Is there a need for the India's SEZ policy to be reviewed? If yes, what are the possible reforms needed with respect to SEZ's?
India operationalized SEZ policy in 2005 in order to boost exports, create employment, improve economic infrastructure and attract investment. SEZ policy has been a mixed success as:
It helped in growth IT sector through various incentives.
SEZs constitutes 1⁄4 of India exports
Developments of peripheral infrastructure around SEZs have improved status of physical infrastructure.
Despite these achievements various issues have cropped up which affected the profitability of SEZs:
The levy of MAT has drastically reduced the development of SEZs in the past few years, resulting in a significant impact on overall economic development.
Under foreign trade policy various measures which were available to SEZs only have been made available to units outside SEZ, defeating the basic purpose of SEZ policy.
FTAs signed with other countries have neutralized the benefits which SEZs had vis-à-vis to other manufacturing units.
SEZ units are only allowed to export and are not allowed to sell in domestic markets. At present this is creating a very difficult situation in which because of global slowdown SEZs are not able to export and at the same time are not able to tap a waiting domestic market.
The absence of complementary infrastructure to support the SEZ also affected their performance.
Apart from these economic and administrative issues various social, equity and implementation issues have come up.
In India, of the almost 5,000 hectares (12,355 acres) of land acquired for SEZs in the last five years, only 362 hectares have been used for their intended purpose, according to SEZ Farmers’ Protection Welfare Association,
A 2013 report by the Indian government’s auditor showed that only 62% of land for SEZs was used for its intended purpose of boosting manufacturing, exports and jobs. They generated less than 8% of jobs forecast, it said.
There are a number of irregularities around SEZs, which have become speculative real estate deals for developers. The report also found that in several SEZs, land has been denotified and sold to private developers for higher prices.
More than 77% of the notified SEZ land is concentrated in four states—Andhra Pradesh, Gujarat, Maharashtra and Tamil Nadu.
These states have better infrastructure and are also more “developed” as compared to the rest. In effect, the generous concessions in terms of taxes, implementation of labour welfare laws and incentives in the SEZs are not being utilised for the benefit of the more backward states.
Most of the time land acquired is fertile land and the farmers have to not only lose their livelihood and land but country’s food security also suffers.
In view of all these issues there is a need of review of the SEZ policy with special focus on:
Issues of taxation and especially retrospective taxation.
Provision of supportive infrastructure like transportation facilities, electricity, port facilities etc.
Land acquisition and utilization of land within specified time period under a holistic land use policy covering whole India.
Focus on locating SEZ units in less developed areas.