SEZ IN INDIA - The Ground Realities Amitava Basu
After lapse of considerable time, Special Economic Zones Act, 2005 was enacted in June 2005 and notified on 10th February 2006. This led to a tremendous surge in interest for launch of SEZs. Establishment of SEZs helped to increase volume of international trade, inflow of foreign investment and foreign technology into export trade, infrastructure construction and commerce. Yet, the progress of SEZs and benefits expected from them has been relatively limited in India as compared to China and other countries.
Though the policy aims at creating world class infrastructure within SEZs, the need for connecting these islands of excellence with other ports, airports and other social infrastructure is not fully addressed. Planning location of SEZ is a critical element to facilitate supply chain management and balanced regional development.
Proper balance is needed between relaxation of applicability of labour laws to SEZs and hedging the workers from hostile company policies. SEZs in China were initially exempted from national labour laws despite being a communist country. This model sustained initially because the foreign investors were given the leverage to train the workers and developing confidence in Chinese domestic labour competence.
In sum, the challenge is whether India through SEZs can leverage its cost advantage and huge knowledge base and break the hold of China in manufacturing by making India the preferred destination for doing business.
The Way Forward
Lessons from China in regard to location of SEZs close to ports, determination of size of SEZ area, flexible labour laws, and provision for world class infrastructure can provide the required directions.