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SEZ appeal

The government hopes that SEZs will bring in billions of dollars in investments and create over a million new jobs.

india Updated: Aug 28, 2006 06:43 IST

If one were to use response as the yardstick to judge the success of a policy initiative, then the government's move to adopt China's Special Economic Zone (SEZ) model as a growth catalyst has already hit gold. Less than six months after the government passed the SEZ Bill, India Inc. has been beating a path to the Commerce Ministry's door. It took only three meetings of the board of approval set up to clear proposals for SEZs to hit Commerce Minister Kamal Nath's self-imposed limit of 150 schemes. The government has so far received over 380 proposals. The list of bidders reads like a Who's Who of corporate India - Reliance, Infosys, Wipro et al, and even public sector giants like ONGC. The government hopes that SEZs will bring in billions of dollars in investments and create over a million new jobs.

Why are businesses falling over themselves to join the SEZ bandwagon? It's not, as opponents of the scheme have alleged, all about tax giveaways. Admittedly, the sops on offer are attractive. All SEZ units get a complete tax holiday for the first five years, 50 per cent for the next five years and 50 per cent of the export profits for the next five, provided they are re-invested. Industries shifting from urban to rural areas will also be exempt from capital gains tax. But such sops have been offered before without quite eliciting the same response. India's first special export processing zone (EPZ) was set up in Kandla in 1965. EPZ exports have risen from less than Rs 10 lakh in 1966 to over $ 1 billion. Impressive, till one looks at China. Its first SEZ at Shenzen alone has attracted over $ 30 billion in direct investments and continues to be a showcase of SEZ success.

And it's not all because of tax. Other nations have also cottoned on and there are over 4,000 special investment zones in the world today. China continues to score because it has bundled an attractive tax environment with world-class infrastructure and a liberal labour environment. It's here that India appears to have stumbled. By buckling to pressure from Left parties and axing Section 50 (b) of the Bill, which would have empowered states to ease labour laws in SEZs, India has lost a crucial edge in the global investment marketplace. For the scheme to truly succeed, political parties need to set aside ideological differences for the common, and greater good.