Scratched record

Scratched record

India's first special export processing zone, the precursor to today's sezs, was established in Kandla, Gujarat, in 1965. In 1973 came the Santa Cruz epz in Mumbai. It was only in the 1980s that India set up five more such enclaves in Noida, Falta, Kochi, Chennai and Visakhapatnam. This was when both India and China were trying to open up to the world. In 1980, China passed its first sez law, setting up the Guangdong sez. Even though India was way ahead in conceptualising sezs, China has sprinted past (see box Elephant and dragon).

China got the better start, because in the initial phase of special zones in India, there were policies to facilitate operations, but implementation was flawed and no procedural or legislative changes were made, even though performance began to slide (see graph Underutilised).Then the exim policy (1997-2002) launched the sez scheme in 2000, with the explicit objective of providing the back-up epzs had not been given. By 2003, epzs had been converted to sezs.

There is a catch, however. The failure of epzs was not just about implementation failures. The aim of epzs was to promote exports and boost foreign exchange earnings. But as things panned out, epzs turned into zones in which value was merely added to semi-finished goods for exports -- what did not happen was the expansion of a manufacturing base geared towards external markets. Consequently, the expected growth in exports from India never took place. Even the comptroller and auditor general had pointed out in 1989 that epzs were meant to provide an internationally competitive environment for export production at low cost. The sez Act also says that the main objective is promotion of exports and creation of infrastructure, especially social infrastructure. For a sneak preview into the future of sezs, one should review how epzs fared.

According to a report by the Indian Council for Research on International Economic Relations (icrier) -- 'Export processing zones in India Analysis of the export performance' (November, 2004) -- growth rates of aggregate exports, foreign exchange earnings and employment in epzs/sezs started falling since the late 1980s. The share of epz/sez exports in exports also stagnated. The share of epzs in total exports increased from 0.07 per cent in 1973 to 4.3 per cent in 2001. And in 2002, their share in exports was slightly lower at 3.8 per cent. The slowdown was despite the creation of four zones.

"There is nothing about EPZs or free trade zones in India that should make us so enthusiastic about SEZs."   Praveen Jha, ASSOCIATE PROFESSOR, JNU

On the employment front as well, the performance of epzs was discouraging. Although employment increased from 70 workers in 1966 to around 89,000 workers in 2002, the average annual growth rate in employment declined within epzs. This was despite the four new epzs in the late 1980s and another at Visakhapatnam in 1994. (see graph Underutilised)

Moreover, the number of units declined in many zones in recent years. The number of units that could be set up was much larger than the number of operational units. And although current zones, which are themselves not decently occupied, are much smaller than 400-odd ha (1,000 acres), policy is pushing for bigger sezs.

The epz report card only deepens misgivings over sezs, especially given their scale. Not surprisingly, it is setting off protests that can snowball into widespread confrontation. 12jav.net12jav.net