The Economic Survey 2006-07 has called for appropriate sequencing to sustain popular support for reforms and reconciling the conflicting interests of the various reforms constituencies.
Commenting on the recent debate about the Special Economic Zones (SEZs), the Survey has said that many of these apprehensions could be addressed through appropriate policies and safeguards.
According to the Survey, the debate about the SEZs illustrates the kind of considerations that have to be taken into account in the formulation of policies. Some of the apprehensions against the SEZs are:
- Generation of little new activity as there may be relocation of industries to take advantage of tax concessions,
- Revenue loss,
- Large-scale land acquisition by the developers which may lead to displacement of farmers with meager compensation,
- Acquisition of prime agricultural land having serious implications for food security,
- Misuse of land by the developers for real estate, and
- Uneven growth aggravating regional inequalities.
The Survey highlights that SEZs have been established in many countries as testing grounds for implementation of liberal market economy principles.
They are viewed as instruments to enhance the acceptability and credibility of transformation process, to attract domestic and foreign investment, and generally, for the opening up of the economy.
With its genesis in the Export Processing Zones (EPZ), the SEZs in India seek to promote value addition component in exports, generate employment and mobilize foreign exchange. EPZs and SEZs were employed with considerable success by China and other ASEAN countries in the 1970s and 1980s to create regional islands, where export oriented manufacturing could be undertaken.
While EPZs in some countries had their share of early difficulties, they provided scope for cultivating manufacturing competitiveness when licensing, labour rigidities and high import duties and taxes acted as a disincentive for investment in the rest of the areas.
However, in India, the EPZ experiment was much less of an unequivocal success; and since 1965, when the first EPZ in Kandla was set up, a total of 11 such zones have come to existence.
The Exim Policy of 1997-2002 then introduced the more comprehensive and liberal SEZ concept, after which a Bill was drafted and passed by the Parliament in the form of SEZ Act, 2005.
