The issue of setting up Special Economic Zones (SEZs) seems to be developing new dimensions all the time. The grand plan to emulate China’s SEZs started out with a fundamental flaw: unlike in China, labour laws in India were not made flexible to aid investment, and it has been left to the states to address the issue. Tax breaks invited the charge that the government was set to lose out in fiscal revenue and endanger macroeconomic stability, while the Board of Approvals that considers SEZ applications smacked of a return to the licence-permit raj.
So far, the the Board has approved 164 proposals and the limited number implies a State-induced divide between the SEZ haves and have-nots among industrialists. The RBI has moved to treat SEZs as real-estate projects, thus limiting the prospects of bank credit to build them. The government, talking of creating lakhs of jobs through SEZs, is substantially surrounded by a welter of criticism. We now have the politically sensitive matter of using farm land to set up SEZs and the need to ensure that farmers are compensated at market rates for their land, which the government acquires at comparably lower rates. To be fair, the government has ruled out the use of prime agricultural land for SEZs. But it had better watch out for critical eyes.
It is becoming increasingly clear that the issue of SEZs has all the signs of a political time-bomb. The government needs to ensure there is a policing mechanism that ensures fair play and transparency for all stakeholders, and that the authorities do their job in a manner that holds accountable those who need to implement socially beneficial industries in return for goodies like tax breaks and cheaper land. Given the track record of land-grabbers, SEZs stand the danger of becoming a throwback to pseudo-socialist enrichment of a few. Transparency, fair play and a politics-proof policy regime that works in the long term are what the SEZs need right now.