Special economic zones in India: investment, trade, employment generation and impact assessment

The papers attempts to analyse potential benefits of establishing Special Economic Zones (SEZs), their current status in terms of employment, investment and exports, bottlenecks in their functioning, adverse affects, and likely threats to the farming community in particular and agricultural sector in general. The SEZ policy aims at promoting exports of goods and services, investments from domestic and foreign sources, creation of employment opportunities, infrastructure facilities with emphasis on generating additional economic activity. However, a long-term strategy is yet to be evolved to counter the socio-economic consequences of the scheme. Although the policy assumes that a significant rise in private investment in SEZs and consequent increase in exports would result in higher employment opportunities, the actual employment generation in SEZs hardly works out to 0.5 per cent of the total workforce in India, indicating no major impact on employment pattern of the country. Similarly, the SEZs hardly account for 5 per cent of the total exports of India. Since the SEZs in India have been extended wide range of incentives, facilities and tax concessions, it is perceived that some of the companies and many existing manufacturing units in India may shift their base to the SEZs to reap the benefits. There are also apprehensions that promotion of SEZs may lead to loss of fertile agricultural land, revenue loss to the exchequer and adverse consequence of uneven growth. Although area covered under SEZs is not very significant, the development of these zones still pose threat to the water and food security. The diversion of water for use within SEZs would result in lack of access to water for people living in the SEZ areas. Similarly, release of untreated effluents from SEZs may adversely affect health of people residing in the area. The excessive use of water within SEZ may also create problem relating to access to water in the adjoining area and consequently affect irrigation facilities, crop production and development of agriculture. Large scale destruction of Mangrove in Gujarat has already affected fisheries and dairy sector of the state. Since SEZ Act allows acquisition of single cropped fertile agricultural land, the consequence obviously would be on the food security of the country. The subsidies extended to SEZ industries have already been criticized by the IMF and ADB. The lack of infrastructure and other bottlenecks are the main reasons for the promotion of SEZ policy. The SEZs, therefore, need to be promoted but not at the expense of farming community and development of agricultural sector in the country.