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Why India needs that special space

india Updated: Apr 06, 2007 23:09 IST
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The government’s moves to break the logjam on Special Economic Zones (SEZs) display a welcome sense of urgency in tackling India’s developmental requirements. They also show a commendable level of flexibility and responsiveness to public opinion as well. However, the arbitrary cap of 5,000 hectares on multi-product SEZs may only serve to mute political criticism. Economically, it is a retrograde step that will deter serious investors. An SEZ is much more than an industrial estate — it is an industrial township that aims to provide integrated infrastructure for both industry and the people who work in them. Considering that half the land has to be set aside for non-industrial use, 2,500 hectares is insufficient to create industries operating at global scale. China’s SEZs run to hundreds of square kilometres. This offers major economies of scale and makes units in China’s SEZs the most price-competitive in the world.

By deciding to withdraw altogether from the contentious issue of land acquisition, both at the central and the state level, the government has effectively countered charges that it is propitiating the industrial sector at the expense of India’s agriculture sector, especially the rural poor. The slew of changes in rules relating to the setting up of SEZs have, in the main, addressed all the principal objections against the new policy. There should also be no re-enactment of the kind of violent protests one witnessed at Nandigram because the Centre has categorically stated that there will be no ‘compulsory’ acquisition of land against the land-owner’s will.

But India needs to compete globally for FDI and it simply cannot afford a policy environment that does not offer potential investors sufficient space for future growth and expansion. One hopes that the Rural Development Ministry, which has been entrusted with the job of drafting a new and comprehensive land acquisition law, will keep the interests of all stakeholders — including those who are planning to invest in the proposed SEZs — in mind while framing it. Unless this is done, there is a real risk of the process getting derailed once again. This is a risk which India can ill-afford to take. The lift on the freeze on the process of formally ‘notifying’ even those SEZs which have already been approved has in fact come in the nick of time, given the recent turmoil in global stock and money markets. India desperately needs huge infusion of foreign direct investment (FDI) in order to develop its domestic infrastructure to levels comparable to advanced developing nations like Brazil, leave alone an economic superpower like China. Consulting firm McKinsey had estimated that India needs a whopping $ 250 billion in FDI to meet its infrastructure needs. Even the Planning Commission has said that the average annual FDI inflow of $ 5.4 billion needs to be tripled during the 11th Plan period.

The 11th Plan period has already commenced this financial year. The nation cannot have further delays, specially when major developed economies are showing signs of a slowdown, and global competition for FDIs is increasing at an exponential rate.