Are Special Economic Zones Too Costly?

The logic of creating a special economic zone is to offer infrastructure and other facilities that cannot be provided quite so easily across the country as a whole. The objective is to create islands of world-class infrastructure to reduce the cost of doing business and make industry globally competitive. This would mean assured electricity availability at competitive rates, availability of capital at internationally benchmarked rates, good transport links to reduce shipment time and delays, and flexible labour laws. In India, SEZs are being developed by the private sector or public sector or through private-public partnership. Since SEZs require massive investments and have relatively longer gestation period, proper mix of stable SEZ policy coupled with fiscal benefits need to be extended to the zones.  The fiscal concession has made it possible for private players to look at SEZs as a profitable and new business opportunity. This has also helped provide infrastructure and other facilities to units in SEZs at substantially lower cost. Laying a kilometer of road costs Rs. 5 crore in our country, of which 30% goes to taxes. The exemption given to developer will ultimately percolate to units. In many states, industry pays as high as Rs 7 for a unit of power where as all the large SEZs in the world provides electricity at Rs 2. The removal of electricity duty will help in providing electricity at internationally benchmarked rates. Banks in SEZs are exempted from SLR and CRR requirements and also enjoy income tax concession. Thus the capital cost is lower for these banks which they will pass on to their customers.  A narrow view is being taken by interpreting SEZs as a loss making venture from revenue point of view as it may lead to revenue loss of about Rs 90,000 crore over a period of time. This fear is base-less as SEZs can be a pivot for attracting FDI both in manufacturing and retail trade. It can provide flexibility to global major players to tap the Asian and Gulf markets. It may be emphasized that no government should provide primacy to revenue considerations over employment, exports and infrastructure development.