The Ruckus Over SEZ's

India is facing a dilemma which is endemic in any developing economy. In an increasingly globalized world where borders are literally blurring, India is finding it difficult to decide what is going to be its growth trajectory which would integrate it to the world. The country is facing an agrarian crisis and also registering 7-8% G.D.P growth. This dichotomy, due to its perpetuity since independence, has stopped to shock us. 57% of the population still earns its primary living from agriculture. We have to transfer the extra labour from agricuture to other industries. One way to do it is through SEZ. But even before the success of a SEZ, the whole idea has triggered a battle between commerce minister Kamal Nath and finance minister Chidambaram, the former is for the idea of increasing the number of SEZ beyond 150 and the latter against it. This post seeks to study the whole SEZ idea from its inception to its future in India.

What is a SEZ?
Special economic zone or SEZ is basically a restricted geographical area where the government,provides tax benefits and labour and FDI flexibility,to businesses willing to start their operations in that area to enhance export, employment opportunities and gain competitive edge over other countries.

Why SEZ in India?
Poor infrastructure, virtually bankrupt government and massive unemployment has made SEZ a very alluring idea. India needsmassive investment to make it a developed economy and for that it has to woo foreign investors. SEZ will do the same as it will give MNC's access to cheap labour and Indian market. Moreover,the responsibility of developing the SEZ will be divested off the government to the companies investing so the cash strapped government will only have to create an environment of facilitative rules and regulations. The commerce ministry is toying with the idea of sanctioning 400 SEZs. Some of the big players already in the SEZ arena are Reliance Indstries led by Mukesh Ambani which has committed a whopping Rs. 55000 crore in SEZs in Navi Mumbai, Haryana and Jamnagar; Mahindra and Mahindra, Infosys, Accenture, Posco,etc. After passing of the SEZ act in february 2005, 28 SEZs have been formed, which have attracted investment of Rs 2000 crore and providing direct employment to 1.23 lakh people. The commerce ministry is expecting an investment of Rs. 1 lac crore in the next three years with a potential to provide direct employment to 5 lac people. If such is the scenario then why is Chidambaram,Rahul Bajaj and Raghuram Rajan opposing increase in number of SEZ from 150 to 400.

We need SEZ but not so many

The finance ministry has problem over the potential revenue loss to the government. It is reckoned that SEZs will cost the exchequer corporate income tax of around Rs 132,000 crore and loss from customs, excise and other duties will be around Rs 10000 crores over the span of 10 years.

A land scam?

The contention of R Kavita Rao, senior fellow at the National Institute of Public Finance and Policy, a govt think tank is that SEZ will be a real estate scam because developers of SEZ will be able to use 65% of the land for residential and shopping purposes, hotels and malls. The basic purpose of making SEZs export centres will be undermined. The developers will procure land at cheap rate and have the freedom to allocate the space on commercial basis. IMF chief economist Raghuram Rajan fears dislocation of companies at substantial cost to the society as every company will try to transfer its business to SEZs. The tax benefits enjoyed by IT companies will come to an end in March 2009 so they will be willing to shift their base to SEZs to get extend tax breaks for another 10 years.

Another issue which has not been debated much is that the developers will have monopoly over providing basic facilities which is actually the job of municipality. Such powers which are in contravention of the 73rd and 74th constitutional amendment relating to Panchyati Raj can be challenged in court

India doesnt need SEZ...

Professor Jagdish Bhagwati of Columbia University, a staunch exponent of globalization( he lost this year's nobel prize in economics narrowly) argues that India doesnt need SEZ. He says ''SEZ's are a sort of scaffolding with which you climb into more openness. But now that you have the building, why do you need the scaffolding. We dont need to learn lesson from china anymore. We should concentrate on making further reforms that would integrate India with the world''

Well the arguments for and against SEZs will go on, lets wait and watch how the future unfolds.

Information source :

The Times of India

The Indian Express

Outlook Business