China 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.
Looking at
pre-globalization period, India’s prevailing development strategy placed
emphasis upon the ‘outward orientation’ of countries, with particular emphasis
on exports. Export promotion was seen as an important policy for economic
growth in developing countries. In this scenario, export processing zones (EPZs)
had become rather popular trade policy instruments due to their catalytic role
in imparting outward orientation to the economies. EPZs were seen as key
instrument not only for promoting exports and earning foreign exchange but also
for stimulating economic growth through additional investment, technology
transfers, and employment generation. The first zone was set up in Kandla as
early as 1965 followed by the
Santacruz export
processing zone which came into operation in 1973.
The basic
objective of setting up EPZs in India was to promote exports and foreign exchange
earnings. Though the objectives of EPZs were not clearly spelt out in India
until the late 1980s, in actual practice the predominant condition in selecting
EPZ units had been the expected value addition component of exports. However,
EPZs were criticized for their effectiveness and were plagued with
controversies regarding the beneficial effects of EPZs onto the economy.
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. The increased employment opportunities
have empowered women and have made them more independent improving their
relative status and bargaining power within households.
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. Zone units can thus directly affect the skill formation as
workers are provided additional training on- and off the job. Also it involves
upgrading of the education system to cater to the needs of the zone units.
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. Typically, FDI brings with it technology transfer, managerial, and
other skills (such as marketing and distribution), access to markets and
training for staff.
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. This stimulates learning and innovation which are crucial
aspects of human development.
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. The
icing on the cake comes when we compare the gross increase in exports with
respect to the increase in the employment. Gross exports rose much faster than
employment in these zones. As a result, exports per employee increased at the
annual growth rate of 24% and a trend growth rate of 14.6%. Percentage Growth
in exports in 2007-08 have been 92% over 2006-07. The overall growth of exports
has been 381% over past four years (2003-04 to 2007-08).
(Source: Indian Council
For Research On International Economic Relations)
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. This is because prior to
being employed in the SEZs majority of them were not part of the labour force.
2. There
are several reports of exploitation of women in SEZs. The vast majority of
workers in SEZ firms are young women
aged 16–25 years . 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.
The stark
difference is seen when the SEZ policy of India is compared to that of China,
Indonesia or Thailand. 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. For an SEZ to come up, a lot of
discussion and debate takes place before a site is finalized. Even if
finalized, these SEZs are located in specific areas suited perfectly for providing
conducive environment of industries such as coastal areas, and with large sizes
so as to achieve economies of scale. 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. Specially, industries in which production takes place in various stages
and in different production houses, such an area with high level of
infrastructure becomes imperative. Also, manufacturing sector providers
employment to the grass root level of the society and invites other related
industries to get established along with itself as it is depended on raw
materials, and other services such as logistics and transportation. With most
of the stress on Services, our manufacturing sector, which is the back bone of
any country has taken a hit and has resulted in stunted growth of this sector.
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. Likewise, similar practices could have been followed in other states.
This would have solved two purposes, 1) growth of state and 2) promotion of
services more effectively and efficiently.
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.
Loss
of lively hood to farmers due to improper compensation is the major cause of
such instances which should be addressed if such violence’s in future is to be
avoided.
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
Tags: Failure of SEZ policy in India, SEZ policy Advantages,
