New Delhi: When Boston Red Sox co-owner Martin Trust first visited the southern Indian village of Achyutapuram three years ago, a pot-holed road ran through the stretch of bare land dotted with thatched huts.
That didn’t deter Trust from investing $12 million (Rs51.36 crore) in a special economic zone being created there by Brandix Lanka Ltd, which makes lingerie for Victoria’s Secret. His bet may now be paying off as workers finish constructing roads, a power plant and helipad, and companies including Quantum Clothing Group Ltd, a UK supplier to Marks and Spencer Group Plc., sign up to build factories in the 1,000-acre industrial site.
The change “is startling,” said Trust, 73, who is also founder and president of Brandot International Ltd, a Salem, New Hampshire, investment firm with stakes in 18 textile and apparel companies in seven countries including China, Israel and Mexico. “It’s an inviting place for any investor.”
India’s economic zones are finally taking root after more than four decades, laying the foundation for Prime Minister Manmohan Singh’s plan to increase manufacturing to a quarter of the economy by 2012 from 17% now. That’s vital for a nation that needs to find jobs for the 150 million people who will join its workforce in the next 10 years.
Special economic zones are enclaves with infrastructure support for manufacturers that offer a single window for environmental, tax and other government clearances. Companies in India’s sites, as well as their developers, also get tax breaks for as long as 15 years.
The zones are designed to make India more attractive for investors concerned about putting money into a nation that lacks water for industry and produces 10% less electricity than it needs.
The incentives lured Chicago-based Boeing Co., which is building a $100 million aircraft maintenance unit in the central Indian town of Nagpur, said Dinesh Keskar, a senior vice-president at the world’s second largest commercial jet maker. “The economic zone we are investing in has its own power station,” he said. “That’s important for Boeing because you can’t have our shop closed for a day.”
India was one of the first nations to set up a special economic zone, in 1965. It established seven more by the end of the decade before shifting to other strategies to spur exports, including industry-specific tax incentives, said Lalit Behari Singhal, director general of the Export Promotion Council of Export Oriented Units and Special Economic Zones.
Meanwhile neighbouring China, under former leader Deng Xiaoping, adopted the strategy in the early 1980s to stimulate manufacturing. Shenzhen, the most successful Chinese zone, was a small fishing village 20 years ago. Today, it is home to more than 10 million people and some of China’s largest companies, including Huawei Technologies Co., the nation’s biggest maker of telephone network equipment.
The world’s fastest growing major economy now has seven economic zones and another 100 smaller state and high-tech industrial zones which account for about 12% of gross domestic product.
“The most conspicuous difference between growth in China and India is the absence of a manufacturing boom in India,” said Mark Williams, Asia economist at research consultancy Capital Economics Ltd in London. Foreign direct investment in India has been less than a quarter of the $400 billion that has poured into China since 2002, keeping Indian manufacturing at half China’s level as a proportion of GDP.
To emulate China’s success, India’s then-commerce minister, Murasoli Maran, announced a policy in April 2000 to set up new zones. The fresh start wasn’t without problems. The government was forced to suspend its plan in December 2006 after farmers protested what they considered the cheap prices paid to acquire of their land. Clashes in March 2007 left 14 dead in Nandigram, West Bengal.
The government restarted the programme in April 2007 after prescribing a ceiling on size—5,000ha—and forbidding state administrations to take land by force.
While farmer resistance continues in some states, including West Bengal, Haryana and Goa, India now has 42 zones, including the original eight, creating an estimated 176,000 jobs in the past two years, the commerce ministry says.
Another 229 zones are under construction and an additional 210 proposals await final government approval, according to the ministry, which forecasts the zones will attract $75 billion in investment by 2013—almost one-third of India’s industry.
To convince local villagers that it’s serious about creating employment in Achyutapuram, Sri Lanka-based Brandix set up a trial factory close to its zone that currently employs about 1,500 local women.
Kanak Mahalaxmi, 19, says her life “has changed dramatically” since she got a job as a sewing operator a year ago. “We just finished building a brick house after living in a thatched one all our lives,” said Mahalaxmi, who earns Rs2,500 a month. “We just bought our first television set as well.”