Special Economic Zones

Of late one of the controversies that has kept the pot boiling in India has been, the policy regarding the Special Economic Zones. With Government of India approving another 237 SEZ projects, a lot of questions are being raised regarding the relevance of these in the long term economic policy of India. Hence it would be germane to have a look at the competing arguments as any decision would have repercussions for legions of people in the country.

The concept of SEZ in India has been borrowed from China, where the communist regime, spearheaded the growth of Chinese economy, by establishing SEZ in various parts of the country. This was a huge success and the Chinese exports received a big boost.
The SEZ are treated as foreign territories where tax holiday is granted. The economic laws are very liberal. Taxes are negligible and thus business thrives without any restraints. The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the respective State Governments.

In fact the need to have SEZ had become a necessity to provide a level playing field to Indian manufacturers who were operating at difficult regulatory regime and a crippling infrastructure with high taxes as compared to their counterparts in other countries. The first EPZ was established in India way back in 1965, at Kandla. But SEZ became a part of policy only in 2000, after the grand success of the model in China and also in other countries like Singapore, Malaysia and Brazil.

SEZ bring capital in the form of FDI and India needs that badly so that infrastructure improves. We need roads, ports, airports, machinery to sustain our growth. We need people to invest, the amount of capital that is required cannot be taken care of by the government and others won’t invest unless incentive is given. SEZ is the bait that we need to offer, as far as creating employment opportunities goes, SEZ presents tremendous potential. The 200 SEZs which have been proposed are expected to create nearly 40 million jobs which mean that great opportunity is in the offing.

Apprehensions have been expressed over the impact of SEZ would have on the farmers. For all those doubting it is pertinent to mention that it is not the Agricultural land which is being taken for these projects but only the wastelands that are non arable lands are being used. In cases where agricultural land is being taken the government has the responsibility of providing equivalent land to farmers at some other suitable location. Besides that the Industrialists will have to convert an equal amount of wasteland into an agricultural land. At the same time the lands are being taken by providing adequate compensation to the farmers.

However it is not being intended that SEZ is the panacea for all ills of economic policy. A certain section of farmers whose land is being taken are bound to experience some hardship but that is no reason why the policy should be rolled back. Agriculture remains a low productive activity we need to pull people out of agriculture and invest more in industry, manufacturing and services which are more efficient sectors with good yield. The problem in India is not that we have very less agricultural land or that there are less hands in agriculture but the problem is that the share that agriculture contributes to national incomes continues to dwindle with each passing year. Today it is nearing 19%. What we need to do is to enhance productivity through better irrigation facilities, equipment seeds and better agricultural practices. We need to invest in agriculture and it must be given the priority it deserves but at the same time we cannot strangulate the growth momentum. Industry and services is the sector which would be a great spinner of money for us and we can not leave the opportunity.

SEZ policy if properly implemented has the potential of changing the landscape. Xiamen in China can be the best example. A remote village has been converted into a city which employs 20 million people. It has changed the life of the people, brought employment, led to infrastructure development and made a remote village the centre of activity. It leads to spreading out of the economic activity, to hitherto unknown areas. We need to spread out, diversify our markets, move off saturated places like big metros and create infrastructure at other places and that’s what we can do through this.

For farmers without any land there is nothing much to lose. Their labor services would be as much required in new industry. For others with land, which is being used for agriculture, who would only be few we need to tread with caution, give them land and see that they are also given adequate compensation to resettle. There would be still some problems, but then success stories can’t be written without hardships or inconvenience. All we can do is reduce it to minimum. We cannot look back.

Bringing reform in India is like shifting a graveyard, even the dead standup and plea status quo, it is time we rise to the challenge. The SEZ policy needs to be properly implemented rather thwarted for the welfare of people of the country.

Written by: Achal Tyagi, Legal Executive, Satyam Computers, Hyderabad