legislation in May 2005. The party voted for the package in both the Lok Sabha (lower house) and Rajya Sabha (upper house). The CPI(M)s role on the SEZ law is similar to other social issuesto act as a political safety valve for protests and popular opposition, while providing the Congress-led government with crucial parliamentary support.

The Left Front government in West Bengal, headed by CPI(M) chief minister Buddhadev Bhattacharjee is at the forefront of forcefully acquiring land for SEZs. In the past year, it has acquired land for industrial zones for Tata, Reliance and Indonesias Salim group. Much of the land acquired in Singur for the Tata car manufacturing complex was agricultural land, provoking determined protests by hundreds of farmers

2
Special Economic Zones are a result of the economic reforms initiated by the Indian Government in 1991. This article discusses both the sides of the coin about SEZs.
In 1991, the Indian government introduced a series of reforms into its economy, namely Liberalization, Privatization and Globalization (L.P.G) reforms. These were badly needed measures to save the crumbling Indian economy at that point of time. Private participation and investment in businesses were encouraged, Multinational Corporations (MNCs) were invited into India to open up production facilities. The government did a lot to attract foreign companies to set up their facilities in India. They government introduced the concept of Special Economic Zones or SEZs specially for the MNCs. These SEZs were exempt of many restrictions and duties which were enforced on companies outside the SEZs. MNCs who operated within in the SEZs enjoyed many benefits. Low taxes, cheap skilled labour, cheap raw material, advanced infrastructure and many more benefits were the various advantages that MNCs within the country enjoyed.

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Seven More Alternative Careers for Nurses My Nursing Life Attracted to this, many MNCs started to come to India. They set up production here. The SEZs were a big puller of new businesses and industries. States started introducing huge SEZs within their state to attract more and more companies. More MNCs meant more income for the state. The state saw the importance of this source of income and strived hard to develop the infrastructure to accommodate new factories and companies.

The MNCs also meant that there were now more jobs and incomes arose multifold. New types of industries were formed within India. The MNCs also brought the Indian consumer more choice in most products. Most importantly, there was a lot of transfer of ideas. People all over the world now buy goods made in India. They recognize and Indian product to be of good quality. Thanks to the coming in of MNCs, our products now go to every corner of the globe. However, this does come with downsides. MNCs tend to be greedy at times. They dump their wastes without proper treatment and pollute the environment. The wages they pay to Indian employees are far less than what they are worth for their abilites. MNCs pay much lower taxes. If they had to pay the default amount of taxes an Indian industry would have to pay, then Indias budget would be carrying much more money than it is carrying now. There is also the problem of brain drain. Talented, educated Indians work for the benefit of the MNCs. The brains which can be used for the development of the nation is going to a greedy corporation of another country and funding their growth and development. Nevertheless, the SEZs are a boon, if it werent for them, many people would have remained unemployed. They have brought us more closer to the outside world. The SEZs have put us in the centre stage and people are now respecting and recognizing us for our prosperity and expertise.

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SEZ is Special Economic Zone is an area inside a state but which acts as alien territory for tariff and trade operations. As the saying goes, every coin has two side,SEZ also comes with two aspects to it. The good part being that the area under sez would be developed in terms of infrastructure, employment for people living in the sez area would increase, leading to the economic growth of the nation. But there are certain question marks about SEZ! Will it actually employ people from the same area where it is being set up? In the context of Mumbai where SEZ is supposed to be set up in the UttamManori-Gorai area, the promises made during the set up of the Essel World have not yet been fulfilled, what's the guarantee that under SEZ employment to people from around the area would be guaranteed? The people living in the above mentioned areas have been there since the 12th century and gain their livelihood from agriculture and fishing. This process of planning and development is a threat, as the other states (e.g., Tamil nadu, kerala, West Bangal, Andra PRadesh, Uttar Pradesh) in which the SEZs have been approved are facing intense protests, from the farming community, accusing the government of forcibly snatching fertile land from them. The land required for SEZ is being bought from poor farmers and people living in the area and resold to corporates at

unimaginale prices. This is going to profit the middle party and the corporates but as usual the poor will not only remain poor but also become more helpless as they will surely gain nothing in return.
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people from Gorai, news letters...

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ED A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. Usually the goal is an increase in foreign investment. One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. The article Special Economic Zone of the People's Republic of China provides more information about the Special Economic Zones in China. Following the Chinese examples, Special Economic Zones have been established in several countries, including Pakistan, India, Iran, Jordan, Poland, Kazakhstan, the Philippines,Russia, and Ukraine. North Korea has also attempted this to a degree, but failed. Currently, Puno, Peru has been slated to become a "Zona Ecomomica" by its president Alan Garcia. In the United States, SEZ are referred to as "Urban Enterprise Zones".

According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide.
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