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.
