Is the present SEZ policy appropriate?Yes, it is!

Prithujit BiswasArpit Agarwal

Background

•Foreign lands within a country for taxing purposes

•Started by India▫Kandla EPZ - First SEZ in the world

•Chinese struck gold▫Shenzhen is the size of Kerala▫38% CAGR ▫Contribution of $100B in $700B exports

Need for SEZs in India

•Poor infrastructure•Bureaucratic labyrinth•Inflexible labor laws•Growing imbalance of trade•Need of investment

▫Resounding success of NHDP model•Desperate need to attract FDI to support

growth

Advantages of SEZ

•Employment•Export•Infrastructure development•Foreign investment•Enhancement in the value of land•Better working enviroment

SEZ success stories in India

•First EPZ in asia in kandla in 1965.•SEZ policy first started in april 2000.•SEZ act with SEZ rules came into effect

from 10th Feb, 2006.

Advantages of SEZ

•Employment21,00,000 jobs in total in SEZ by the end

of 2009.9,00,000 jobs in the next three years.

Adv of SEZ

•Foreign investment▫SEZ investment constitutes 70% of total

FDI in India.

Success stories

Infrastructure development.

•Remote village turns to a developed town.•An SEZ may be set-up in the public,

private, or joint sector and/or by a state government. The policy requires the minimum size of an SEZ to be 1000 hectares.

•Min 50 lakh worths of plant & machinery.

Success stories

Enhancement in the value of land.•Adanis are bringing a Port, railway lines,

and an airport to the barren land•Poor villagers turned into millionaires.

Success stories

Export•Single – Window Clearance in SEZs•Due to hassle free EXIM policies, many

companies like Nokia, Flextronics, Apache software, etc came to India.

Export

•Exports from the functioning SEZs during the last four years:

YearValue (Rs. Crore) Growth Rate2003-2004 13,854 39%

2004-2005 18,314 32% 2005-2006 22 840 24.7 2006-2007 34,787 52.3%

•Exports from SEZs is 6% of total now.• It will cross 1L Crore in 2008-09

Better living standard

•Survey reports say that workers enjoy better working environment and wages in SEZ than outside for the same job.

•Just 2 out of 280 laborers in Panipat were children. This created huge furor in Europe.

SEZ success stories

•Success story of a farmer.•In Gems and Jewelry park Hyderabad,

700 girls and 300 boys from landless laborer families found employment.

•17 states and 2 union territories accepted SEZ.

SEZ success in China

•Shenzhen, Pudong, Xiamen, etc contribute nearly $100B in export.

•Shenzhen success story:▫A “sleepy fishing village” transformed into

a metropolis in 25 years. CAGR of 38%

▫Today it contributes $35 billion in net exports to the Chinese economy

Not much revenue loss

•Most Export Oriented Units are given sops•Software companies are exempted already•For Rs.X of revenue loss, turnover should

be 15X▫30% tax on 20% profit

•SEZs with turnover 23,000 Cr employ 1,00,000▫One with 15L will employ 65L

•The amount of indirect taxes would be much more.

Farmers are gaining•Most land acquired from subsistence farmers•SEZs skyrocket land prices – Farmers gain

▫Earlier farm income was 6000-7000 per acre p.a. ▫Now he gets Rs.80L for third of his 3 acre land

•Excellent way to shift away from agriculture▫65% of people produce 20-22% of GDP▫Most people upgrade skills to find employment

around SEZs Bharat Forge is training local folks

SEZs are NOT for land grabbing •Minuscule percentage of farm land to be used:

▫Total cultivable land is 135M hectares (45%).▫SEZs will occupy only 35,410 hectares

•Most land is already available with SIDCs▫Private developers acquire the rest from market

•Min 35% of area used for processing purposes▫Standard figure is around 10-12% for townships

Issues that remain un-resolved

•Rehabilitation and compensation policy unclear▫Land acquisition remains state issue▫Nandigram and Singur are examples of

poor state government policies •SEZs in IT and BioTech need just 10

hectare▫Small SEZs might seem like tax haven

Alternate models

•Pune’s Magar Patta City▫A sprawling ultra modern town-ship ▫“Walk to work, walk to school” concept▫Farmers still own the land

Earn a recurring income▫State government facilitated development