Sunday, April 22, 2007

The Maya of "Employment Generation" through SEZs

Ealier this month, after almost 2 months of stalemate, the the Govt of India showed the green flag to process of clearing and notifying the SEZs. One of the sellling point of SEZ idea (ideology?) has been that it will help creating more jobs. As this report in Indian Express mentions:

"In fact, it’s the employment-generation potential of SEZs that seems to have helped the policy resurface in the face of strong opposition, not just from the Left parties, but from within the government too."

I downloaded this "Factsheet on SEZs" from the GOI's site,

This also clearly mentions " (d) creation of employment opportunities" as one of the objectives of SEZs.

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Now, according to this document, the 234 approved SEZs will
- bring investments of Rs 3,00,000 crores
- generate 4mn jobs, and
- require approx. 33808 hectare of land

Notwithstanding the fact, that 4mn jobs (by 2009) are peanuts

- for a country with 400mn workforce,

- with abysmally low levels of skills (pl see an earlier post, The Future of Work/Employment in India for some statistics), and

- where about 10mn people enter the job market every year,

these figures lead to some interesting conclusions:

Cost of creating jobs
= 3,00,000 crores / 40,00,000
= Rs 7.50 lakh per job

This calculation, of course, does not include the cost of various "incentives and facilites" that are given to SEZs and its developers (see the list at the end of this post), According to Min of Finance these will cost another Rs 1,00,000 crores to the exchequer.

There is something else also that does not make sense. If 33808 hectare land is required to create 4mn jobs, then:

40,00,000 / 33808
= 118 jobs per hectare

Now contrast this to, for example:

  • according to this report which quotes NAECR study, "the Posco project would create an additional employment of 50,000 person years annually". Posco project in Orissa requires about 1600 hectares, i.e., it will actually generate 31 jobs per hectare

  • the Tata Car Project in Singur requires 997 acres (or about 403 hectares), which should create 47,630 jobs... but even according to the company it will generate 10,000 jobs.

  • the 10,000 acres (or about 4048 hectare) Nandigram SEZ would have provided 4,77,732 jobs.

  • even the small SEZs are no better. As this news article points out about the two pharma companies which have been granted 75 acres (about 30 hectares) each in AP, have an "employment potential of 2,000", which for 60 hectares should be more than 7,000.

    As an earlier report in The Outlook highlights:

  • "The fact is that a 515 MW power unit employs 80 people, a global-sized refinery of 10 MT can give jobs to 800, and a 4.5 million tpa steel plant could keep 1,800 employed. Considering that over 55 per cent of the 237 SEZs are IT-related, they’re unlikely to create rural jobs....">//i>

    Coming to the "hidden costs" of this employment creation via SEZ, the following is a cut-and-paste job from GOI's website:

    Incentives and facilities offered to the SEZs

    The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:

  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

  • 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

  • Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.

  • Exemption from Central Sales Tax.

  • Exemption from Service Tax.

  • Single window clearance for Central and State level approvals.

  • Exemption from State sales tax and other levies as extended by the respective State Governments.

    The major incentives and facilities available to SEZ developers include:

  • Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.

  • Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

  • Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.

  • Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

  • Exemption from Central Sales Tax (CST).

  • Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).


    Sumeet said...

    Once agan your stats are shocking & meaningless, let me tell u about multiplier an 'economics thing'. So u see the 7.5 L being spent per job creation doesnt really mean that all we get out of that 7.5L is that one extra job. We get cheaper O/P that drives higher consumption & that in turn drives more O/P & guess what that leads to ... more jobs. So u see the 7.5 L cost of new job creation is a meaningless figure. & btw how on earth is investment/no. of labour = cost of generating employment. If anything it should be value of subsidies/ no. of labour. Investment is being brought by private parties for profit.
    & Let me assure u this figure is wrong, no organisation in India has a labour productivity so high that it can have such a high investment/ labour ratio as 7.5Lakh

    Madhukar said...

    agree with you Sumeet. Stats, facts, reality can be quite 'shocking. and disturbing... and if it does not fit with one's cheished fiction, can also look 'meaningless'.

    btw, I am aware of "muliplier effect" and how any economic investment creates secondary and tertiary employment. That however happens over a period of years - and decades - Not likely to happen by 2009, as the ministry document tries to sell it... and I dont see why if the pro-SEZs people try to justify investments in SEZs as way to jumpstart employment creation, the investments (plus the 'subsidies') be not considered as the cost of job creation.

    Sumeet said...

    madhukar, u have still not answered the 2nd & the more important question, how is investment/ labour = cost of employment? I think that is somewhat a measure of labour productivity but cost of employment has to be = value of subsidies/ labour

    Madhukar said...

    well... I was not aware that I will have to sit through viva-voce after mailng this post ;0)

    anyway... Sumeet, why I did not answer your "2nd & the more important" question was because the question itself is wrong!!!.. and apparently based on ignorance

    Labour productivity - or any productivity - measure is the ratio of output / input (and NOT "investment/labour" cost!!!) ... in order to be viable, the businesses which invest, will have to generate value worth 7.5L from each of those 4mn people in a reasonable period of time (taking into acount their cost of capital).. I dont see this as a viable and realistic scenario... and that's why interpret it as a 'hoax' which will appeal to a certain segement of society...

    The cost of creating a job would always be a ratio of total investments (whether "direct" private investments or "hidden" subsidies - or perhaps both) divided by the number of jobs created.

    Sumeet said...

    Ok, madhukar u win this round, I get the idea now. Yes these figures do smell like a scam( surely employment figures being quoted by govt. are inflated) I will try to hit back later :).

    Madhukar said...

    Oh, oh...
    lekin.. Sumeet, this is not a wrestling or boxing match ;)... I am open to concede being wrong, if I am... you dont have to "hit back later" :0)

    dont think the issue is about who is "right" or "wrong".. but whether the issue is "right" or not!

    karthic said...

    Nowadays there are more job openings available for freshers and experienced persons in various categories. Just apply to the jobs or register in the job providing websites, so that right jobs will be intimated based on the resume. Its a simple and a best way to get into the good job.