SEZ…Special Economic Zone…why are they special?
Well to start with SEZs have always emerged a matter of conflict between the industrialists and the land owners. Debates regarding their status, policies and even existence have always drawn their attention.
In 1965 the India adopted the earliest versions of SEZ as export oriented zones called Export Processing Zone by setting up Asia’s first EPZ in Kandla. This was a step to boost the economy by allowing to work outside the clutches of poor infrastructure and controlled policies. It was to draw foreign investments and give the much needed growth to the economy. However it did not receive much of an attention due lack of clarity on policies and other difficulties.
The Chinese on the other idea got major success with the SEZ concept. India also began to bring new ideas to encourage the SEZs. The policy stance underwent a change.
The new shift in policy was more to add more incentives to the SEZs like exemptions from import and export duties, tax reliefs and enormous tax holidays. The SEZ Act, 2005 was passed by the Parliament in May, 2005 and the President’s assent on 23rd June, 2005 made it effective. It provided a single window clearance system for the set-up of SEZs. It provided incentives and facilities to promote the growth of SEZs. Exemptions from custom and excise duties were given. Income Tax exemptions were also given. Other forms of tax reliefs like exemption from minimum alternate tax, dividend distribution tax, Central Sales Tax and Service Tax were also encouraged. The SEZs could now be used for other commercial policies beyond industry.
The aim was to create vibrant economic activity and encourage more of foreign investments. It was to promote exports and thereby reduce trade deficits. In the process growth in infrastructure and employment were to be achieved. It was to meet the needs of both social and economic sector and take the nation forward.
This time the policies were in the right direction. It boosted the private sector investments and gave strong economic growth. The reforms worked in India’s favor and India’s growth story saw another good prospect.
There are two major differences between the SEZ models of China and India. Whereas India’s SEZ are initiative of the private sectors or joint ventures between the public sector and joint sector the Chinese models are initiatives of the state. Chinese SEZ are huge in terms of are but India’s SEZ are small compared to that with areas as small as 10 hectares.
However the government has recently approved 23 SEZs whose minimum size is 1000 hectares. This initiative is expected to bring greater economic prosperity to the nation and expand the growth horizon to even higher levels.
However most of the time there is a controversy with regards to land issues involved in SEZs. Conversion of agricultural land to industrial hubs is a matter of debate. The positive argument is that land is necessary and every possible effort should be made to gather large lands for industry to add to growth but the negative argument it that industry should be set up on lands which are not suitable for agriculture.
Whether or not land owner get the right compensation is even a bigger question. The farmers are given alternative means of living and whether they can adapt to it is a matter of debate again.
The Land Acquisition Act of 1894 under which the lands are acquired was considered to be very back dated according to the current situation. However the new bill aims to solve this solves and gives even more impetus to the SEZs.
However, economically SEZs are also facing criticism. There is belief that SEZs are giving manufacturing a backseat while information technology and service sector are seeing their attentions. This does not seem to solve the problem of unemployment too much whereas India’s prime objective on SEZs has been to solve the unemployment problems. Usage of SEZs for real estate is also raising question as to whether real estate should get industrial advantages.
Whatever be the controversies, SEZs have certainly contributed to India’s growth story and given Indian Industry more dimensions and prospects. But just like a coin it has a head and tail…the head being the positives and the tail being the negatives…