Has SEZ Policy Delivered in India
--> Posted on 2009-08-18 10:55:10 By Har Amol SinghChina and India’s GDP has had a phenomenal growth outperforming world’s average growth rates and other lower and middle income countries during the past whole decade and more. While China has had an annualized growth rate of above 10 percent, India has not had its growth story that terrific. China has always been a role model for India in many activities and adopting industry promotion policies such as formation of Special Economic Zones (SEZs) is one of them. While the same policy has brought tremendous benefits for China and turned out to be a successful policy, the implementation and implication of the same in India has always been in doldrums and questioned.
The SEZ scheme introduced by the government of India in April 2000 thus has its genesis in the Export Processing Zone (EPZ) scheme, which was introduced way back in 1965 and under the new scheme all the existing EPZs were converted into SEZs. Though SEZ policy still has confound itself in controversies and criticism, there are still some aspects which needs some attention.
SEZ policy has directly benefited economy is fallowing ways:
1. Employment Generation: The employment effect of SEZs operates through three channels : one, SEZs generate direct employment for skilled and unskilled labour ; two, they also generate indirect employment; and three, they generate employment for women workers.
2. Skill Formation: Formation of SEZs and new job requirements increase firm level activity whereby the labour force acquires skills from within the firm through training and learning by doing on the job
3. Attract investors: SEZs offer a highly conducive investment climate to attract FDI by making up for infrastructural deficiencies and procedural complexities that characterize developing countries.
4. Technology Upgrading: SEZs attract export-oriented FDI and promote other forms of collaboration between local firms and MNCs. Global standards, low-cost competition, and advances in technology raise challenges for the SEZ units competing in global value chains.
5. Exports: EPZ exports registered an impressive growth rate over the period 1966 to 2002. EPZ exports increased in India from less than Rs.1 million in 1966 to over Rs. 97727 million in 2002.
6. Manufacturing Sector: Share of manufacturing industry in the exports grew from negligible percentage in 1970 to above 6 percent in 2005.
(Sources: Ministry of Commerce, Economic Survey, ASI)
However, with all these benefits, the policy has also been seen in some black light.
1. Some argue that the high proportion of female employment implies that the creation of SEZs does not reduce the local unemployment rate.
2. There are several reports of exploitation of women in SEZs. It is found that women are paid less than men for similar jobs and are subjected to sexual harassment and violence.
3. Also, SEZ policy has been plagued by irresponsible planning and an inadequate land acquisition law that has lead to massive protest and local resistance in building up SEZs, which has hampered India’s growth opportunities.
SEZ Ground Realities: Is SEZ policy Delivering???
SEZ policy has no doubt given a boost t the Indian Economy but comparison of implementing SEZs in India to its successful implementation in other countries can bring out some holes in India’s SEZ Policy.
The total Land available in India is 2973190 sq. km of which 1620388 sq. km(54.5%) belongs to the agriculture land while remaining to non-agriculture based.
Total area for the proposed SEZ (FA+IP) is 1925 sq. km. which would not be more than 0.063% of the total land area and not be more than 0.116% of the total Agriculture land in India.
India’s exports from the SEZs are 5 % of its total with India’s share in world exports stand at 1 percent. On the contrary, China’s exports from SEZs have been 23 % while that of Indonesia and Thailand is even more than 50 percent. Also, China’ exports are at 8 % of the total worlds exports. Thus if this data is considered, almost 2 % of the world exports come from China’s only 6 SEZs. As compared to India, 0.05 % of worlds export comes from India’s over 400 SEZs. HOW DOES IT SOUND??? Clearly the SEZ projects may have some sinister designs hidden under the carpet.
The reasons for this disparity can be attributed to many reasons, some of which have been cited as below:
1. Improper SEZ policy
2. Irresponsible planning for locating SEZ
3. Ineffective Land Acquisition Policies
4. Improper Rehabilitation Policy
1. Improper SEZ Policy:
Though India has emulate path of “ export led economy” of China, the implementation has no matched the standards. In China, a very effective and appropriate policy is followed before an SEZ is established. The land identified is usually waste land, though there has been some resistance by people at selected places. Also, these SEZs having huge areas have there own power houses, roads, rail systems, and other infrastructure facilities thereby bringing the economies of scale in an effective manner.
On the other hand, there is no policy in place for setting up of SEZs in India. To start with, there is no discussion in the parliament on the size, place, type and location of SEZs. Also, the SEZs size are too small as compared to its counterpart in China, with some even as low as 3 hectares of land.
Also, the type of industry is a problem area for SEZ’s in India. Almost 180 of the 260 notified SEZ locations till June 2008, belong to the IT/ ITES Sector. These includes industries such as IT, BPOs and KPOs. These are service industries which can even work fine in an area outside SEZ. SEZ should be a place where a large area is provided by well knit roads, rails, uninterrupted power supply to achieve economies of scale. Manufacturing industries are the units who need these kind of facilities badly in order to achieve large scales and reduce costs.
2. Irresponsible planning for locating SEZ
Location for establishment of SEZ is also an area of concern which has hold this policy from firing.
Going with the example in previous point, even if Service sector is to be promoted, it can be done by allocating a single SEZ to services in a given area. For example, 39 of the 56 SEZs in Andhra Pradesh belong to services sector. Also, each of these SEZs are established in a small area ranging from few Hectares to 30 hectares. Instead of dispersed SEZs, these could have been clubbed at a single place forming a large SEZ catering to only service sector in Andhra Pradesh.
3. Ineffective Land Acquisition Policies
The land acquisitions policy followed by the government is aegis old and outdated. At present, land is acquired as per ruled laid down in Land Acquisition Act (1894) which calls for amendments and reforms in the ACT. Currently, government can acquire 100 % of the lad without any clear-cut and transparent mechanism for price determination. It is in light of this acquisition policy that battles and violence in places such as Nandigram and Singur in west Bengal took place.
4. Improper Rehabilitation Policy
The unconvincing and non transparent policies for rehabilitation is also a bone of contention for issues such as Nandigram. With unclear laws, role of state as middleman Brokering social justice is suspected. Also, government only safeguards land owners interests, if al all it does. However, it doesn’t consider the landless laborers into account while taking such actions.
Steps Needed
There are many steps required to make SEZs effective and efficient.
• The most important is to rectify the SEZ policy as a whole including selection of Industries and Location for setting up a SEZs.
• Let the SEZ developer buy the land directly
o i.e. no intervention of govt. as mediator
o eg. Reliance group in Maharashtra
• Decide acquiring price on the basis of current rates in the area
o Reliance paid Rs.45-75 lakh per hectare as opposed to Rs.2 lakh per hectare proposed by Govt.
o Government paid above Rs 1 crore a hectare as compensation for acquiring land for building airport near Mohali, Punjab
• Give share of acquired land in the developed area to the owners
• Landless laborers should also be provided employment
• Limit state’s role to acquiring condemned waste land for better tax revenue generation
• Provide employment to affected population
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