Forget SEZs

Updated: Jul 31 2002, 05:30am hrs
The draft report of the Tenth Plan (2002-2007) will soon be placed before the National Development Council for approval. In an attempt to make the targeted 8 per cent GDP growth a little less unlikely to achieve, the Tenth Plan proposes comprehensive reforms in Special Economic Zones. There will be no investment and entry restrictions. There will be a special labour law that allows for contract labour and multiple and night shifts for both sexes. There will be a single unified regulator and a separate judicial structure to ensure speedy dispute resolution. There will be no SSI reservation and investments will also be allowed in sectors reserved for the public sector. Essential services will not be government monopolies and restrictions on urban land, retail trade and real estate will be removed. Minimum alternate tax and dividend tax will be waived and there will be a time-bound exemption of corporate income tax for exports. Capital account restrictions will be removed and there will be no foreign direct investment caps for banking, insurance and non-bank financial companies. Directed credit and statutory liquidity ratio requirements will be scrapped and cash reserve ratio reduced. There will be no indirect taxes within the SEZs.

Most of these are desirable reforms which should be introduced throughout the economy, not just for SEZs. For instance, why should labour markets not be flexible everywhere The political economy has, however, led to the governments inability to liberalise elsewhere and hence the idea of selective liberalisation within enclaves. Even if this were to be possible, it is doubtful that SEZs (and the agro zones) will help in reaching the 8 per cent GDP growth rate. To reach this target, the 10 per cent export/GDP ratio means that exports will have to grow at an annual rate of 30 per cent. Since SEZs today account for around 3 per cent of Indias total exports, this is close to impossible, even if the proposed reforms are introduced. SSI de-reservation, removal of FDI caps and more capital account convertibility in SEZs are within the bounds of possibility. However, flexible labour laws and a separate judicial structure are close to impossible. If nothing else, this is probably violative of Article 14 of the Constitution on equality before the law. The SEZ idea reflects a mindset that is 25 years too late. The union commerce minister Murasoli Maran may have become enamoured of SEZs on a China visit, but he should realise that most of China has now become a gigantic SEZ. No matter what the Tenth Plan document says, there is no substitute for economic reforms across the board, such as in agriculture. Without that, there will be no 8 per cent growth, SEZs or no SEZs.