Transcript Export processing Zones In India : Analysis of the Export

Social and Economic Impact of
SEZs in India
Aradhna Aggarwal ,
Senior fellow
NCAER
[email protected]
[email protected]
9th May, 2012
Motivation
• “Few topics in development economics have generated such
heated debate as SEZs. Academics, civil society groups,
politicians, and activists across the ideological spectrum have
for their respective reasons united in criticism of SEZs” (p.1)
• Liberals: distortions in markets and generating political rents,
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leftists: a tool of labour exploitation;
• women activists: working conditions of female workers;
Greens: environmental impacts;
• Finance departments: colossal revenue losses
SEZs: Global proliferation
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1975
• Countries
25
• Zones
79
• Employment (million)
1986 1995 1997 2006
47
73
93 138
176 500
845 >3000
22.5 67.8
• Is it a viable development strategy?
It contains…
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A historical perspective
A global perspective
Evolution of SEZ Policy in India
Theoretical perspectives
Strategising of SEZs : Experience of China vis-à-vis Taiwan and
S.Korea)
Economic impact: A quantitative assessment
Economic impact: A qualitative impact
Impact of SEZs on human development
Social effect: Emerging issues
Opportunities, challenges and suggestions
Historical perspective:
• Free trade zones in the 12th Century in Europe
– -enclaves with regard to customs' tariffs and the commercial
code in force in the host country. These are Custom free
enclaves for trading
• Since then
– Export processing zones (EPZs) : good infrastructure and
single window with tax benefits.
– SEZs : Industrial towns
– Enterprise specific zones : Single enterprise zones
– Country specific zones
– Highly specialised zones : ETDZs, tourism, logistics
– Border economic zones
– International SEZs (Cross Border SEZs)
Cont.
• Evolved in terms of
– Objectives ( shift from trade to manufacturing to services to urban
development)
– Incentives
– Range of facilities offered
– Sectoral composition
– Ownership
– Spatial dimensions
– designs
• dramatic differences in the ways in which these zones have
been conceived, developed, managed, regulated and
governed.
Global perspective
• Studied developed countries and 26 developing countries.
• They are not operating in developing countries alone.
• Several developed countries have SEZs of FTZ variety and
enterprise zones. The US model is somewhere between FTZ
and EPZ.
• Most developing countries are upgrading their SEZs rather
proactively
SEZs in India: origin and evolution
• India: the first Asian country to have an EPZ in 1965.
• Four phases of evolution:
• 1965-1990:
• 1991-2000:
• 2000 –2006 (Feb 9)
• 2006 (Feb 10 onwards)
Evolution of SEZs
India
1965-2000
EPZs
Small
Diversified activity
7 SEZs all owned by the central
government
Preferred small scale industry set up
Limited incentives
Set up mainly near port
No legal apparatus
2000-05
EPZs/SEZs
Private zones allowed,
Location decision deregulated
Incentives raised
No legal apparatus
Mostly created by state government
2005-
SEZs
Low tech to very high tech
Wide variety
Wide ownership profile
SEZ act 2005, SEZ act 2006
Large scale industrialisation
Is the SEZ policy a paradigm shift?
• Paradigm shift is thinking out of the box.
• Not a paradigm shift but radical reforms
• Some suggestions.
Why SEZs: Theoretical perspectives
• Right wing:
– Orthodox approach (Neo classical)
– Political economy approach
• Left wing
– International division of labour approach (IDL)
• Heterodox approach
• New international division of labour
approach
Industrial clustering approach
• Widely prevalent perception:
– SEZs are an alternative strategy of development which is based on second
best solutions either to total liberalization or economy wide improvement
in investment climate.
• Alternative perception: SEZs
– are not an alternative development policy.
– are a component of the broader industrial strategy and their
development needs to be synthesised with the overall cluster
development policy.
– should be strategically located in or around existing clusters,
natural or government-promoted. Alternatively, plan large SEZs
or foster the development of clusters of several small SEZs to
ensure a critical mass of activity.
Encourage the growth of local industries around them and
facilitate the synthesis of SEZs with local production networks.
Promoting agglomeration economies: Some observations
• Creation of industrial estates for promoting new industries
(Andhra Pradesh)
(Genome valley for bio tech, Geetanjali SEZ for gems and jewellery)
• Augmenting existing industrial estates (AP, Maharashtra, Gujrat,
Rajasthan, UP, Karnataka)
(Jamnagar in Guj., Jaipur in Raj., Noida in UP, Mumbai-Nashik-Pune in Mah.)
• Reinforcing industrial clusters (Gujrat, Rajasthan , UP)
(Ahemdabad, Vadodara, Bharuch in Gujrat, Jodhpur in Rajasthan, Moradabad in UP)
• Promotion of corridors of industrial excellence (Tamilnadu)
(Chennai-Manali-Ennore corridor; Chengalpattu-Sriperumbudur- Ranipet corridor;
Madurai-Thoothukkudi and Coimbator - Salem)
• Promotion of industrial clusters in backward regions
(Maharashtra)
(Nagpur, Jalna, Nanded, Latur, Amravati, and Akola, among others )
Qualitative benefits
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Economic restructuring : increased productivity
Scale advantage and shift to virtuous circle
Diversification of exports ( old vs new)
New industries : EMS, Solar energy, Windmill,
aerospace, Biotechnology, sports shoes
• Geographical diversification of industries
– AP : promotion of IT, bio-tech, gems and jewellery
– Tamil Nadu : Electronics,
• Localisation of global supply chains
– Nokia, Suzlon, Geetanjali, Uniparts in Vizag
Quantitative impact: A big push
Latest data
– 585 SEZs approved, 381 have been notified of
which 143 SEZs are already exporting.
– SEZs now export in excess of Rs. 3,00,000 crore
– With an investment of Rs. 2,00,000 crore,
– SEZs today provide direct employment to over
7,00,000 persons.
However, there are costs…
• Regional inequalities
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Only 5 states
Only 5 top SEZs
Positive correlations between SEZ and domestic economy
investment and employment
• Tax loss:
• Indirect tax loss per unit of exports from outside
SEZs larger than that within SEZs
• Relocation:
• No evidence of decline in investment outside SEZs
except in large IT sector
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Social impacts
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Human development (race to bottom?)
Human capital upgradation
Environment (race to bottom?)
Spatial restructuring and urbanisation
Empowerment of rural communities
Issues
• Land acquisition
– International experience
– Newer models of land acquisition
– LARR ( will it help?)
• Food security
• Private vs public SEZs
• Real estate proposition
Are these issues SEZ-centric issues??
• Perhaps not.
• Can be overcome through dynamic learning
and institution building?
• SEZs : testing lab for large industrialisation
programme.
Challenges
• Policy gaps
– RTAs: large Indian markets and SEZs
– WTO: Trade based subsidies
• Major hurdles
– Weak commitment, lack of political will
power, uncertainties and policy dilutions