Are India’s special economic zones (SEZs) proving to be as great as promised? The debate is picking up again, with commerce minister Kamal Nath facing the heat in the Rajya Sabha on Wednesday. Not just the Left and the Opposition, but many from his own party—the Congress—were worried over the possible misuse and violation of SEZ norms.
This was just a day after the comptroller and auditor general (CAG) reported abuse of customs duties exemptions in SEZs and other promotional schemes describing them in repetitive detail. CAG questioned how as many as 22 SEZs could qualify for exemptions under the net foreign exchange earnings norms, while actual export earnings were only 28%, with the rest from domestic sales. Not only does this mean that an objective of the scheme—augmenting exports—is getting defeated, it also indicates that production for the domestic market is relocating to SEZs.
The minister also reasserted his earlier claims that the concept was working well and providing a growth engine for employment. Nath quoted the Economic Survey in his defence, which provides largely anecdotal evidence. Nevertheless, a quick look at the numbers provided is insightful. Investment in the newly notified SEZs is Rs67,347 crore, while direct employment is 61,015. This kind of capital intensity—roughly Rs1 crore per direct job created— bodes ill for employment growth. And it doesn’t include the revenue loss of Rs2,000 crore for one year, i.e., a subsidy of Rs3 lakh per job per year. A costly approach to creating jobs!
Also worth recalling is that the numbers for employment come from data submitted by developers. While these actuals may be reasonably robust, we don’t know the quality and dispersion of jobs created. Going by the poor quality of projected data—given the lack of government auditing—submitted by developers, there may be reason for doubt here as well. Independent research of data provided by SEZ developers—available on the official SEZ website—has already found those numbers to be incomplete, questionable and not very encouraging, as Partha Mukhopadhyay, Mint, 8 January, explained.
Why do SEZs seem so popular with developers? The answer may lie in the fact that the SEZ Act rightly permits social infrastructure such as housing, cinema halls and malls in the non-processing area, a provision stoutly defended by the minister on Wednesday. But, this also makes small SEZs arguably no different from your run-of-the-mill real estate project.
Since SEZs are being questioned both on count of abuse of norms and quality of outcomes, there is much in the questioning for the commerce minister to reassess his position.
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