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What's So Special About SEZs?

 


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The Indian government is facing political heat from the farmers, opposition, and even from its own allies on setting up of special economic zones. The policy that aims to emulate China's success with SEZ by establishing a tax & customs free zones to encourage exports is now under fire on land acquisition. The controversy has prompted the Prime Minister to put on hold further approvals of SEZs.

The SEZs have always been marred by controversies — earlier by the Finance Ministry's fear on tax exemptions offered to these zones and now by the land acquisition.

There is not much doubt, that the SEZ concept will definitely help India succeed in a big way. The domestic manufacturers will be able to compete in the global markets. The SEZs will bring technology and manufacturing skills to India, create lakh of employment opportunities, attract Foreign Direct Investment (FDI), increase exports etc.

To achieve 10 percent GDP and make India a global manufacturing hub, we have to move towards industrialization but not at the expense of forcing farmers to give their arable land.

The government should come up with proper land acquiring policy, make financial reforms rather than making cosmetic changes to a globally successful model.

For industrialization, land is needed, but those who are losing their land must be adequately compensated. They must be paid market value of the land, offer jobs, regular income, home etc.

In a year, the government approved 237 SEZs, gave “in principle approval" to another 162 and received proposals from state governments for 304 more. All but 63 of those projects have been put on hold since protests erupted. Too many SEZ's with not serve the purpose, we should develop sound infrastructure and offer better facilities for foreign investors. If we look at China, it has few SEZ's but large ones.

ABC OF SEZs Special Economic Zone (SEZ) is a specifically delineated duty free enclave that is treated as a foreign territory for the purposes of trade operations. It's exempt from income tax, sales tax, service tax and there is no examination of export/import cargo by customs.

Indian SEZ policy has following distinguishing features:

a) The zones are proposed to setup by private sector or by state Govt.in association with Private sector. Private sector is also invited to develop infrastructure facilities in the existing SEZs b) State Government have a lead role in the setting up of SEZ. c) A framework is being developed by creating special windows under existing rules and regulations of the Central Govt. and State Govt. for SEZ.

THE PROS:
* Boost economic growth.
* Employment generation.
* Rise in exports.
* Attract Foreign investors.
* Make Indian and foreign firms more competitive.
* Attract global technology and manufacturing skills.

THE CONS:
* Loss in revenue due to special incentives offered.
* May result in land scams.
* Too many small SEZs, even China has few, large SEZs.
* May force non-SEZs units to shift to SEZs.
* Create powerful and regional private monopolies.
* Shift focus on exports from serving the local markets.

Moonis Rehman is a graduate in English literature with a diploma in journalism. He is writing on trade, exim matters and several other topics for the last many years. Presently he is working with a leading b2b portal, http://www.tradeindia.com and is writing for their weekly newsletter.

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