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SEZs show lack of governance

Nowhere have the economic zones created a national controversy as intense as in India, writes Neelesh Misra.

india Updated: Oct 18, 2006 03:57 IST

If they were to be advertised on a billboard, it would say: "After 120 countries, economic zones now available in India."

Forty million people work in about 1,000 economic zones of varying sizes across 120 countries, according to United Nations estimates. But nowhere have the zones created a national controversy as intense as in India, where the low tax, high-growth Special Economic Zones (SEZ) with world-class infrastructure are being set up with an aim to boost the economy and provide hundreds of thousands of new jobs.

Still, the SEZ debate has succeeded in bringing national focus on issues often ignored: farmers' rights, the influence of large corporations on governments, and, most importantly, governance.

"The best thing would be to have the best infrastructure throughout India, outside the Special Economic Zones. Unfortunately, we have not been able to do that,'' commerce secretary Gopal Pillai said last month.

"The best policy would be to declare the whole of India a Special Economic Zone. But I doubt if any government would be bold enough,' he said.'

The SEZs come with a lot of government pampering. Excise duty, normally levied at 16 per cent, will not be charged there for the production of goods. For the services sector, the normal service tax of 12.2 per cent has been waived. Companies there will pay no local taxes such as octroi and sales tax.

Similar privileges await developers -— the companies that will buy land, lay roads, build offices and shopping malls, and then rent out the facilities.

Outside the picture-perfect enclaves, however, there is no such fun.

"There seems to be a view that the government has abdicated its role in urban generation and regeneration,'' said Vinayak Chatterjee, chairman of the National Council of Infrastructure at the Confederation of Indian Industry. He added that this was not the CII's view, just the summary of concerns raised by its members.

"The government has sought a bypass — it has put its hands up, and said ‘Look, we can’t do anything, here, take these world-class clusters. We can't address the enormity of the problem’, he said.

Experts caution against the double approach.

"Why are they giving tax breaks? They should have built free ports. If you are creating an enclave of excellence, why limit it?'' said Jayanta Roy, a former adviser to the commerce ministry who worked with the World Bank for three decades. "The entire Goa, or all of Bangalore and its suburbs, could have been an SEZ.''

neelesh.misra@hindustantimes.com