labels: economy - general
IMF warns India against SEZ crazenews
15 September 2006

Mumbai: The International Monetary Fund (IMF) has advised India to review its plans for special economic zones, saying that the tax-sops and other incentives could divert industrial activity from the rest of the country.

"Overall, it becomes yet another give-away which the government cannot afford," IMF chief economist Raghuram Rajan said, adding that it would be far better to make people compete on the basis of the quality of the infrastructure they create in such zones.

He was speaking to reporters after the release of the IMF''s World Economic Outlook.

As of now, tax sops are the only reason for setting up smaller SEZs of 10 hectares, he said, adding that economic zones of such small size cannot offer benefits of infrastructure. People should rather be made to compete on the basis of SEZ rules and regulations to attract capital, he said.

Tax sops and other incentives may also divert industrial activity from the rest of the economy into these zones, creating problems of inequitable development, he said. The Reserve Bank''s annual report has also pointed out that SEZs could aggravate an uneven pattern of development, he pointed out.

The finance ministry has estimated a revenue loss of the equivalent of Rs175,000 crore in direct taxes, customs and excise duties over the next five years while the commerce ministry expects a Rs44,000 crore gain from the zones.

Meanwhile, the Communist Party of India (M) feels that the SEZ Act may allow acquisition of agricultural lands for real estate development causing large-scale displacement of farmers in the name of industry and other social ramifications.

CPI(M), a partner in the ruling UPA, is seeking a change in the Act to ensure use of a minimum of 50 per cent of the land for industrial purposes against the existing SEZ Act allowing the use of up to 75 per cent of land for non-industrial or real estate purposes. The CPI (M) said it would consult other political parties on the issue.

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IMF warns India against SEZ craze