Model Answer
0 min readIntroduction
Special Economic Zones (SEZs) are geographically demarcated areas within a country that are designated for specific economic activities, enjoying more liberal economic regulations than other parts of the country. These zones aim to attract foreign investment, promote exports, and boost economic growth. India’s tryst with SEZs began in 1965 with the establishment of Kandla Port Trust, but the modern SEZ policy took shape with the SEZ Act of 2005. While initially successful in attracting investment and boosting exports, the SEZ policy has also faced criticism regarding land acquisition, displacement, and revenue loss to the government. This answer will briefly outline the concept of SEZs and their socio-economic repercussions in the Indian context.
Evolution of SEZ Policy in India
The initial foray into export promotion through designated areas began with the establishment of Kandla Port Trust in 1965. This was followed by the setting up of Santacruz-Chembur-Electronic Export Processing Zone (SEEPZ) in Mumbai in 1973. However, the real impetus came with the SEZ Act, 2005, which provided a comprehensive legal framework for establishing SEZs. The Act aimed to create an internationally competitive and hassle-free environment for boosting investment and exports. The policy underwent revisions in 2007 and 2009, addressing some of the initial concerns.
Economic Repercussions
Positive Impacts
- Increased Exports: SEZs have significantly contributed to India’s export basket. According to data up to 2019-20 (knowledge cutoff), SEZs accounted for approximately 30% of India’s total exports.
- Foreign Direct Investment (FDI): SEZs have attracted substantial FDI, providing much-needed capital for economic development. Cumulative FDI in SEZs stood at over ₹5.8 lakh crore as of March 2020.
- Employment Generation: SEZs have created both direct and indirect employment opportunities. As of March 2020, SEZs employed over 2.3 million people.
- Infrastructure Development: The establishment of SEZs has led to improved infrastructure in surrounding areas, including roads, ports, and power supply.
Negative Impacts
- Revenue Loss: The tax exemptions and incentives offered to SEZ units have resulted in significant revenue loss for the government. A 2019 report by the Comptroller and Auditor General (CAG) highlighted substantial revenue leakage due to improper implementation of the SEZ policy.
- Crowding Effect: Some argue that SEZs may have a crowding effect on domestic industries, as they enjoy preferential treatment and compete unfairly with local businesses.
- Limited Linkages with Domestic Economy: Often, SEZs operate as enclaves with limited backward and forward linkages with the domestic economy, reducing the multiplier effect.
Socio-Environmental Repercussions
Social Impacts
- Land Acquisition and Displacement: The establishment of SEZs has often involved large-scale land acquisition, leading to displacement of local communities, particularly farmers and tribal populations. The Singur controversy in West Bengal (2006-2008) is a prime example.
- Social Inequality: SEZs can exacerbate social inequality, as the benefits of economic growth are not always equitably distributed.
- Labor Issues: Concerns have been raised regarding labor rights and working conditions in some SEZ units.
Environmental Impacts
- Pollution: Industrial activity in SEZs can lead to air and water pollution, impacting the health of local communities and ecosystems.
- Deforestation: Land conversion for SEZ development can result in deforestation and loss of biodiversity.
- Strain on Resources: SEZs can put a strain on local resources, such as water and energy.
Recent Developments & Policy Changes
Recognizing the shortcomings of the SEZ policy, the government has been taking steps to address them. The focus has shifted towards creating manufacturing hubs under the ‘Make in India’ initiative and the Production Linked Incentive (PLI) scheme. The SEZ Act, 2005, has been amended to allow the conversion of SEZs into manufacturing hubs. The government is also promoting the development of multi-sectoral SEZs to encourage greater integration with the domestic economy.
| Feature | SEZ (Pre-2019) | Manufacturing Hubs/PLI Scheme (Post-2019) |
|---|---|---|
| Focus | Export-oriented | Domestic manufacturing & exports |
| Tax Incentives | Significant tax exemptions | Performance-linked incentives |
| Land Acquisition | Often involved large-scale acquisition | Emphasis on utilizing existing industrial corridors |
Conclusion
SEZs have played a significant role in India’s economic development, attracting investment, boosting exports, and creating employment. However, their socio-environmental repercussions, particularly land acquisition and revenue loss, cannot be ignored. The shift towards manufacturing hubs and the PLI scheme represents a pragmatic approach to address the shortcomings of the SEZ policy and promote sustainable and inclusive economic growth. A balanced approach that prioritizes both economic development and social welfare is crucial for maximizing the benefits of designated economic zones in the future.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.