SEZ — an enigma on fast track
K.M. DEVARAJAN
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The rules and objectives of the Act are such that the nation may not gain anything significant from it
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THE SPECIAL Economic Zones (SEZ) Act has recently been criticised as a policy initiative for making the rich perpetually rich; ignoring export promotion; encouraging the sale of products in the domestic market at high profits vis-à-vis the tax paying domestic units in an overregulated economy; reducing the competitive capacity of small and medium enterprises that contribute more than 50 per cent of our present exports; creating substantial loss to the revenue of both the Central and State governments; increasing regional disparities; displacing agriculturists; boosting highly profitable real estate operations; absence of government control and so on.
An SEZ is a large tract of land where manufacturers enjoy innumerable long term benefits from the government in order to attract foreign capital and modern technology which would encourage competitive production of goods and services for export, generate employment and earn substantial foreign exchange.
Though many economies have been using this concept for decades, only a few, of which China is most prominent, are believed to have succeeded in this experiment.
Deng Xiaoping, the inspiring force behind China's economic miracle during the last 30 years, gave a big boost to the concept of SEZ in 1979. In opening up its vast domestic market to western capital and technology, he used the SEZs as role models to assess the success of his economic liberalisation policies. SEZs have now come to an end in China with its economy entering the final phase of full opening offering economic advantages to foreign and domestic investors in all regions of the country. Investments are now being directed to inland and rural regions and China is working on an exit strategy for the SEZs.
In India, Commerce Minister Murasoli Maran was the first to announce the Vajpayee government's decision to set up SEZs on the Chinese model to increase exports manifold, and the scheme was to be introduced in April 2000. His Ministry had also drafted an elaborate Bill on SEZs for the approval of Parliament. The Bill, with several basic changes which had no relation to the Chinese model, was passed by Parliament after five years in 2005 piloted by UPA Commerce Minister Kamal Nath. The provisions and objectives of the revised Bill are such that the nation may not gain anything significant from it.
Within 15 months of the passage of the SEZ Act, the Ministry was unbelievably fast in sanctioning 181 applications, and another 225 applications are reported to be in the offing! These applicants are the richest individuals/business houses in India — the Ambanis, Tatas, Mahindras, Sahara, DLF, Unitech, etc. Allotments for SEZs were given for areas ranging from 10,000 to 35,000 acres and more.
The SEZ scenario in India becomes all the more enigmatic because the rules require only up to 25 per cent of the total area to be used for production purposes, which makes the SEZ one of the biggest opportunities for the big and the powerful to grab land at the lowest price with innumerable concessions from the government. Fast track economic reform does not mean that the government facilitates the selling of our precious and limited land to a few rich individuals/companies for `development.'
On September 24, Congress president and UPA chairperson Sonia Gandhi asked the government to go slow on the SEZ policy. The Finance Ministry estimated a revenue loss of over Rs. 1,75,000 crore in direct taxes, customs and excise duties during the next five years and the Governor of the Reserve Bank advised banks to treat projects in SEZ on a par with real estate!
The Chinese, on whom India was stated to have modelled its SEZs, are now miles ahead because they had determination, discipline and political will in governance. If the government wishes to realise its economic potential and social objectives, then it needs to check this emerging scandal and reform the SEZ Act.
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