Benefits from SEZs far outweigh fiscal concessions, says study

The Indian Express, November 12, 2007

By Vikas Dhoot

A study commissioned by the Department of Commerce to assess the potential costs and benefits of Special Economic Zones has dismissed the entire debate over revenue losses due to the fiscal sops extended to SEZs by the Departments of Revenue and Commerce.

Many of these tax exemptions are already offered to Export Oriented Units and Software Technology Parks till 2009,” the study notes. In fact, impressed by the transformation in areas where new generation SEZs have been set up such as Bangalore, Hassan and Sriperumbudur, the study’s authors have stressed that these SEZs “have created a tremendous local area impact in terms of direct employment, emergence of new (formal and informal) activities, changes in consumption pattern and social life, human development facilities such as for education and healthcare,” adding that “overall, the expected benefits of SEZs outweigh expected costs.”

Firstly, the study points out that the revenue loss on account of SEZs in 2005-06 was just 2.84 per cent (Rs 1,070 crore) of the revenue lost by the Government on all export promotion schemes and 3.99 per cent (or Rs 2,146 crore) in 2006-07 (see chart). More importantly, on the Department of Revenue’s estimates that SEZs will cause a revenue loss of Rs 175,847 crore between 2005 -10, the study conducted by independent think-tank, Cuts International, notes: “It must be understood that this revenue loss is notional as there would be no revenue if these SEZs are not put in place. The estimation of revenue loss has been made by assuming that the same amount of investment and additional economic activities would have been generated if the units are located outside SEZs and do not avail any benefits from other export promotion schemes – a heroic assumption, indeed!”

An interesting finding on the employment pattern of the SEZ units surveyed is that nearly forty per cent of workers are women and 76 per cent of those hired are local people. In fact, new generation SEZs (formed after the SEZ Act came into being) employ far more women at 55 per cent of the workforce as compared to the old Export Promotion Zones like Kandla that have been converted to SEZs, where women constitute 30 per cent of the workforce. The new SEZs are also creating more jobs for semi-skilled workers as compared to the EPZs.

Interestingly, the study, based on interviews with different stakeholders and visits to 14 of the 27 SEZs operational by the first half of this year, found that though the SEZ Act vests the powers of the Labour Commissioner onto the SEZ Development Commissioners, in many SEZs in Cochin and Jaipur, inspectors from the State Labour Department are also visiting SEZ units.

Another contentious issue the report has dwelled on is the size of SEZs. The idea behind specifying only minimum size for SEZs with no upper cap in the SEZ Act, 2005, was to allow SEZs to develop world class infrastructure.

However, the study argues that the two subsequent decisions by the empowered Group of Ministers on SEZs headed by External Affairs Minister Pranab Mukherjee to cap the maximum size of SEZs at 5,000 hectares and leave the issue of land acquisition to the private sector developers “are contradictory.”

“The government cannot reduce SEZ-related land acquisition to a contract between a landowner and a developer, and yet put a ceiling on the land so acquired,” the report stresses.

On the criticism that SEZs could aggravate regional disparities in economic development, the report concedes that of the 234 formal approvals (at the time), 70 per cent are in six states – Andhra Pradesh, Gujarat, Haryana, Karnataka, Tamil Nadu and Maharashtra.

Except Tamil Nadu, the other states are already significantly industrialised – and the report has suggested that the government should encourage SEZs in places “hitherto underdeveloped” since it “may not be possible to limit the number of SEZs” in the current political economy.

The author is Principal Researcher, Point Pedro Institute of Development, Point Pedro.

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