India’s SEZs Set To Raise US$5bn

October 25, 2006	(Be the first to rate this story!)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

India’s Special Economic Zone (SEZ) program has run into stiff resistance, but premier Manmohan Singh is sticking to his guns against a motley crew of opponents.

The SEZ law was passed in 2005, but detailed regulations were issued only in February this year, and there have already been more than 500 applications for SEZ status, of which 180 had been approved by the end of September. They range in size from 10 to 100 hectares, and give firms 100% tax exemption on export profits for first five years. Foreign investors are automatically allowed to have up to 100% direct control of firms in SEZs.

The initiative is seen as part of the government’s attempts to liberalize India’s constipated economic structure, where every move forwards falls prey to special interests. And it’s exactly those special interests which are intent on stopping the SEZ program in its tracks.

Agrarian interests fear that SEZs will use up farmland (this in the third biggest country on earth and one of the least developed). IMF officials, the head of the Central Bank and politicians from the left and the right are among those who are opposing the program for a variety of other reasons. The Communists, who support the government’s majority, argue that displaced farmers should receive more compensation. And even the Finance Minister Palaniappan Chidambaram has said publicly that he fears the loss of tax revenue that the SEZs will bring about.

One of the more reasonable objections to the SEZs is that there are going to be too many of them, and they will be too small. But in India, industrial and even fiscal policy in every state is at the whim of local authority, and the Prime Minister presumably sees the SEZ program as a way of breaking up the stranglehold on innovation and development exercised by petty officials.

Another objection with some teeth is that the WTO may well be used by other countries to attack the SEZ program - but it hasn’t happened to China, with vastly more expansive SEZ areas.

So far the government is standing firm. Mr Singh and his economics minister Kamal Nath were in London this month and said they expected the new zones to raise US$5bn in foreign direct investment by the end of 2007 - a large proportion of the country’s total expected FDI, if indeed it doesn’t just amount to recycling of money that was already committed.

source: http://www.tax-news.com/

News Published Under:   Special Economic Zones |

Comments