CHAPTER VII

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION

7.1 RESEARCH SETTING

7.1.1. EXPORT PROMOTION IN INDIA

Interdependence of countries increased considerably after World War II.

Developments in international transport and telecommunications caused the

‘shrinkage’ of the globe. Liberalization and globalization brought substantial and

sustained expansion in world trade. India has become of W.T.O. and chosen the

policy of globalization voluntarily.

Globalization has made multi-dimensional effects and impacts in India’s

foreign trade. Transnational or multinational corporations which engage in

international production increased interdependence. Increased labour flows between

countries contributed to interdependence by way of enriching the capabilities.

India has trade relations with more than about 150 countries and deal in

thousands of goods and services. Even though India’s share in the global trade is

about 0.4% only, but have every opportunity to increase it. There are many problems

and limitations like lack of standardization and better quality of exported goods,

procedural delays, and negative attitude of bureaucracy, confusing policies, rules and

regulations made and implemented, lack of professionalism etc.

The radical reforms in India’s foreign trade was launched in July 1991 and

international developments GATT 1994, WTO has its impact on India’s foreign trade.

Countries have started realigning their priorities to face the challenges.

7.1.2. ROLE OF FOREIGN TRADE

Gains from trade accrue in many ways and most directly from exports and

imports. Increase in exports results in larger output, employment and incomes and

resulting in increased consumption and higher living standards. The terms of trade

are measured by the ratio of index of export prices to the index of import prices. The

government plays an important role in maintaining balance in terms of trade so that

the economic welfare of the community is maintained or increased.

Trade is the important item of economic transactions between countries. Trade

between countries may be bilateral or multilateral. Economic development is largely

affected by a number of economic and non-economic factors. The economic

determinants of growth, are the rate of saving, the expansion of exports, the process of

import substitution and the inflow of foreign capital.

Foreign trade contributes to economic development in a number of ways.

First, the primary function of foreign trade is to explore means of producing imports

of capital goods, without which no process of development can start. Secondly, it is a

means to price stability. The demand supply imbalances, which are likely to be

severe in the initial stage of growth, can conveniently be connected through the

mechanism of foreign trade. Thirdly, it generates pressures for dynamic change.

7.1.3. EXPORT PROMOTION

Export development has an important place in the economic policy of the

Government. Export development is important to the economy. The benefits of

export to the economy are many.

The principal objectives of the export promotion measures are to:

• Compensate the exporters for the high domestic cost of production.

• Provide necessary assistance to the new and infant exporters to develop the

export business; and

• Increase the relative profitability of the export business vis-à-vis the domestic

business.

The Ministry of Commerce, Government of India, is the most important organ

concerned with the promotion and regulation of foreign trade in the country. The

Ministry has elaborate organizational arrangement to look after various aspects of

trade regulation and promotion. The Department of Commerce in the Ministry of

Commerce is assigned a very important role in different matters concerned with

foreign trade of the country including commercial relation with other countries,

promotion and regulation of foreign trade, state trading, etc. Matters related to

foreign trade are dealt with eight divisions in the Department of Commerce, namely,

(i) Administrative and General Division, (ii) Finance Division, (iii) Economic

Division, (iv) Trade Policy Division, (v) Foreign Trade Territorial Division, (vi)

Exports Products Division, (vii) Services Division, and (Viii) Industries Division.7.1

7.1.4. EXIM BANK

The Export-Import Bank of India, set up in 1982 for the purpose of financing,

facilitating and promoting foreign trade in India, is the principal financial institution

Ministry of Commerce

Advisory bodies

Subordinate bodies

Autonomous bodies

Public sector undertakings

Central Advisory Council on Trade. Zonal export and import advisory committees

Various boards like commodity board, Spices boards. Export promotion council. Export inspection council

Director General of Foreign Trade Development commissioner of SEZ Director General of Statistics

Export Credit Guarantee Corporation State Trading Corporation Minerals and Metals Trading Corporation etc,

in the country for co-coordinating working of institutions engaged in financing

exports and imports.

The EXIM Bank is fully owned by the Government of India and is managed by Board

of Directors with representation from Government, financial institutions, bank and

business community. The operations are grouped into Project Finance, Trade Finance

and Overseas Investment Finance, supported by Planning and Co-ordination Groups.

7.1.5. ROLE OF EXPORT HOUSES

Export houses play a very significant role in foreign trade. They act as

importing agents in the country of the exporters. They act as intermediaries between

the importer and exporter. They purchase the goods according to the instruction of

the importers and export them. Export houses maintain good business relations with

the importers and exporters and provide every possible business co-operation to the

importers.

A number of committees including the Committee on Import-Export Policies

and Procedures (Alexander Committee, 1978), Committee on Export Strategy for

Eighties (Tandon Committee, 1980), Committee on Trade Policies (Abid Hussain

Committee, 1984) and several committees in particular on export promotion schemes

or problems have critically examined trade policies, procedures, promotion schemes,

etc. Efforts have been made to improve the system in the light of their

recommendations.

7.1.6. EXPORT PROMOTION THROUGH FIVE YEAR PLANS

Export promotion received considerable attention in India only since the Third

Five Year Plan. The comfortable level of sterling balances, accumulated during the

pre-independence period, the First Plan did not pose any foreign exchange problem.

Although the Second Plan document stated that all possible efforts should be made to

increase exports, the planners did not envisage any significant increase in exports and

the plan document did not suggest any export promotion measure.

The increasing trade deficit during the Second Plan pointed to the need to

promote exports. The middle of Second Plan period, a series of measures had been

initiated with the object of stepping up exports. These included organizational

changes, increased facilities and incentives and diversification of trade. The Third

Plan document observed that these measures were not adequate in relation to the

underlying factors inhibiting exports. One of the main drawbacks was that the export

promotion programme was not regarded as an integral part of the country’s

development effort under the Five Year Plans.

During the Seventh Plan, efforts have been made to identify sectors, industries

and products which have a good export potential and provide a suitable policy

framework. The Eighth Plan period was not all that conducive for the developmental

aspects due to changes in the Governments at the Centre and there prevailed a state of

uncertainty of the continuance of the Government. This led to a slow down in export

performance. The main reason for the slow down in exports was due to the sharp

decline in the growth of value of the world trade and appreciation of rupee vis-à-vis

the currencies of India’s major trading partners and competitors.

The Ninth plan sought to consolidate the gains of previous policy and carry

forward the process of liberalization by deregulating and simplifying procedures in

line with the trade policy which coincided with the plan period. Sound foreign trade

and investment policies were made in order to promote rapid and sustained export

growth. It sought to enhance the technological strength and economic efficiency of

domestic production and to ensure smooth and effective transition to more open

economy. The objective of the Ninth plan was to achieve ‘growth with equity’.

The Tenth Plan projects a growth rate of 12.4 per cent in India’s exports. The

road map for the achievement of this export growth in the medium term is delineated

in the Medium Term Export Strategy (MTES).

Export incentives are widely employed strategy of export promotion. The

main aim of these incentives is to increase the profitability of export business.

Important export incentives in India include rebate of duties, cash compensatory

support, income tax concession, interest subsidies, freight subsidy, etc. It has been

common to describe these as incentives.

7.1.7 EXIM POLICIES

Trade policy of a country primarily aims at industrial and agricultural

development, stability in domestic prices and augmentation and optimum utilization

of its foreign exchange resources. Trade policy is influenced by international

obligations of the country on account of its membership of international, regional and

bilateral trade agreements and other multinational conventions.

The main instruments of trade policy are:

• Tariffs

• Quantitative restrictions

• Para-tariff measures

• Subsidies and

• Miscellaneous administrative measures

The Government appointed the Import and Export Policy Committee headed

by Mr. Mudaliar in 1962 to review Government’s trade policy. The Committee felt

that developmental and maintenance imports were both essential for growing

economy. The Committee recommended for export oriented industries along with

other measures. The Government of India has been following a liberalized import

policy with the objective of increasing production, especially export promotion since

1975-76.

The Government announced for the first time in 1985 the Import Export

Policy for a period of three years.

7.1.8. EXIM POLICY 2008 – 09 HIGHLIGHTS

• DEPB scheme has been extended till May 2009.

• Refund of service tax on almost all the services.

• Income tax benefit to 100% EOUs has been extended by Government.

• Coverage of FMS has been increased and additional 10 countries have been

included. These are Mongolia, Bosnia-Herzegovina, Albania, Macedonia,

Croatia, Honduras, Djibouti, Sudan, Ghana and Colombia.

• Split-up facility under DFIA Scheme introduced.

• Duty free import of samples has been increased from Rs.75, 000 to Rs.1,

00,000.

• Value of jeweler parcels, through Foreign Post Office is raised to US$ 75,000.

Earlier it was from US$ 50,000.

• EOUs shall be allowed to pay excise duty on monthly basis, instead of the

present system of paying duty on consignment basis.

• Customs duty payable under EPCG Scheme has been reduced from 5% to 3%.

7.2. EXPORT PROCESSING ZONES / EOUS

As a part of the export promotion drive, Government has, from time to time,

introduced several schemes to promote units primarily devoted to exports. These

include Export processing Zones (EPZ’s), hundred per cent Export Oriented Industrial

Units (EOU’s) and different categories of Technology Parks (TP’s).

The main objectives of an EPZ are:

• To earn foreign exchange.

• To generate employment opportunities.

• To facilitate transfer of technology by foreign investment and other means.

• To contribute to the overall development of the economy.

In 2000, a scheme of Special Economic Zones (SEZs) was introduced.

7.2.1. SPECIAL ECONOMIC ZONE

Special Economic Zones (SEZs) Scheme in India was conceived by the

Commerce and Industries Minister during a visit to Special Economic Zones in China

in 1999. The scheme was announced at the time of annual review of EXIM Policy

effective from 1.4.2000. SEZ is basically a geographically distributed area or zones

where the economic laws are more liberal as compared to other parts of the country.

Within SEZs, units may be set-up for the manufacture of goods, provisioning of

services, and other activities including processing, assembling, trading and repairing

etc. A SEZ may be set-up in the public, private, or joint sector and /or by a state

government and even by a foreign country.

The move to develop SEZs was inspired by the success of the SEZs in China

which contribute about 40 per cent of her exports. The Indian EPZs have contributed

hardly four per cent of the country’s exports. The SEZs are expected to bring about a

major breakthrough. It is pointed out that one important reason for the success of the

Chinese SEZs is the absence of trade union rights there. A democratic country like

India cannot think of denying the labour rights. Yet, the big push of development

envisaged by the SEZs should be expected to have a very significant impact.

In India, at present there are eight functional Special Economic Zones located

at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai

(Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Nodia

(Uttar Pradesh) in India. Further a Special Economic Zone at Indore (Madhya

Pradesh) is also ready for operation. In addition 18 approvals have been given for

setting up of SEZ at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra),

Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur

(Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (U.P.), Vishakhapatnam

and Kakinada (Andhra Pradesh), Vallarpadam /Puthuvypeen (Kerala) Hassan

(Karnataka), Jaipur and Jodhpur (Rajasthan) on the basis of proposals received from

the State Governments.

7.3. LEGISLATIVE FRAMEWORK

The main objective is to reduce inequalities, to accelerate economic

development, as a tool to regulate consumption, imports and exports, in addition to its

basic objective of raising revenues. The three fold objective of taxation is regulatory,

developmental and reducing inequalities.

The demanding and growing global need it becomes inevitable that export

trade had to be prioritized. The export trade is governed by various legislations and

rules. Some of the legislative measures are; Export (Quality Control And Inspection)

Act, 1963, Foreign Contribution (Regulation) Act, 1976, Foreign Trade (Development

& Regulation) Act, 1992 Carriers Act, 1865 , Central Excise Act, 1944, Conservation

of Foreign Exchange & Prevention of Smuggling Activities Act, 1974 , Customs Act,

1962, Foreign Exchange Management Act, 1999. To administer various Acts, rules

are framed and administrative authorities are appointed.

7.4. FINDINGS FROM SURVEY DATA

Countries cannot remain isolated from the rest of the world economically,

politically and socially. The establishment of Special Economic Zone in developing

countries like India is construed as a step forward in the right direction. These zones

play a vital and crucial role in the international market, in terms of securing for the

host country the precious foreign exchange. The domestic labour market is also

stimulated in the sense that these zones provide ample employment opportunities to

the localities. The initial adverse position and backwardness in technology force most

of the developing countries to have trade connections with superior partners and end

with meeting the problem of the balance of payments. In this context the Special

Economic Zone acts as an instrument of not only promoting exports, but also finding

buyers in the international market and earns foreign exchange. Kandala Free Trade

Zon in the first export processing zone established in 1965, and later promulgated as

Special Economic Zone in 2005. Over the period of years the Ministry of Commerce

established more zones in different parts of the country. Though the number of

research exercises that have gone into analyisng diverse aspects of these zones is

limited, there is consensus in the findings of these studies that the Special Economic

Zones in India, by and large, promote exports and thereby earn for the country the

needed foreign exchange. The establishment of Special Economic Zone, no doubt,

costs financial burden on the Central Government. Adequate infrastructural facilities

such as land, power, transport and other connected facilities like communication,

banking etc are made available to the units in the zones at concessional rates. The

present research exercises the purposes to dwell on the following issues.

8. To study the contribution of Special Economic Zones to national economy.

9. To study the employment generated by Special Economic Zones and the

pattern of exports from various Zones.

10. To examine the various tax incentives available to SEZ for promotion of

exports and the privileges and benefits extended by the Government to these

zones and their adequacy.

11. To study the adequacy of legislative provisions governing the EPZ/SPZ.

12. To consider to what extent the Special Economic Zone Act, 2005 and Special

Economic Zone Rules, 2006 are made use of by the zones.

13. To review the performance MEPZ –SEZ Chennai and the units in MEPZ-SEZ,

Chennai

14. To bring to light the difficulties in administrative, operational and marketing

faced by the zones and offer concrete suggestions for the betterment of SEZs.

The required data have been collected both from primary and secondary

sources for the present study. For the purpose of the study, the researcher has taken

into account, 94 units at MEPZ-SEZ. An interview schedule has been administered to

the units to elicit their opinion on certain aspects of performance. 9 units could not be

considered as the data furnished by them is not susceptible for evaluation and 7 units

could not be considered as they are not functioning presently. In view of the

voluminous data from the survey, secondary data collected and presented in this

study. The secondary data were collected from the Office of Development

Commissioner, MEPZ-SEZ, Chennai, the annual reports of the Ministry of

Commerce, Director General of Commercial Intelligence and Statistics, Kolkata, The

Indian Institute of Foreign Trade, New Delhi, books and Journals of repute in the field

of India’s Foreign Trade. Descriptive research is considered to be the most

appropriate for the study. The study is confined to Madras Export Processing Zones

situated at Tambaram, Chennai in Tamilnadu State.

The study has taken into account the various units functioning at MPEZ-SEZ,

Chennai. Hence, the study considered census method. In view of the voluminous data

from census study and secondary sources collected and presented in this project,

descriptive research is considered to be the most appropriate for the study.

The present study is an empirical one based on sample survey method and has

basically depended mainly on primary data. The required primary data were collected

by means of an interview schedule administered to all the units at MPEZ-SEZ,

Chennai taken for the study. To clarify certain concepts of the study, secondary data

were collected from published reports of Government of India, Annual reports of the

study units, standard text books and reputed journals.

After the data collection, the completed interview schedules were scrutinized

thoroughly and edited in to ensure accuracy, consistency and completeness. The study

considered units functioning in MEPZ-SEZ, Chennai. Most of the analysis is based

on the responses shown in the form of frequency tables. Simple tables were prepared

for understanding the general profile of the respondent units and simple statistical

techniques such as percentages and mean were used for analyzing the data.

The study revealed that out of 94 units surveyed 26.60 percent are Public

Limited Companies, 71.70 percent constitutes Private Limited Companies and the

balance 11.70 percentage constitutes others.

The study indicated that out of 94 units taken up for survey 26.60 percent units

are engineering industry, 14.89 percent of units are electronic and software, chemical

and allied industries constitute 1617.02 percent, 5.32 percent constitutes leather and

sports goods, 15.36 percent are garment and textiles, 7.45 percent consists of gems

and jewellery and the remaining 12.77 percent are trading and service units.

The study has brought to light that 28.72 percent of units are large scale units,

52.13 percent of units are medium sized and 19.15 percent are small scale units.

The study has established that 42.55 percent of the respondent units utilize 100

percent capacity, 48.94 percent are in the range of 75 percent to 99 percent and the

remaining 8.51 percent units utilize 50 percent to74 percent of the capacity.

A significant disclosure of the study is that13.83 percent of the respondent

unit's composition of investment are owned and the balance 86.17 percent unit’s

composition of investment are owned and borrowed funds.

A striking disclosure of the study is that 80.85 percent of unit's source of

finance is bank, foreign institutional investors are 11.70 percent and other source of

finance constitutes 7.45 percent.

The study has highlighted that Frequency 31.91 percent of units are using

imported plant and machinery, 12.77 percent are using indigenous plant and

machinery and the balance 55.32 percent are using both imported and indigenous

machinery

Adequacy norms

The respondents were asked to rank the adequacy norms in the order of

priority. It disclosed that:

• transport and communication ranks first,

• infrastructure ranks second,

• marketing services ranks third and

• Services of MEPZ-SEZ ranks fourth.

Support from pubic and governmental sources The respondent study ranked the support from pubic and governmental

sources in the order of priority and opines that

• transport and communication ranks first,

• infrastructure ranks second,

• marketing services ranks third and

• Services of MEPZ-SEZ ranks fourth.

Services offered by MEPZ-SEZ

The study units were asked to rank the services offered by MEPZ-SEZ and it

shows that

environmental issues ranks first,

approval mechanism ranks second,

administrative procedures

clearance services rank fourth and

liasioning ranks fifth.

Factors responsible for success of MEPZ-SEZ

The ranking of the factors responsible for success of MEPZ-SEZ tabulation

has brought to light that

• fiscal incentives ranks first,

• proximity to port, proximity to airport and regulatory governance rank second,

• social infrastructure ranks sixth and

• availability of raw material ranks seventh.

Opinion about SEZ Act

The study has disclosed that 56.38 percent of respondents have opined that the

SEZ Act is comprehensive while the remaining respondents 43.62 percent have

opined that it is comprehensive but need amendments.

Overall adequacy details

Overall opinion about adequacy of the respondent units reveals that 26.60

percent of the respondents have indicated it is low, 44.68 percent have opined its

average and the rest 28.72 percent have opined it is high.

Overall support from public and governmental sources

The respondent units have opined that overall support from public and

governmental is low to 13.83 percent, 57.45 percent as average and the 28.72 have

opined it is high.

Overall rating services offered by MEPZ-SEZ

The study has overall rating services offered by MEPZ-SEZ of respondent

units has evidenced that 25.53 percent have stated that it is low, 47.87 percent have

stated it is average and the balance 26.60 percent have opined its the high.

Overall factors responsible for success of MEPZ-SEZ

Overall factors responsible for success of MEPZ-SEZ of respondent units

explain that 25.53 percent of the respondents have opined low, 50.00 percent as

average and the remaining 24.47 percent as high.

Export performance SEZ and MEPZ to total Indian Export

Export performance SEZ and MEPZ to total Indian Export exhibits a perfect

positive relationship with Total Indian export, SEZ export, percentage to total export,

MEPZ-SEZ export and percentage of MEPZ-SEZ export to total Indian export. The

study also highlights that there is increase in Total Indian export, SEZ export, and

MEPZ-SEZ export. The trend of exports based on the analysis reflects an increase.

Import performance SEZ and MEPZ to total Indian Import

Import performance of SEZ and MEPZ to total Indian export establishes a

positive relationship with total Indian import and, MEPZ-SEZ import.

Sector wise export MEPZ-SEZ

The respondent units have exhibited a positive relationship with regard to

engineering industry, electronics and software industry, chemical and leather industry,

garment and textiles, gems and jewellery and trading and services The growth rate

indicates that there is increase with regard respondent units. The study also indicates

an increasing trend by the respondent units.

Analysis of net earning

Analysis of net earnings of classified units indicates a perfect positive

relationship. The growth also indicates that there is an increase with regard to all the

classified industries and at the same time the predicted value also reflects an

increasing trend with regard surveyed units.

Relationship between constitutions with respect to dimensions of performance of

MEPZ-SEZ.

The study has established that there is significant difference between

constitution with regard to dimensions of adequacy, support from public and

government resources and services offered by MEPZ-SEZ. But there is no

significance difference between constitution with respect to factors responsible for the

success of MEPZ-SEZ.

Relationship between nature of unit with respect to dimensions of performance of

MEPZ-SEZ.

The study has brought to light that there is significant difference between

nature of unit with regard to dimensions of adequacy, and factors responsible for

success of MEPZ-SEZ. But there is no significance difference between nature of unit

with respect to support from public and governmental sources and services offered by

MEPZ-SEZ.

Relationship between size of the unit with respect to dimensions of performance of

MEPZ-SEZ

The study has revealed that there is significant difference between size of the

unit with regard to dimensions of adequacy, support from public and government

resources and services offered by MEPZ-SEZ. But there is no significance difference

between size of unit with respect to factors responsible for the success of MEPZ-SEZ.

Relationship between capacity utilization with respect to dimensions of performance

of MEPZ-SEZ

The study has disclosed that there is significant difference between percentage

pf capacity utilization with regard to dimensions of adequacy, support from public

and government resources and services offered by MEPZ-SEZ. But there is no

significance difference between percentages of capacity utilization with respect to

factors responsible for the success of MEPZ-SEZ.

Relationship between compositions of investment with respect to dimensions of

performance of MEPZ-SEZ

The study shows that there is no significant difference between compositions

of investment with respect to support from public and governmental sources, services

offered by MEPZ-SEZ and factors responsible for the success of MEPZ-SEZ.

Relationship between sources of finance with respect to dimensions of performance

of MEPZ-SEZ

The study reflects that there is significant difference between sources of

finance with respect to dimensions of adequacy, support from public and government

resources and services offered by MEPZ-SEZ also there is significant difference

between sources of finance with regard to dimensions of factors responsible for

success of MEPZ-SEZ. Moreover, the source of finance from bank and others are

significantly different from FII’s source of finance with respect to adequacy, support

from public and government resources services offered by MEPZ-SEZ and factors

responsible for the success of MEPZ-SEZ.

Relationship between Investment in Plant and Machinery with respect to

Dimensions of performance of MEPZ-SEZ

The study has established that there is significant difference between

investment in plant and machinery with respect to dimensions of adequacy and

services offered by MEPZ-SEZ. There is also a significant difference between

investment in plant and machinery with regard to dimensions of support from public

and governmental sources. At the same time the study has also depicted that there is

no significance difference between investment in plant and machinery with respect to

factors responsible for the success of MEPZ-SEZ.

7.5. SUGGESTIONS FOR IMPROVEMENT

7.5.1. Infrastructure

7.5.1.a. Land

The projects of SEZ ask for hundreds of hectares of land which are normally

bought from the respective rural land owners at a rate fixed by the government. The

government has come out with a provision that will ensure direct dealing between the

farmers and the land acquirers. The BoA has put a limit on the maximum land

acquisition by a SEZ project to 5000 hectares. It has also laid down compulsory

export business for such projects. It is not about giving a reasonable compensation to

the rural land owners but to detach the son’s of soil. Land is an immovable asset that

never undergoes depreciation. It is a life time asset to the poor rural people. Special

Economic Zones are always planned on the land owned by the poor farmers and the

barren non-utilized lands are not proposed for that. The poor farmers always become

the victim of industrialization. Farmers are to be made as stake holders with fixed

percentage of stake according to their land holding in their developed land.

Agricultural produce are forming part of SEZ, therefore, government should be

careful about the fertility of the land before developing SEZ and produce raised to be

made mandatory for export. Housing is to be provided for every affected farmer's

family. Application for development of SEZ in and around Metro cities to be

discouraged so that the escalating cost of urban land could be controlled and at the

same time crowding in cities could be curbed.

7.5.1. B .Land compensation

While SEZs are very necessary to scale the economy, the Indian form has not

been well thought out where there is an arbitrary allotment of land for industrial

purposes. Thus fertile farm land has been siphoned for industrial activity while the

government continues to anguish about loss of agricultural productivity. Moreover,

the compensation to affected farmers by this policy has been paltry and below market

value. Even so, payments are delayed and political middlemen and corrupt

bureaucrats get a cut on such payments.

7.5.1.c. Labour

Suez’s are expected to generate direct jobs. Currently, more than one lakh

seventy thousand people are employed in these SEZ’s, of which 40% are women.

This apart, SEZ should also provide employment to at least one member of the

displaced land owner’s family. In reality, the quantities of employment generated by

such projects of SEZ are less if not negligible. Restructuring the benefits and perks

provided to SEZ projects, may be in terms of providing additional incentives for

selecting and developing a non-populated geographical location. Housing facility be

developed for employees working in the processing zones.

7.5.1.d. Power

Power plays a very important and inevitable role in the development of any

project. Power features as a major service in the infrastructural services provided to

SEZ. In reality power has become a major hurdle in the developmental activities.

Especially, in Tamilnadu power crisis is a major issue and frequent interruption in

power and unusual voltage fluctuations halt the activities. All the industries face this

problem. Though adequate provisions have been made to have an uninterrupted power

thro' generators, it has not addressed this issue in total. Again the problem is multifold

due to shortage of diesel to run the generators for long hours during production. This

has a great impact on cost factors. This additional burden has to be borne by the

manufacturer and cannot be passed on and at the same time the units are expected to

maintain the schedule of delivery. This is because at the time of developing SEZ, an

estimate is made as to how much power is required for that SEZ area under

development and power plants and distribution of uninterrupted power was taken care

of. When the production capacity is increased, there becomes a gap between estimate

and actual. Government should think of promoting SEZ Power or alternative source

for generation of Power as a SEZ. It should be made mandatory that power

generation should cater to the SEZ developed in that area. Power generation projects

are to be given top priority and be promoted as a SEZ. Renewable energy projects are

also to be considered on priority as SEZ. Special power tariff rate is to be considered

to those units who conserve power.

7.5.1. e Transportation

Another major area of infrastructural development is transport. The SEZ

projects must be first connected with transport before onset of the project. The major

types of transport contemplated are road, rail, air and waterways. The concept of

developing New Township away from Metro to be studied and implemented so that

commutation and traffic congestions, bottlenecks could be dispensed. Presently,

MEPZ-SEZ is situated within the city causing lot of transport obstacles. The present

planning system of connecting India through road by National Highways Authority of

India is already in the offing and taking a lead. Rail routes are also given priority in

Railway plans to connect the important and nearby areas that are being developed as

SEZ. Inland water ways and connecting of navigable rivers has to be promoted for

improving waterways transport. Ports and harbours are to be developed in such a way

that it is approachable thro' waterways. Development of infrastructural amenities near

Airport also warrants improvement.

7.5.1. f Warehousing

Warehousing is yet another area of infrastructure to be developed. It involves

overheads to the manufacturer. Unless warehousing facilities are adequate and

reachable the warehousing cost would always be on the higher side. Presently, most

warehouses are situated near the port and it involves no additional cost for the

industries in transportation. Land areas can be earmarked for warehouses and it is to

be ensured that the delivery is made available at the location at an affordable cost or if

additional cost is incurred, the same may be given as credit which could be availed

against future consignment.

7.5.1. g Communication

This is the area in which India is marching ahead with lot of improvements.

Overhead cables are replaced by Optic Fiber Cable and now thro wireless mode.

There is stiff competition prevailing between the private operators and Government

undertakings. Yet the traffic is more to handle. With a technological revolution

around the world, communication has to be at the finger tips, at the same time service

is upgraded. Still there are bottlenecks which should be completely weeded out to be

more effective.

7.5.1. h Banking

Banking is at the door steps with the advent of Core Banking System and

Internet banking. But the frequent system failures cause a lot of inconvenience. This

should be looked into and upgraded. Moreover, though the online banking has taken a

leap, the banks still continue and engage in paperwork. This duel functioning is really

a hardship. Paper work has to be minimized.

7.5.2. Administrative procedures

Transparency in approval process is a key to success of the SEZ concept. A

transparent policy framework should be created to discourage corruption and ensure

proper growth of SEZs.

7.5.3 Incentives

Incentives or tax benefits may be decided on case to case basis and may be

directly related to the degree of development in terms of social upliftment,

Environmental friendliness and overall contribution towards the economy of the

nation done by each project rather than having an even benefit policy for all. The cost

of those projects may be compensated through extending the tax benefits for some

more years under a different tax slab. Value added incentive in the form of credit to

be adjusted against future may be considered for the units which exceed the target

before the stipulated time. Domestic Tariff Sale (DTA) to be studied and reviewed at

specified intervals. All benefits extended should be forfeited with penalty for all DTA

transactions if found unsatisfactory. Dilution, diversion, migration and manipulation

cause revenue losses to the Centre and State Governments. CBDT, CBEC be asked to

study and come out with corrective measures Provision of “Enabling Clause”.

Disincentive for SEZ developed in and around metro cities. All benefits given to SEZ

unit/developer for Non Export business are to be extended to domestic units which

offer support in any form for the SEZ export units.

7.5.4. Marketing information and services

A number of steps have to be taken to assist the exporters in their marketing

effort. These include conducting, sponsoring or otherwise assisting market surveys

and research; collection, storage and dissemination of marketing information,

organizing and facilitating participation in international trade fairs and exhibitions;

credit and insurance facilities; release of foreign exchange for export marketing

activities; assistance in export procedures; quality control and pre-shipment

inspection; identifying markets and products with export potential; helping buyer-

seller interaction, etc. To conduct promotion programmes and integrated marketing

promotion programmes for the trade and industry in India. International marketing

advice on opportunities offered by projects by multilateral institutions and data to

enable effective participation in modernization, marketing and promotional

techniques to improve the efficiency of the exporting firms was also addressed. The

importance of ensuring high quality and export marketing research is highlighted.

7.5.5. Other suggestions61

Export Focus

The units in SEZs should have export focus. Fiscal disincentive to sell in

domestic market for SEZs.

Non-Processing Zone

Non-processing area in SEZs should have focus aligned with the objective.

Only foreign exchange receipt by the units in non-processing area should be given tax

incentives. Any sales to domestic market should be taxed appropriately.

Financing of SEZs

Ministry of Finance in consultation with RBI and SEBI should announce a

clearly laid down policy for financing of SEZ projects. Support for Processing Zone.

61 Kirit Somaiah Dr, Ex-Member of Parliament, Suggestions for Healthy, Transparent & Effective Implementation, Special Economic Zones (SEZ) (Concept of Economic Development)

Location

Location of SEZs is important for infrastructure development and regional

disparity. Should not allow SEZs in metro cities as instead of creating infrastructure

they will be a burden on the metros' infrastructure

Domestic Units

Stop abuse from SEZ to DTA. Non SEZ units and they should not be

competitively disadvantages. Tax abuse is to be stopped, e.g. Power Plan.

Role of state governments

Views of state government are important before giving any approval. The

Centre should ask for state's views/recommendations before granting any approval.

Limit on number of SEZs

Limit on number of SEZs will create market distortions. There should not be

any upper limit on number of SEZs.

Transparency

Transparency in approval process is a key to success of the SEZ concept. A

transparent policy framework should be created to discourage corruption and ensure

proper growth of SEZs

Promoters' Credibility

Need to have promoters with proven credibility for developing SEZs. Good

quality of promoters can really make this concept a grand success.

Government needs to conduct due diligence before giving approval thwarting any

attempt of fly by night operators.

Non-transferability

Government should allow only serious promoters with long-term perspective

to develop SEZs. Transfers of undeveloped SEZs are to be curbed. Promoters should

not be able to sell any part of SEZ without developing it

7.6. SEZ POLICY IMPLICATIONS

It is needless to stress that SEZs have an important role to play in the current

transitional stage in the Indian Economic Development. The investigation carried out

in respect of the problem faced by the units in general and operating units in MEPZ in

particular has called for appropriate changes in the management structure and

operational parameters of the zone. The problems which have surfaced appeared to

mar the performance of the zones and units are those relating to lack of independent

authority of local administration for the zone and problems relating to establishment,

marketing and operational for the operation of the units in the zone.

The existing system of management has reduced the local administration

headed by Development Commissioner as an intermediary and subordinate office of

the Ministry of Commerce (MOC) in many administrative and operational issues.

This has seriously affected the performance of operating units in the zone, as many

decisions are delayed and execution of many plans await clearance from the Ministry

and other authorities for a long time. The Development Commissioner must be

endowed with adequate power and must have the freedom to exercise the rights

especially in issues of importance which are likely to bring down the morale of the

units in the zone. Adequate provisions are to be made in the governance of the export

processing zone in this respect. Such a step will go a long way in creating confidence

among the operating units in respect of getting their problems solved through and

with the Development Commissioner without any delay.

The Units encounter problems in respect of establishing their units in SEZs.

The procedure of approvals calls for more documentation work and seem to be

cumbersome. The single window clearance system was introduced with laudable

objectives of reducing the time delays and hardship of the units through awarding

approval from different authorities simultaneously. The operation of the system is far

from satisfactory. Necessary amendments and follow up actions will have to be

initiated to make the system more pragmatic. It is suggested that committee with the

Development Commissioner of the zone as the convener and elected or nominated

representatives from the management of the operating units in the zone as members

be constituted to monitor the relevance and working of various schemes. It can

suitably suggest to MOC measures to reduce the loss of time in granting approvals for

establishment, permission for import of raw materials and so on. The committee can

also be empowered to attend to the grievances of the units and to take remedial course

of action. This grievance cell can go in to the labour problems and order suitable

measures to create congenial work atmosphere.

The management and marketing problems in the zones or units are specific in

the sense that, these problems vary from one unit to the other. Special training and

conferences can be organized to educate the management of SEZs about various

aspects of administration, ranging from modern methods of production and handling

the workforce.

The Development Commissioner has an important role to play whenever there

is labour unrest in one sector or in the entire zone. The most common causes for

labour problem are low wages, poor working conditions and welfare measures and

general exploitation of workers. Appropriate amendments relating to labour laws

governing the labourers in the SEZ and enforcement of the same will certainly lead to

reducing the labour problem.

I. Generation of additional economic activity

SEZs generate additional economic activity outside the zone due to the

transformation of investment funds into fixed assets and purchase of inputs and

services from the rest of the economy. The proposed enlarged SEZs are going to

generate economic activity worth Rs. 15,00,000 crores.

ii. Promotion of Exports of goods and Services

Duty exemption and remission schemes for SEZ in the third supplement to

Foreign Trade Policy as announced in the budget is expected to give the export sector

a much needed boost.

iii. Encouraging Domestic and Foreign Investment

Foreign Direct Investment upto 100 percent is permitted under the automatic

route in the most major sectors. Entry under automatic route requires post-entry

notification and no prior approval is required, The SEZ ACT 2005 states that 100

percent FDI for the manufacturing sector, and no cap on foreign investments for SSI

items.

iv. Creation of Employment Opportunities

Investment of the order of Rs. 1,00,0000 crores including FDI of US$ 20

billion is expected by the end of December 2009. This investment would generate

5,00,000 direct jobs by that period.

v. Development of Infrastructure Facilities

It is expected that SEZs would trigger a large flow of foreign and direct

investment in the infrastructure and productive capacity, leading to generation of

additional economic and social activity.

vi. The Central Government should take look at the SEZ policy.

vii. The Centre should fix a land ceiling for different type of SEZs and workout the

possibility of transferring the land to SEZ projects without any hardship.

viii. As there can be no single rehabilitation policy for all projects, the state should

finalize the rehabilitation policy for the affected people on a case to case to case basis.

ix. Unhealthy competition between states and centre over SEZ issues should be

avoided. It needs to ensure that there is no friction between the two.

x. Nandigram issue which another symbol of challenge to democracy in India should

be stopped and avoided in future. It is another watershed, like the emergency in 1975.

When once the SEZ policy is looked with a different and practical approach

considering the internal and regional disparities, India would certainly challenge the

global economic order in the next 15 years. By 2050, India will be the second largest

economy after china, overtaking USA. India has built up 304 billion US dollars as

foreign exchange reserve to-day as against 1 billion US dollars in 1991. During the

year 2008-09 India has received 4.5 billion US dollars as Foreign Direct Investment

and expected to receive 20 billion during the current year.

7.7. Future of SEZ-The road ahead

It is realized from the past experience, government does not intend to acquire

land and hand it over to private players nor does it intend to offer fiscal or financial

sops. All that it is doing is invest in creating infrastructure. Investment in

constructing the high-speed freight corridor. India is ready with its own version of the

Taiheiyo or the Pacific Belt. A 4 lakh square kilometer manufacturing and trading

hub, complete with world-class infrastructure, SEZs, industrial parks and knowledge

cities, has been planned. The infrastructure will cater to not just existing industrial

projects but also to those which are in the offing. Infrastructural development includes

watt power plant, three new ports and six airports proposed to attract investment and

in the process create more jobs. It is expected to create around 3 million jobs and hope

to get $10 billion investment from Japanese companies alone, commerce & industry

minister Kamal Nath said at a press conference. Further it is proposed

• To take up brown field to ensure better cost effectiveness, project areas rather

than Greenfield projects.

• To create nodes with self-sustained region with high quality infrastructure.

• To tie up private sector financing issues with that of long-term funds with

government guarantee. Alternatively, there could be a cess on, say, fuel to

finance the corridor or the government could look at the annuity model, a la

highways.

• Modification of exclusion list on par with foreign market and uniformity in the

list according to the international needs. For example, India has included

rubber and rubber products in the exclusion list while Thailand has done the

same with bovine meat and textiles.

• Export items to have a particular level of local content and the percentage of

local content should be uniform with that of the counterpart.

The ostensible goal of the SEZ policy is to generate additional economic

activity, development of infrastructure facilities, generate employment, promote

investment from domestic and foreign sources, and facilitate easier exports of goods

and services. So far, it has approved 237 SEZs and 51 have commenced operations.

The industry ministry has showcased Nokia’s SEZ in Tamil Nadu, Apache (Adidas

Group) in Andhra Pradesh, Flextronics in Tamil Nadu, Quart City in Chandigarh,

Motorola and Foxconn in Tamil Nadu as examples where thousands of people were

employed and hundreds of millions were invested.

The government claims that the SEZ scheme is a tremendous success among

investors both in India and abroad. This should not really be surprising as industry

does like tax cuts and exclusivity. The point is not whether the industry loves this

concept or not, but whether the nation has a comprehensive policy on SEZ, an optimal

use of land and resources, and loopholes benefiting a few have been plugged. A

Lehman study in Honk Kong said that some of the SEZ projects approved by the

government are in multi-storey buildings and benefits accrued from such schemes

born out of political expediency and obvious nepotism hurt the nation financially than

provide benefits.

This is the reason for the spat between the industry and finance ministry over

the SEZ policy. The finance ministry contends that the SEZ policy must be exclusive

and have tangible benefits and not one that encourages claims of benefits.

Thus, while exports have fared well, the industry ministry has to revamp its

SEZ policy to create a level of transparency and openness in identifying land that

could be commandeered for this purpose. At the same time, the government has to

ensure that only large-scale operations are allowed in SEZs and potentially away from

the cities in dry-land so that rural areas benefit from industrial investment.

“SEZ-a MARATHON IN THE NEW ECONOMIC REFORMS”