SEZs IN INDIA A CATALYST OR AN OBSTACLE FOR DEVELOPMENT?
In a last-ditch effort to contain the spate of criticisms from all corners over the scheme of creating SEZs (Special Economic Zones), the Union Government came out in September 2006, with detailed guidelines for the development of social infrastructure in areas like schools, houses and hospital, besides a set of investment norms for SEZ developers. As per these news norms, it has been laid down that only those developers can now qualify for tax exemption, who will be involved in building basic infrastructure, water and sewage treatment plants, office space, shopping areas, schools, houses, hospitals, recreational and sports facilities, restaurants, and power and gas connection. It has also been made categorically dear that developers must have a net worth of at least Rs. 250 crores and invest a minimum of Rs. 50 crores. Subsequently, during! His visit to South Africa during the first week of October 2006, Prime Minister Dr. Manmohan Singh stated that “SEZs have come to stay, but they need to operate in a manner in which the concerns that have been expressed can be dealt with”. He added that they need not be perceived as a weakness of the system.
Despite all attempts by the Union Government to set things in proper direction, there are some serious differences even within the Cabinet regarding the issue of promoting SEZs. It has already stirred unrest across the country starting from farmers, whose lands are being acquired for SEZ projects, to trade and industrial bodies and different Ministries in the Government. Let us make an attempt to probe into the salient features of SEZs and the bottlenecks as well as controversies facing their promotion in India today.
Considering the need to enhance foreign investment and promote exports from the country and realizing the need that a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the Government of India had announced in§ April 2000 the introduction of SEZ policy in the country, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. It closely followed the Chinese model. This policy provided for setting up of SEZs in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.
An SEZ is a geographical region that has economic laws that are more liberal than a country’s typical economic laws. Usually the goal of setting up an SEZ is to broaden the foreign investment base. SEZs have been established in several countries, including China, India, Iran, Jordan, Poland, Kazakhstan, the Philippines and Russia. In the US, they are referred to as “Urban Enterprise Zones”. In China, the central government gives SEZs special policies and flexible measures, allowing SEZs special policies and flexible measures, allowing SEZs to utilize a special economic management system. Some of the major policy initiatives launched in China focuses on special tax incentives and greater independence in terms of international trade activities.
The SEZ Act was passed in 2005 in the hope that it would help build up infrastructure, promote exports, and enhance employment generation. The Commerce and Industries Ministry, which piloted the Act, stated in its official documents that “SEZs are about infrastructure creation” and that “infrastructure is not only roads, ports and airports but also workplaces like industrial parks and IT parks”. The Ministry’s note stated that an “extremely critical element is that of social infrastructure, which would constitute housing facilities and entertainment, etc.”
According to the Finance Ministry, the promotion of SEZs in the manner in which the Commerce and Industry Ministry is doing now would cause a revenue loss of over Rs. 1,60,000 crores by 2010. The Commerce Ministry, on the other hand, says that the SEZs would actually bring in investments amounting to Rs. 1,00,000 crores by the end of2007. It has also added that there would be a net revenue gain of Rs. 44,000 crores and the creation of five lakhs additional jobs. Based on its own assumptions, the Ministry projects that the government’s tax collections would increase by Rs. 1,37,000 crores. The Commerce Ministry’s calculations, unlike the Finance Ministry’s includes software exports. It is well known that Information Technology (IT) and Information Technology-Enabled Services (llfcs) companies are gravitating towards the SEZs because the current tax-free regime governing this sector will lapse in 2009-10. In effect, these companies intend moving into the SEZs merely to prolong their tax breaks. Moreover, since the sector is growing at 30 percent per annum, fresh investments would have come in the normal course. According to one recent report, SEZs meant for the software and pharmaceutical industries account for more than 50 percent of all SEZs approved.
The Centre’s directive that farmland should not be acquired for SEZs has not had any effect on the State Governments. Lakhs of people from States as far-flung as Haryana, Orissa and Maharashtra are engaged in a sustained agitation against the “unjust” acquisition of their land for many SEZ projects. These agitations focus attention on the potential massive displacement of people from agricultural areas. They have also: raised questions about the kind of land that is being acquired for the SEZs and whether the displaced are getting adequate compensation across Maharashtra, farmers have organized huge protests against the forcible acquisitions. Around 3,000farmers protested against the RILSEZ outside the commissioner’s office in Navy Mumbai in September 2006. In Pune, cultivators who are going to be displaced by three SEZs organized rally in October 2006. Andhra Pradesh, regarded as front-runner in the SEZ promotion business, has laid down rules that apply significantly more pressure workers in the SEZs. Moreover, the SEZs enjoy the status of “public utility services”; this will significantly reduce the scope for collective bargaining! The provisions also enable the deployment of contract labour, without being hindered by relevant legislation. Industrial lobbies have been calling for the repeal of “draconian” and outdated” labour laws. The demand for mainstreaming the policy regime that is now operational in select enclaves can have important consequences for not only those working in these enclaves but outside as well. Once that demand is fulfilled, the SEZs will no doubt prove to be “models” to be emulated on a country wide scale.