Friday, September 29, 2006

Beware!...SEZs Ahead!!!

Ahead in time, that is!

SEZs (or Special Economic Zones) is an interesting - and frightening - phenomenon happening in India....

....and an apt example of "secession of the successful"... to quote: "those who are successful tend to retreat into a totally private world. They use private electricity. They attend private schools and colleges. They live in private colonies, manned by private security guards. They socialise at private clubs, use only private transport and thus they cease to have any stake at all in the ‘public realm’ or in the public world. In our country, of course, even the public realm is often ‘privatised’."

Here is a primer for the late-comers - and for those who may be concerned:

  • SEZs are considered to be "foreign territories" as far as trade, tarriffs and duties are considered. They can source raw material and capital goods without paying any duty or license... and they have free complete access to domestic markets. Incidentally, if you buy material from an SEZ, then You will be paying the import duty.

  • There is also no bar on developers (e.g., an Ambani, or Tatas, or DLF, or Mahindras or Sahara, etc.) not to shift their existing facilities inside the SEZs.

  • Only 35% of the land needs to be used for the core purpose... rest can be used for real estate, shopping malls, multiplexes, residential and commercial property, etc. (The Ministry of Commerce has the option to reduce this 35% to 25%, as according to its wisdom)

  • Labour laws are not applicable within SEZs, and the projects in SEZs are exempt from environmental impact assessment.

  • 100% of profits from FDI in manufactuing can be repatriated freely.

  • 100% tax exemption on exports for first 5 years, and 50% for the next. The SEZ developers get 10 years of tax holiday.

  • The investments going into developing these SEZs are estimated to be Rs 100,000 crores, and the loss to the exchequer will be around Rs 90,000 crore.

  • About the job-creation promise, one will have to wait and see. The past record of the EPZs was that they all together created just 100,000 jobs (and till 1998 they had generated around Rs 4700 crores in Forex at the cost of around Rs 7500 crores as forgone customs duties)

    The only "redeeming" feature of this modern day avatar of "robber barron" scheme is that the cost to the exchequer for all this will be coming from the tax-payers' pocket (i.e, from those who can afford to pay tax in India - i.e., about 5-10% of its population)...

    ...and so for the first time, the middle-class urban India - and not just those unwary victims of development for "the larger good" - will also get an opportunity (and taste) of contributing to the "economic development"/GDP-growth/FDIs as compared to China, etc. - or whatever feeds their self-worth) - of the country...

  • 5 comments:

    gaddeswarup said...

    Your latest post in SE and this post seem to be pointing in different directions.

    Madhukar said...

    Well, yes and no!
    In a way the two posts are opposite, in that the SE post is hopeful while this one paints a bleak picture.

    But then both are also part of what is happening. The SE post is about an emerging trend that perhaps will/may become a reality. SEZs are already here.

    gaddeswarup said...

    Thanks for the clarification. One problem seems to be that prices in a market economy are quite distorted. For example, it is not clear to me whether farmers get their due in a market economy. Even in a good year, Mexican corn farmers cannot compete with Americans, not because the American corn is cheap to produce (it is supposed to be the most expensively produced corn) but because part of American agriculture is heavily subsidized. So there seems to be some distortion in the price structure in the global economy. The basic problem seems to be that we have more people than needed to produce what is 'needed' for the same people and this cannot be sustained without a spiral of increasing needs and distortions. May be your SE post suggests that some are beginning to realize that this is unsustainable and it is better to share. I do not know whether this makes any sense; but I got it out of my chest.

    Prometheus_Unbound said...

    Agree with you on quite a bit of how SEZ's scam the general junta. However there is quite a bit that I did differ on.

    I currently work in Bangladesh and have many clients who operate out of SEZ's. The labour conditions in most of these places is appalng, the enterpreneurs rip off the government, yet when I look at the fact that without these SEZ's many of these enterpreneurs would not have been able to operate a simple factory outside I reconsider. You definetely can't argue with the fact that garments based out of the Chittagong and Dhaka SEZ's are the largest employer and foreign exchange earner in a economy gone mad country like Bangladesh. The best time to visit these places would be when the evening shift goes off work. You see millions of young women going home. Without the economic opportunities provided by these SEZ's these women would never have an opportunity to even meet their spouses on a somewhat equal footing when it came to decisions regarding family life.

    Madhukar said...

    Rex,
    the post is not against SEZs per se. If the SEZs provide the right launching pad for fledgling local industries, as seems to be the case for Bangladesh from you comment, they are most welcome.

    What is happening in India is almost oe of the biggest scams - or at best, stupidity. If one looks at the kind of sops that are being offered to developers and industries, one will not find any compaison world-wide. And the numbers!! - China's success story with SEZs (specifically, Shenzen) that is often quoted has no parallel here. Even China has 5-6 SEZs which have been planned and located near port facilties, and do not offer the kind of tax breaks that India is offering. And India is planning around 400 of these of various sizes... noone knows, why?