INDIA’S FASCINATION WITH SEZ
India’s enthrallment with special economic zones was motivated by China’s thriving achievement with these enclaves of electrifying production. It has sanctioned close to 200 SEZs. Guess how many SEZs China has since kicking off the policy in 1979? Exactly six: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong. Is India getting something wrong in its SEZ policy, or should we merely conclude that India will soon be 33 times as successful as China?
China’s accomplishment in attracting loads of foreign direct investment and becoming one of the top exporting countries of the world hinged on the careful execution of its SEZ policy. More than two decades later, India, too, is trying to tramp on the same ground.
There are, however, certain elementary differences in the Indian and Chinese approach to SEZs, which make it difficult to say for sure that Indian SEZs will be able to recreate the Chinese magic. Size, location, flexible labour laws and stable policies are the factors primarily responsible for making Chinese SEZs attractive to foreign investors.
In India, it is the fiscal concession being offered to developers and units which are the primary driving force. The Chinese government started building SEZs way back in 1979. The idea behind the SEZs was to experiment with liberal policies in certain ear-marked regions while insulating the rest of the economy from their influence. The government identified enormous zones of land, near the coastal region, and started building mega cities with all required infrastructure.
Stringent labour laws applicable in China were relaxed in the regions and foreign investors were wooed with sops and the promise of stability. Though India had a head-start in the direction by building its first export processing zone in 1969 with certain minimum infrastructure and fiscal sops (seven more followed later), it could not muster enough political will to build full-fledged SEZs with foreign territory status in the matters of international trade till the turn of the century.
As opposed to five mega SEZs built by the Chinese government (the largest being Shenzhen built over 49,500 hectares), India opened its doors to private players and allowed sector-specific SEZs to develop on just 10 hectares of land. As a result, India has as many as 28 operational SEZs with about 200 more having received approvals. The economies of scale, which seems to have worked so well in China by reducing production costs, may not have the same effect in Indian SEZs.
In China, the government chose the location for SEZs with a lot of thought with all five located near the coastal region. This makes it easier for SEZ units to export their products and import inputs. In India, SEZs are being built all over the country, wherever land can be acquired by developers. This has also led to allegations of land-grabbing and conversion of productive agricultural land by developers. This had led the Centre to make it mandatory that all proposals should have a certificate from the state government notifying that the land being used is non-agricultural for at least 90%.
Flexibility in labour laws, which played an important role in attracting foreign investors, is absent in Indian SEZs. This is one of the prices India is having to pay for the advantages of a federal democratic government.
India has, however, tried to make up for all the disadvantages by offering attractive fiscal sops. Tax holidays for SEZs in India are longer and steeper than those given by China. This had given rise to some dissent from the finance ministry which had complained that the fiscal loss would be immense.
Published on:www.indiarealestateblog.com
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