Is a revival for SEZs on the cards?

Wed, 20 Aug Pre-Open

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Among various things, Prime Minister Narendra Modi, in his maiden Independence Day speech laid emphasis on improving the manufacturing sector and hence emphasized on revival of Special Economic Zones (SEZ).

Boosting development of SEZs has been usually linked to enhancing foreign direct investment (FDI) and exports activity in the country. Better manufacturing of quality goods and at competitive rates can help boost exports and thus reduce the trade deficit. Over and above it provides job opportunities.

However, lack of proper policies for SEZ and implementation of these policies have been a big question mark. And thus India's SEZ model has not reaped the fruits as compared to China. SEZs are considered an important contributor to China's economic success.

There are some shortcomings of the Indian SEZ model, the biggest culprit among various things, being misuse of land acquired for manufacturing. As per an article in a leading financial, in May 2013, out of 560 approved SEZs only 160 are working. There have been various instances where the land was being acquired for industrial purposes but then diverted for other uses, such as retail establishments and recreational amenities for high-end residential accommodation. Not just that, the land which is acquired for manufacturing purpose, is not utilized at all.

Other things such as policy flip flops, plus factors like lack of infrastructure and overlapping taxes have plagued the advantages the country could reap from these SEZs.

Currently India is facing various pressures such as slowing GDP growth, firm inflation, rising deficits; SEZs can be considered to be a key catalyst for industrial growth.

Thus, if the government gives some serious efforts and is able to bring a turnaround in SEZs, there could be a significant revival in the industrial sector. However for this the government needs to make sure that there are clear cut policies available. While the Modi government has already showed interest in the development of infrastructure, there are still other grey areas which the government needs to address. Among various things, the Government should keep watch on the operations of these SEZs and check whether the land is being utilized for the right purpose. Establishing a legal framework by a distinct governing body can give a better outcome. Further, higher clarity on tax aspect is something the government needs to address.

Overall, it would be interesting to see what steps the government takes to bring about a turnaround in SEZs going forward.