Former Chief Secretary and Chairman IIPA, Orissa, Mr Sudhansu Mishra.
Dear Sachi, After quite a pause, your portal has become active again. POSCO and the related issue of Special Economic Zone (SEZ) have rightly come to focus. Many distinguished contributors like P V Indiresan, Kiran Bedi, Manoranjan Mohanty and Swaminathan Aiyar have given their views. I have been an avid follower of these issues and cannot resist the temptation to join the debate. I apologise for a rather longish response.
The SEZ Issue:
SEZ is one of the most sensitive and controversial issues in our country in recent times. The government feels that SEZs will spawn rapid industrial and economic growth. Many economists, social activists and a dominant section of media question this rationale. They feel that the benefits will be far less than the sacrifice.
There are two serious problems with SEZ. The first is land acquisition on which most criticisms are focused. Following Kalinga Nagar in Orissa and Nandigram in West Bengal, the land issue involving great human anguish and political sensitivity, has taken the center stage. But the second and equally critical problem relates to colossal loss of public (Center and States) revenue through liberal tax shops. According to the reply to a Parliament question, the first seventy or so SEZs involve tax breaks amounting to Rs.100,000 crores. Loss from over 400 SEZs expected to materialize, will be staggering. Govt. says that the loss will be more than compensated by future revenues from new investments and employment generation. Experts say that while the estimate of loss is realistic, the net gain may not be substantial.
The way the present SEZ scheme is structured (an SEZ unit has to be net foreign exchange earner) most industries manufacturing products with low import content / duty structure will primarily cater to the domestic market putting the existing units outside SEZs in jeopardy. In the present liberalized environment, much of the new investment would flow even without SEZs. Mineral based industries like POSCO and Jindal Stainless Steel in
Orissa do not need SEZ incentives to come up. As such, incremental
investment / revenue / benefit on account of SEZ would not be substantial as
argued by the Govt.
The Indian SEZ scheme is ostensibly modeled after China. In China , despite the human cost to rural farmers as argued by Prof. Manoranjan Mohanty, SEZs have propelled the economy through FDI flow and booming foreign trade. Sadly, the Indian SEZ scheme is a distortion of the Chinese version. China, a closed economy in the 1980s and desperately in need of foreign investment / exchange, had to adopt liberalized policies (including flexible labour laws) in sheltered SEZ enclaves. In India, times are different now, with massive foreign exchange reserve and free FDI flow in the liberalized
regime. Prof. Jagdish Bhagabati, famous economist and "Globalisation Guru" has said that India does not need SEZs at this juncture. One does not need the scaffolding when the building is ready. He says that SEZ is a wrong policy at the wrong time.
China has only 6 large sized SEZs (the largest, Senzen, comprises about 50,000 hect) in coastal locations with world-class infrastructure and facilities like captive ports, airports and international financial hubs. Indian SEZs are tiny by comparison (10 hect for IT sector), too many (over 400) and in all kinds of locations. Many are suspected to be primarily real estate ventures. All States are competing for new SEZs. Most leading Industrial / Business houses and prominent Real Estate Developers want to put up SEZs. A free for all situation prevails. Sri Swaminathan Aiyer rightly observes that unlike China, the emphasis here is on tax shops and not on world-class infrastructure. On the other hand, most SEZs will put tremendous strain on the creaking infrastructure in nearby urban areas.
Chinese SEZs are State controlled, most Indian SEZs are established by private developers. The Chinese SEZ hosts diverse manufacturing / service enterprises. Indian law permits single company / single product facilities to get SEZ status. Mineral processing ventures of POSCO, Jindal, Hindalco, Vedanta, etc. in Orissa are examples. Chinese SEZ units are mostly export oriented while many of the Indian counterparts may cater primarily to the domestic market.
In India, tax exemptions for SEZs are far wider and deeper than in China – 5 years full tax exemption (customs duty, excise duty, income tax, VAT, CST, etc. for developers as well as resident units) followed by 50% exemption for another 5 years, compared to mostly 2 years followed by another 2 years in China.
Thus, the Indian SEZ policy seems to be a monstrous policy error combining farmers' woes with gratuitous revenue giveaways without commensurate benefits. Unfortunately, the issue is not adequately mainstreamed in political establishments. The political parties are mostly quiet; only recently Left parties seem to have given up their ambivalence and have started questioning the rationale of the policy. Clearly, the collective conscience of the nation needs to resist this misadventure.
The SEZ Issue:
SEZ is one of the most sensitive and controversial issues in our country in recent times. The government feels that SEZs will spawn rapid industrial and economic growth. Many economists, social activists and a dominant section of media question this rationale. They feel that the benefits will be far less than the sacrifice.
There are two serious problems with SEZ. The first is land acquisition on which most criticisms are focused. Following Kalinga Nagar in Orissa and Nandigram in West Bengal, the land issue involving great human anguish and political sensitivity, has taken the center stage. But the second and equally critical problem relates to colossal loss of public (Center and States) revenue through liberal tax shops. According to the reply to a Parliament question, the first seventy or so SEZs involve tax breaks amounting to Rs.100,000 crores. Loss from over 400 SEZs expected to materialize, will be staggering. Govt. says that the loss will be more than compensated by future revenues from new investments and employment generation. Experts say that while the estimate of loss is realistic, the net gain may not be substantial.
The way the present SEZ scheme is structured (an SEZ unit has to be net foreign exchange earner) most industries manufacturing products with low import content / duty structure will primarily cater to the domestic market putting the existing units outside SEZs in jeopardy. In the present liberalized environment, much of the new investment would flow even without SEZs. Mineral based industries like POSCO and Jindal Stainless Steel in
Orissa do not need SEZ incentives to come up. As such, incremental
investment / revenue / benefit on account of SEZ would not be substantial as
argued by the Govt.
The Indian SEZ scheme is ostensibly modeled after China. In China , despite the human cost to rural farmers as argued by Prof. Manoranjan Mohanty, SEZs have propelled the economy through FDI flow and booming foreign trade. Sadly, the Indian SEZ scheme is a distortion of the Chinese version. China, a closed economy in the 1980s and desperately in need of foreign investment / exchange, had to adopt liberalized policies (including flexible labour laws) in sheltered SEZ enclaves. In India, times are different now, with massive foreign exchange reserve and free FDI flow in the liberalized
regime. Prof. Jagdish Bhagabati, famous economist and "Globalisation Guru" has said that India does not need SEZs at this juncture. One does not need the scaffolding when the building is ready. He says that SEZ is a wrong policy at the wrong time.
China has only 6 large sized SEZs (the largest, Senzen, comprises about 50,000 hect) in coastal locations with world-class infrastructure and facilities like captive ports, airports and international financial hubs. Indian SEZs are tiny by comparison (10 hect for IT sector), too many (over 400) and in all kinds of locations. Many are suspected to be primarily real estate ventures. All States are competing for new SEZs. Most leading Industrial / Business houses and prominent Real Estate Developers want to put up SEZs. A free for all situation prevails. Sri Swaminathan Aiyer rightly observes that unlike China, the emphasis here is on tax shops and not on world-class infrastructure. On the other hand, most SEZs will put tremendous strain on the creaking infrastructure in nearby urban areas.
Chinese SEZs are State controlled, most Indian SEZs are established by private developers. The Chinese SEZ hosts diverse manufacturing / service enterprises. Indian law permits single company / single product facilities to get SEZ status. Mineral processing ventures of POSCO, Jindal, Hindalco, Vedanta, etc. in Orissa are examples. Chinese SEZ units are mostly export oriented while many of the Indian counterparts may cater primarily to the domestic market.
In India, tax exemptions for SEZs are far wider and deeper than in China – 5 years full tax exemption (customs duty, excise duty, income tax, VAT, CST, etc. for developers as well as resident units) followed by 50% exemption for another 5 years, compared to mostly 2 years followed by another 2 years in China.
Thus, the Indian SEZ policy seems to be a monstrous policy error combining farmers' woes with gratuitous revenue giveaways without commensurate benefits. Unfortunately, the issue is not adequately mainstreamed in political establishments. The political parties are mostly quiet; only recently Left parties seem to have given up their ambivalence and have started questioning the rationale of the policy. Clearly, the collective conscience of the nation needs to resist this misadventure.
S. B. Mishra.
posted by Sandip K. Dasverma @ 12:23 AM
0 comments
0 Comments:
Post a Comment
<< Home