Broad benefits of special economic zones

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: The commerce and finance ministries, as has been reported extensively in the news media, are currently at loggerheads over the way the current concept of special economic zones (SEZs) is to be handled in India. There is no quarrel on their need; while the finance ministry feels that tax rebates will result in huge losses from direct and indirect taxes, the commerce & industry ministry is arguing that short-term loses will be compensated for by vast overall gains in the long run.

Both ministries are using data to make their respective points. According to an estimate prepared by the finance ministry, the country will have to forego about Rs 100,000 crore, no small sum by any yardstick, on account of SEZ-granted tax rebates by the year 2009-10. While this figure can be challenged, according to an estimate by the commerce ministry, one million new direct jobs will be created on account of SEZs in the next five years. And, depending on the nature of an industry, every new direct job will create five to ten jobs through indirect employment. Imagine the gains generated by this huge increase in the consumer base, and the broader potential impact of SEZs begins to make itself clear.

Another contentious issue is the size of SEZs. Those who usually castigate China are looking towards that country to argue that Indian SEZs will be economically unviable. The argument is that Indian SEZs will be much smaller in size compared to Chinese SEZs, and hence the Chinese success story cannot be replicated here. This is a shallow argument. Politically, to begin with, it is far more difficult in India than China to acquire large tracts of land for such a purpose. This is a straightforward fact of democracy. Secondly, Chinese SEZs are mostly concentrated in a particular region of that country and, indeed, this is a big factor contributing to increasing inequality there. On the other hand, the present policy of the commerce ministry is to spread the formation of SEZs to all parts of India, which is likely to foster relatively balanced growth and development.