SEZs need a proactive govt and a clear business model

Jun 19 2014, 00:25 IST
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SummaryThe Professor of Economics, Jawaharlal Nehru University, Biswajit Dhar, says the government’s review of the Special Economic Zone

The Professor of Economics, Jawaharlal Nehru University, Biswajit Dhar, says the government’s review of the Special Economic Zone (SEZ) policy should be done with a clear business model in mind, led by the small and medium enterprises (SMEs). Dhar tells Santosh Tiwari that the success of the SEZ policy would largely depend on how far the government succeeds in creating an enabling environment for the investors.

The commerce ministry is initiating the review process of the SEZ policy. This has been done in the past as well but the situation has not improved. Why?

Over the past few years, India’s SEZ policy has been reviewed several times, essentially from the point of view of evaluating the achievement of the stated objectives of the SEZs. This includes reviews by the Parliament’s Public Accounts Committee (PAC) in 2011 and 2012, which had provided broad insights about the fact that the SEZs have not been performing as was envisaged. The PAC had observed that there were significant procedural and other limitations that had resulted in loss of revenue to the exchequer. The committee had severely commented on the lack of an institutional mechanism to ensure that there was no misuse of the SEZ policy.

It may be pointed out that the PAC made its observations by focusing on the performance or otherwise of the SEZs, and not much attention was given to the structural issues pertaining to the SEZ scheme. Thus far, little attention has been given to the reasons why the SEZs have failed to deliver in India, while China has made these economic zones as the basis for developing itself as the “factory of the world”.

The SEZ policy review is part of the exercise to improve investor confidence. This will also involve other measures. Which are the major bottlenecks for SEZs in India? Is there a better alternative?

The SEZ policy has to be reviewed with a clear business model in mind. In my view, the government needs to develop this model through a planned involvement of the SMEs. There can be two ways of doing this. The first is by promoting SME clusters, which will help in generating positive externalities, thus contributing to economic efficiencies. The second model, which has been used very successfully in China, is the one in which foreign enterprises and domestic SMEs work in tandem, with the former acting as the “lead firms”. This model can bring tremendous medium-term benefits

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