ADB on SEZ
The Asian Development Bank comments on India’s SEZ.
++ Investments of about Rs 1 trillion with an employment potential of over 500,000 are expected from the new SEZs over the next 3 years.
++ The pros and cons of SEZs are very difficult to weigh. Nothing of this scale and with this particular set of administrative arrangements and subsidies has been attempted before in India. Clearly, SEZs present an opportunity to provide potential investors with better infrastructure and greater bureaucratic efficiency.
++ Nevertheless, valid criticisms of subsidies to SEZs deserve consideration.
1. with firms already eager to invest (but for the infrastructure and bureaucratic problems), providing enclaves that meet these needs might be enough to stimulate investment. Tax breaks may therefore be unnecessary.
2. SEZ tax inducements are expensive, and come at a time when government is struggling to provide adequate infrastructure in the wider economy.
3. special tax exemptions always risk opening up loopholes for tax evasion.
4. And subsidies can undermine both investment and existing firms located outside the SEZs. These firms suffer two disadvantages— worse infrastructure and higher taxes.
++ Serious concerns have also been expressed with regard to the people displaced by land acquisition.
++ Important issues include:
1. the kind of land to acquire for SEZs;
2. the extent of state involvement in selecting and taking land;
3. how to provide land losers with financial stakes in SEZs;
4. and how to retrain economically displaced people, especially landless agricultural workers for jobs in SEZs.
++ Indeed, some of the loudest political opposition to SEZ projects comes from the landless, who may not receive lasting compensation for land conversion and who lack the capital to become self-employed.
++ Governments have begun promoting the redevelopment of farmland with the aim of creating SEZs which are intended to assist industrial developers seeking to bypass infrastructure and administrative bottlenecks.
o the creation of SEZs involves a series of measures that are fiscally costly, potentially diverting industry away from other areas, and bring states’ land-acquisition powers to bear in markets where land ownership is either poorly defined, or carries significant external effects.
++ Given that large numbers of agricultural laborers who have no title to these lands nevertheless depend upon them for sustenance, the issue is exceptionally emotive.
++ The Government is in a position to play a crucial role in alleviating these tensions.
++ It can do so by assuring appropriate compensation packages for displaced workers; retraining schemes to permit displaced workers to qualify for jobs on SEZs; and most important, infrastructure support for creating and locating manufacturing jobs more organically.
++ More directly, it can help tackle the tensions through well-targeted investments to improve agricultural productivity.