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India sets up special economic zones to boost economy
Peering over the Himalayas at booming China, India has spotted an idea for promoting its own economy: special economic zones with relaxed taxes and regulations for exporters.
Taking a leaf from China's books, India hopes to boost development near Mumbai
and 20 other places by designating them as special economic zones.
Twenty-three years after China adopted the scheme, India's government approved
the creation of 21 special economic zones (SEZs) last year. The attractions
are clear. While India exported goods worth US$62 billion in its latest fiscal
year, the SEZ around the Chinese city of Shenzen shipped US$55 billion in just
two months last year.
'The time is ripe for take-off,' said trade expert Tapan Kumar Bhaumik of the Confederation of Indian Industry.
'The SEZs may act as a catalyst in boosting India's export-to-GDP ratio to 20 per cent from 10 per cent.'
SEZs are also seen as an answer to India's weak performance in attracting foreign investment.
Although it set a target of luring US$10 billion annually some years ago, it gets only US$3 billion to US$4 billion a year.
China's SEZs have alone grabbed foreign investment worth US$70 billion since their establishment, according to figures from a New Delhi trade think-tank, the Academy of Business Studies.
The new left-backed government plans to introduce legislation into Parliament that would create policies to encourage the setting up of such zones, giving them advantageous taxes, tariffs and labour laws.
The government first proposed the setting up of SEZs in 1997 but has offered no big concessions until now.
One such SEZ, a joint venture of private and public investors, is being built across 1,800ha of lush green land a short distance from Mumbai's Jawaharlal Nehru Port, one of India's busiest and most modern ports.
The SEZ is being developed by Singapore-based Jurong Town Corp, a global specialist in developing SEZs, and is expected to be modelled on Shenzhen.
City and Industrial Development Corp (Cidco), a state-run firm, owns 26 per cent of the SEZ, while the rest is held by a consortium.
Cidco officials said about 500 companies had shown interest in operating from the SEZ, the main ones being apparel makers and others involved with chemicals, engineering and gems and jewellery.
They are also trying to draw financial services companies, such as banks, and information technology firms and microchip makers into the SEZ.
'The government is serious about increasing its global share of exports, besides generating employment,' said general manager C.S. Sanghavi of Cidco's special economic zone.
'Besides, the SEZ will create a hassle-free environment for exporters and make their products competitive.'
But some economists are doubtful about the success of such zones in India, and said following the Chinese model of boosting exports and investments through SEZs could be flawed.
'Being a command economy, China has been successful because it has been able to enforce rules and sanitised these regions,' said Mr Biswajit Dhar, economist at the Indian Institute of Foreign Trade.
'It will be difficult to set strict rules in a democracy such as India and
enforce them. Another problem would be that you cannot have these islands of
prosperity in a country where the government has to worry about developing
all its regions.'