labels: industry - general
Revisiting the SEZ Debate news
14 September 2007

The big SEZ debate has become lively once again, following new policy initiatives by the government and a study on the policy''s effect on government revenues by a leading economy think-tank.

>Despite all the opposition and controversies and its own denails, the government is once again readying itself to help the SEZ developers acquire land. To pacify those whose land is sought to be acquired, a comprehensive resettlement policy has been promised for those displaced by the land acquisitions.

>And if you were wondering, like most others, whether the government will end up making more money once all these SEZs come up or lose a good part of what it could have earned, the debate continues. A study by Indian Council for Research on International Economic Relations (ICRIER) says the government would be better off, but the think-tank has used some interesting assumptions to prop up this conclusion.

In all this noise, the core issues remain mostly ignored. Do we need large industrial zones in this country? If we need them, should the government shower them with such lavish tax breaks? Finally, can we set up these zones without displacing so many people?

Lets examine all these issues, starting with whether we really need large industrial zones. The answer is an emphatic ''yes''. The only way this country can ever hope to provide alternative employment to agricultural employment to lift millions in rural India out of poverty is by enabling rapid growth in manufacturing.

>As we have realised, the biggest obstacle to manufacturing growth is poor infrastructure. Should we wait for infrastructure to improve across the country before manufacturing is allowed to expand, a few more generations of Indians will waste their lives in penury and frustration.

Despair and frustration among citizens can be dangerous to a nation. The growing Naxal menace, the biggest challenge this country is facing today, is mostly an upshot of many decades of economic underdevelopment in the affected regions. The only long-term solution to this problem is to provide a better economic future to the people in those areas.

>Large-scale employment generation for less-skilled workers is possible only in manufacturing. And the quickest way to boost manufacturing growth is to set up separate manufacturing zones with the required infrastructure.

Tax breaks to promote industry are always controversial. There is no doubt that tax breaks can be an effective tool to attract investors to a new initiative. But at the same time the government must ensure that tax breaks to new ventures do not put existing units at a major disadvantage. It must also be ensured that existing businesses do not exploit the tax breaks to enhance or perpetuate benefits already available to them.

The majority of the SEZ proposals approved by the government so far are small projects by IT services companies. These companies have only one motive - to continue enjoying tax breaks for a longer period by shifting operations to SEZ''s, in case the government withdraws their current tax benefits.

>Large, integrated industrial zones are not vital for the operations for IT firms, though some campuses of the bigger IT companies are quite large. Some of the proposed SEZ projects by these IT majors will have no more than a couple of office buildings with some landscaping around them. To call such facilities as special zones would be absurd as they would never create non-IT, semi-skilled jobs.

>Some IT industry veterans have held that there is nothing wrong in allowing tiny SEZ units as they would help their industry grow and will lead to more jobs, the biggest goal of the whole SEZ policy. True, their industry will be able to retain part of the price advantages arising from tax breaks and that may help their growth. Even if most of the jobs in the new IT SEZs will be those transferred from other locations, they will end up creating some new jobs as well. But that is not the issue here. Why muddle a major initiative like the SEZ policy to support the IT industry when it can be done through other policy initiatives? Why allow the not-so-genuine promoters to build small developments close to urban centres and add to the strain on infrastructure?

Many of the larger SEZ projects approved are promoted by the big real estate developers. This triggered the initial criticism that the SEZ projects are nothing but commercial real estate development with a little bit of manufacturing promotion thrown in. The developers may argue that industrial zones are a natural extension of commercial and residential property development. But, none of them have started work on these projects even after getting approval. This makes one wonder if these developers are only keen to expand the ''land bank'' under their control and then wait for some policy softening to increase the residential and commercial development area in these zones.

>There can be little argument that the large self-contained industrial zones are what we need if the SEZ initiative is to have a positive rub-off on manufacturing growth. Even with more residential and commercial development, the large zones proposed by the property development companies are more desirable than the tiny zones sanctioned to IT service providers. Large self-contained zones will divert new industrial units from already crowded areas and ease the pressure on existing infrastructure. They will allow people to move from the cities to less-crowded and less-polluted environs. The positives are many.

>Unfortunately, it is the few really big projects like the Reliance SEZ project near Mumbai that are facing the resurgent heat from the opponents of the SEZ policy. Some of these projects are facing stiff resistance on the issue of land acquisition and there is already some talk that these might be scaled down to smaller zones. That will be a disappointment.

>But why is it that the promoters of these large projects never think of locating their cherished projects in less-populated and less-fertile parts of the country, if the development is what they genuinely wish to bring about?

>Why is it that these projects are often proposed on highly fertile land and involves relocation of a large number of people, thereby multiplying the opposition? By their very nature, all these self-contained zones need good transport links to the outside world. If such links are provided, they can be located anywhere. Then why do these promoters insist on creating their own ''mini-cities'' close to our mega cities, knowing that there will be trouble? Is that a conundrum or is there something more to it?
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Revisiting the SEZ Debate