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Mainstream, Vol XLVI No 31

SEZs : A Closer Look

Tuesday 22 July 2008, by Ishita Dey

[(Book Review)]

Special Economic Zones in India—Myths and Realities by Amitendu Palit and Subhomoy Bhattacharjee; Anthem South Asian Studies, Delhi; 2007;
198 pages.

The book explores, as its title suggests, some of the myths and realities of the economic prospect of SEZs in India. SEZs, as we all know, are an improved version of the existing EPZ to generate more export. The authors do not question the “export oriented” development but addresses whether the proposed SEZs would generate export and FDI flows with the existing infrastructure. The book begins with the argument that the creation of new economic spaces is not a new phenomenon. The geographically delimited “enclaves” have existed since the medieval ages. One of the first modern zones came up in the Shanon International Airport at Ireland in 1956. Two types of zones dominate the modern economic space: (i) Export Processing Zones (EPZs)/Free Trade Zones (FTZs), (ii) SEZs. In most of the regions across the world there is a preference for EPZ/FTZ. There are relatively more EPZs/FTZs in North America (that is, the US) and Asia (South-East and South East). The authors argue that the developing countries across a world have adopted the policy of creating special economic enclaves. Drawing reference from the World Bank study, the book suggests that till 2007 approximately 3000 zone projects have emerged in 120 countries across the world. Most of the developing countries have taken to these economic enclaves which carry the potential of creating more employment opportunities because the fiscal incentives “in the form of low or zero taxes on income and export profits and duty-free imports are essential to create more job opportunities and improving the quality of existing jobs”. One of the ways to increase the employment opportunity is to utilise the low skilled workforce. There is also a hint that the growth of SEZ will increase more work opportunities in the construction sector.

The book, in a nutshell, is an overview of the SEZ scenario in India—the trends and prospects. The reality it offers us is based on a comparative understanding of the existing enclaves across the world and with special reference to the Chinese model of SEZs. The study suggests that the vision of SEZ, as hinted by the late Murasoli Maran, the Union Minister, in 2002 was supposed to have a minimum area of 10000 ha. “A lot has changed since then.” The book precisely documents these shifts and changes in the SEZ policy from 2002 to 2005 when the SEZ Act was framed. This is evident in the chapterisation. The book introduces the backdrop against which the SEZ came into existence in India through an account of the existing economic enclaves across the world, the exports generated in these regions, the viability of the already existing Export Processing Zones in India and the increase in exports in the already functional SEZs in India. The following chapter on “The New SEZs: Where, What and Why?” is particularly interesting because it challenges a general perception that the states are trying to outdo each other to woo developers to invest in their States. Drawing from the total number of approvals granted till June 18, 2008 on the Government of India’s website on SEZ, it shows that out of the 464 approved SEZs, the majority of SEZs are spread across five States: Maharashtra, Andhra Pradesh, Haryana, Karnataka and Tamil Nadu followed by West Bengal and Gujarat. As many as 353 SEZs belong to these seven States. The book raises a significant question: would this distinctly unbalanced spatial distribution of SEZs influence the outlook for India’s future regional develop-ment? The study underlines that in the case of China though on one hand, the coastal bias of the SEZ policy proved to be beneficial in terms of accessibility and other benefits, there grew an economic chasm between the hinterland and coastal areas. Owing to our already existing regional disparities in other sectors due to disparities in per capita income between the States especially when the five States sharing the highest SEZs fall under higher per capita income category. This, in a sense, would be “circulation of capital and goods” rather than “distribution of goods and services”.

IT and IT related services dominate the number of industries that are going to come up in the approved areas. The study also predicts that the real estate developers are going to have a high stake in real estate business with all the country’s leading real estate developers filing in SEZ applications. Another viable issue that faces SEZs is whether the industrial units will be the answer to the rising unemployment figures. How effective are the training centres that are being set up in various zones to impart training to landless people? Will this training be sufficient to create skilled labour force that these industries will require?

The issue of landless and the “right to life” are explored through a critique of the present Land Acquisition Act 1894. The regulatory and unchallenging characteristic of this Act has been the subject of criticism and continues to remain even in the 21st century when tracts of land, whatever the size may be, are being acquired in the name of “public purpose”. The authors highlight the amendment in 1984 to expand the definition of “public purpose” to acquire land by private developers or any other party. Secondly, the seller cannot challenge in a court of law on why the government needed that piece of land, except to focus on the level of compensation which immediately turns our attention to the Rehabilitation and Resettlement policy we have in place.

It is against this backdrop that the study suggests that the SEZs indeed have quite a bumpy road ahead considering that domestic banks are not keen on financing the SEZs for fear of building up non-performing assets. Apart from finding financial guarantors for the projects, the SEZ developers in certain places will have to develop linkage routes. The connectivity factor is going to be crucial in the success story of SEZs. Thus SEZs will definitely not aid the industrially backward areas.

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