Saturday, 20 October 2018

Essay on Special economic zones – Issues and potential

Essay on Special economic zones – Issues and potential

Essay on Special economic zones – Issues and potential

Every country has a zone which has the potential to tap its goods and services for export and import from the country. India was one of the first to recognize the efficaciousness of the Export Processing Zone (EPZ) model in promoting exports. Asia's first EPZ was set up at Kandla in 1965. However, there were obstacles in generating a free flow of goods. Hence, in April 2000, it was realized that there is a need to overcome the shortcomings experienced on account of the numerous controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and further to garner larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced. 

The SEZ policy intended to make SEZs a driver of economic growth supported by quality infrastructure complemented by a fetching fiscal package, both at the Centre and the State level, with minimal regulations. SEZs in India functioned from November 2000 to February 2006 under the provisions of the Foreign Trade Policy. During this period, fiscal incentives were promulgated through relevant statutes.

To instill in investors that the Government was committed to a stable SEZ policy regime and ready to impart stability to the SEZ regime for greater economic activity and employment, a comprehensive draft SEZ Bill was prepared. The Special Economic Zones Act, 2005 came into effect on 10th, February 2006. The Act provided for drastic simplification of procedures and single window clearance- that is, no need to run from one ministry to the other- on matters relating to central as well as state governments. The main objectives of the SEZ Act are: (a) generation of additional economic activity; b) promotion of export of goods and services; domestic and foreign sources; (c) promotion of investment from domestic and foreign sources; (d) creation of employment opportunities; (e) development of infrastructure facilities. 

The SEZ Act 2005 envisages a major role for the state governments in not only promoting exports but also enlarge infrastructure related to it. The objective of the SEZs is to ensure hassle-free regime and the rules too have been framed accordingly. SEZ is a geographical region that has economic laws different from a country’s typical economic laws. This is because, in SEZ laws, the intention is to increase foreign direct investment. 

SEZs play a decisive role in rapid mobilization of a country's economy. In the early 1990s, it helped china and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits - provided, however, that the zones offered attractive enough concessions. Traditionally, the main deterrents to foreign investment in India have been high tariffs and taxes, red tape and strict labor laws. But with the foreign direct investments policy being introduced to curtail these challenges, there are still hopes that a large number of foreign players would emerge in the Indian markets. 

Japan and India have finalized a blueprint for developing Special Economic Zones (SEZ) in African countries, an attempt aimed at countering the expanding Chinese footprints in the continent. The first SEZ, Indian companies will be taking part of; will come up around Mombasa port in Kenya, which is being developed with Japanese assistance. Mombasa port is the gateway to the East African market, where Indian firms have considerable influence and presence. 

The SEZ model though has been adopted by several countries remains an elusive dream, when it comes to proper implementation of the policy. The SEZ policy was aimed to target a similar growth story as carved by China. But, there are several differences between China's SEZ policies with respect to India. Some of the striking differences are while China's SEZ are large in size, India's SEZ vary in size from 10 to 100 hectares. In fact, Reliance SEZ is the largest in India with 119 hectares of land. 

Moreover, there are a variety of factors that are an area of concern with respect to the mushrooming of SEZs. RBI has already cautioned the government on the revenue implications that could arise from such zones. Though SEZs help in boosting investment and economic growth, they could also aggravate the uneven pattern of development by pulling out resources from less developed areas. Thus, the role of the state government is vital in development of these zones. But here too, different state governments differ markedly in the quality of their vision, their capacity of build infrastructure and the political constraints under which they operate. For example, development of these zones in Gujarat and in West Bengal will be on different lines. 

Further, there are allegations that a large portion of agriculture land is being converted into SEZ zones. This statement however holds no ground as total proposed area for SEZs is about 75,000 hectares, only 0.000625% of India's total area under cultivation. The primary concern is proper rehabilitation or reimbursement to the farmers losing their cultivated agricultural land for the project. This is because a government estimation of value of land property is always less than the market price. 

Many experts have expressed concerns over the philosophy of sops boosting exports. By now however, government seems to be realizing the need for formulating a new Indian model of SEZ. India has in fact, the right mix of factors such as availability of large and skilled workforce, intrinsic comparative advantage in several industries, a strong policy framework, availability of complementing and supporting ancillary industry an already buoyant export sector and vast local markets. SEZs can combine these factors into a powerful alchemy to power investment creation. Unless remedies can be found to loosen prevalent rigid labor laws, the SEZs cannot be looked at as a panacea for all economic diseases. Opinions are divided on the benefits of SEZs. We would have to wait and watch.

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