The current Exim policy has tried to be different. Commerce minister Murasoli Maran has tried to study India’s trade performance vis-a-vis the world. And impressed by the superior performance churned out by the Chinese, he has tried to copy the Shenzen model.

Desi Shenzens can be set up now and India will try and achieve export figures similar to those of China. Well, if it were that simple to achieve high targets just by emulating the model of a frontrunning exporter-nation, everyone would have done it.Without sounding negative and criticising the minister, it is very encouraging that at least a model has been set in place. If it is adhered to with right earnest, definitely India could register a good exports growth. But a caveat here: the trade unions and members of the opposition need to co-operate and do not oppose the model without valid reasons.

Exim policies down the years have announced new zones such as economic processing zones (EPZs) and free trade zones (FTZs). The motive behind the creation of these zones is to improve the nation‘s exports. The latest in line are the special economic zones (SEZs). These zones are expected to help the country achieve the steep 20 per cent export target set for this year.

Liberalise wholeheartedly

India is today precariously placed, what with government finances both at the centre and state touching alarmingly low levels. External debt is rising. India’s last year export performance is far too dismal considering India’s immense potential. This performance has come in quite late at this stage of development.

India had initiated the liberalisation process a decade ago which is bearing fruits only now. This speaks poorly about India’s reforms process. The reason: policies get announced with a lot of fanfare and when it comes to implementation nothing happens. The chapter ends there.

A prosperous and an export-driven China should serve as an eye-opener. A study conducted to look at its past history and analysing why it ranks higher than most other performers would be working in the right direction.

Though India is liberalising, it still has too many reservations in its policies which are stumbling blocks. Meanwhile, China believes in the true sense of freedom and liberalisation and government in no way blocks the interests of the operators.

Go the Chinese way
Today, China has managed to achieve high levels of growth on all fronts. This is because it had started experimenting with a new way of thinking way back in the 1980s and had started adapting itself accordingly. Along with the setting up of SEZs, a string of reforms were initiated to acquire a competitive advantage in critical sectors such as labour, real estate, technology and capital.

Obviously, there is a lot to learn from the SEZ experience in China. The Chinese SEZs are spread across vast acres of land. Chinese SEZs are spread over an area of 330 sq kms. The Shenzen city has a population of over

3.5 million and it is well-connected with the latest telecommunication network and latest means of transport. Even the small Pudong SEZ is spread over 1,30,000 acres.

Moving over to Dubai, the Jebel Ali Free Trade Zone, famous for its state-of-the-art technology and logistics, has fuelled economic growth of Dubai . The FTZ contributes almost a quarter of all outbound trade from the United Arab Emirates.

Structuring India’s SEZs along the lines of overseas SEZ models can be risky. For, the ground conditions are vastly different in India. So, India should take care to ensure free flow of financial and fiscal concessions in these Indian SEZs. For instance, in Jebel Ali Free Trade Zone there is an uninhibited free flow of capital and profits. There are no currency restrictions there, nor is there any corporate or personal income-tax. The Sharjah Airport’s International Free Zone has the biggest air cargo hub in West Asia and Africa. Apart from no import restrictions, this FTZ allows 100 per cent ownership and repatriation of funds.

Market logistics
India has a complicated market structure and if it wants to set up SEZs like those in the rest of the world, it will have to put in place the logistics of market structure and functioning. SEZs function independent of the rest of the market and differ in their market policies. These zones should in fact function in an environment free from complex and irksome regulations and high tariff rates.

To facilitate such wrinkle-free functioning of SEZs, the Indian government will have to integrate the various departments involved such as customs, sales tax, environment and pollution control. Such an integration is possible only if a forward-thinking fool-proof policy is put in place. And no tinkerings thereafter. Sans a logistical frame-work, just setting up SEZs will not work.

The EPZ experiences
EPZs were set up with the aim of boosting export-oriented investment and for eliminating the constraints imposed by India’s trade and industrial policies. As a concept, EPZ dates back to 1962. Some of the first EPZs were founded in Puerto Rico in 1962, Mexico (1964), Kandla (1965), Taiwan (1966), South Korea (1971), Phillipines and Malaysia (1972). The EPZ set up in Mauritius is not based on geographical and locational advantages but is more a functional concept.

Most of these countries have had a good and fulfiling experience by setting up SEZs. SEZs have helped promote an export-oriented industrialisation strategy with increasing value-additions in domestic production. Studies have shown that countries where EPZs function have had excellent performances on the trade front.

Of the 850 EPZs worldwide, a large number of them operate in developing countries. The worldover, it has been observed that processing exports have outperformed others. In fact, most Asian and Latin American countries have excelled in trade only due to the processing trade.

Today, unlike in the past, the pattern and composition of trade have undergone a vast change and in several cases value of processing exports itself have been very high. Consider the example of China. In 1998, the value of processing exports was as high as $104.6 billion, while in Mexico it stood at $53. 1 billion.

Indian EPZs
In India, there is little convergence of objectives and strategies between the union and state governments. As such, policies are short-lived and lack long-term vision. There is dilly-dallying in implementation of policies. With a change of government at the centre, there is a change in stance and perception of policies resulting in a lot of confusion among the exporters. There is then no initiative on their part to increase volumes.

India has had a series of EPzs in the past. But today, they have lost their relevance and are in no way better off despite all the policy announcements and liberalisation measures. They have become non-operative blocks.

India has a large labour force and if we were to move over to capital-intensive industries there will be more unemployment. But the need of the hour is to accelerate growth which can come only if we reverse our operating stance from that of a labour-intensive industry to that of a capital-intensive industry.

For this to happen, one needs to do certain things. It involves not only high amount of financial costs but to make it functional we need other factors such as provision for appropriate infrastructure and transport facilities, relatively low factor cost, a favourable national framework including guarantee of private property rights, a low degree of tariff protection, convertibility of currency, a stable legal and administrative regime and also sticking to its aim of making India an open market by 2003.

India has good economic advisers but sadly enough their policies only gather dust. What happened to the free trade port to be set up in Tuticorin , Goa and Andaman Nicobar islands? Ten years have passed and looks like policy-makers have forgotten the issue. A free port brings along all its advantages which stimulate industrial and economic growth.

The Indian government always takes a very short-term view and caught in its fiscal mess has no better option but to stall the project. With too many windows in the administrative setup, complications are bound to arise and misunderstandings will take place. Unless and until an overall liberal framework is designed to look into monetary, trade, fiscal,taxation, tariff and labour policies, all other efforts will go waste.

India needs to have an overall infrastructure development. Offshore banking centres, duty free shopping zones, recreational areas and port services are needed. These services will facilitate an overall healthy growth. India has economic advisors of international repute but implementation is lacklustre. Unless and until labour laws are made fool- proof, removing monetary and fiscal constraints and aping the Chinese model will not be productive.

Today, we need not only EPZs and SEZs, but export-enabling and export-expediting zones as well. These zones should have facilities for storage of goods without customs documentation.

Other facilities these zones should have are: appropriate warehousing, banking and insurance, recreation and education, inspection services, convenience of intermodal transfer, flexibility in labour laws and appropriate taxation and fiscal policies.

The commerce minister need to take into account these caveats and considerations while working out the modalities for the smooth functioning of our SEZs.

If this is done, there is no way why India cannot improve its share in world trade to more than 0. 65 per cent as envisaged by the minister.