Sezs : - India vs China

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Are They Good for the Country?
Ram Krishna Ranjan

Special Economic Zones:

CCS Working Paper No. 156 Summer Research Internship Program 2006 Centre for Civil Society 1

i. ii. Executive summary Major findings

Section-1 (SEZ policy: An overview) 1.1 Introduction 1.2 Evolution of EPZs/SEZ in India 1.3 How SEZs are different from EPZs 1.4 Objectives of SEZ policy 1.5 Establishing SEZs 1.6 Setting up units 1.7 Important features of SEZ policy and incentives given to SEZ Section-2 (Performance Analysis) Introduction 2.1 Share in total exports: aggregate analysis 2.2 FDI inflow and employment generation Section-3 (International Experience) 3.1 Comparative study of China 3.2 Comparative study with other countries Section-4 (Case Study) 4.1 Introduction 4.2 Reasons for NSEZ’s success Section- 5 (Policy Analysis: a critical approach) 4.1 Corporate Welfare 4.2 Real Estate Scam 4.3 Migration 4.4 Labour Policy 4.5 Heavy Economic Cost 4.6 Conclusion


Executive Summary

India over the past decade has progressively opened up its economy to effectively face new challenges and opportunities of the 21st Century. To compete in the global market, the Government of India (GoI) has liberalized export policies & licensing of technology and implemented tax reforms providing various incentives. Special Economic Zone (SEZ) policy is also one of the steps India has taken to boost economic growth through outward looking approach. Special economic zone is a specifically duty fee enclave and shall be deemed to be foreign territory for the purpose of trade operations and duties and tariffs. When SEZ policy was introduced in the country, it made headlines and people started considering it as a policy to create a hassle free and investment friendly environment. The main objective of this research paper is to analyze SEZ policy in terms of export performance, FDI inflow, employment generation and overall physical and financial infrastructure building. This research paper tries to investigate whether having these policies are good for the country or not. SEZs are a larger variant of Export Processing Zone (EPZ), thus performance of EPZ has also been discussed briefly. It has been five years now since all then existing EPZs have been converted into SEZs. Section –II has been devoted to performance analysis of these zones. After the failure of EPZs, a significant change has been made in the rules/regulations and a new package of fiscal and non- fiscal incentives is also being offered to developers and units. According to Finance Msinistry, the government has to forego about Rs. 90,000 crore in direct and indirect taxes over the next four years on account of SEZs. Despite so many incentives, performance of these privileged enclaves over the last five years indicates the failure of this scheme. For instance, the share of exports from SEZs in the total exports of the country has only increased from 4.2% in 2000-01 to 5.1% in 2004-05. Some economic experts are also seeing it as a corporate welfare scheme and the possibility of a sharp decline in investments in SEZs can’t be ruled out as tax benefits are only for 10 years. Other issues of concern like the heavy economic cost, real estate scam and labour policies are also discussed in the last section of the paper. Data are mostly secondary but the opinion of different economists and the Development Commissioners (SEZ) has also been taken into account. The zones cannot be insulated from the broader institutional and economic context of the country and be treated as an economy within the economy. Zones are a part of the economy and require overall improvement in the investment climate to ensure success in the long run. They should not, therefore, be viewed as an alternative to the overall development model. This is perhaps the reason why SEZs failed to fulfill the role of engines of economic growth in most countries on a sustainable basis.


Major Findings

• The...
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