Wednesday, October 29, 2008

Too Much of a Good Thing

Special Economic Zones (SEZs)

SEZs have been making waves for all the right and wrong reasons since 2005, some of them economic and others political. According to the SEZ Act, 2005, sponsored by the Ministry of Commerce and Industry, a special economic zone is an area withing India that does not follow conventional laws, such as taxes and labour laws. SEZs are envisioned to be pockets of high-quality infrastructure and industrial units where nascent and not-so-nascent sectors can get a boost.

Initially, SEZs were created to promote exports. They have done that to some extent, but presumably, the Government went out of control.

The number of SEZs in India today stands at about 260 (according to the Ministry's related website) under the SEZ Act, 2005. Some of them have been successful in bringing India to the forefront of trade, particularly software exports, with impressive exports of over $18 bn last year helping to cover the trade deficit. However, some SEZs have not taken off and are, for all practical purposes, lying vacant.

Land Acquisition
The process of acquiring land for SEZs generates the most political fervour in India. From politicians to social activists to corporates, everyone has a say on the issue. But the truth is that SEZs, though an excellent instrument for growth and employment, have mushroomed too fast and in too ill-planned a way to meet their goals. Irresponsible clearing of SEZs will not only cost the exchequer but will also indicate that the Government is out to, literally, sell India!

The best way for SEZs to take effect is to have a limited number (and with new SEZs being approved every month under the UPA, that condition has not been met) and give them a lot of time to create jobs and infrastructure. By creating too many SEZs, the Government has just created more competition for industries that were supposed to need help to face competition in the first place!

However, some trade-based SEZs are a good step forward (such as the Mudra Port & SEZ). More efficient ports would ensure better trade and that would help every layer of society.

So while some SEZs have been runaway successes, others have been flop shows. Whether the electorate agrees is something we will know in 2009.

General Performance: Average

(This article is the first in a series on Infrastructure Development in India.)

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