The Hindu Business Line : What's special?

THE COMMERCE MINISTER may well be proved right in his projection of a substantial flow of fresh investments (Rs 1,00,000 crore) and consequent additional employment (one lakh) from export-oriented units in the new special economic zones expected to dominate the country's industrial landscape. But it would be a folly to attribute this to any superior regulatory framework for the special economic zones vis-à-vis units in the domestic tariff area. For one, the unveiling of a new framework comes in the wake of marginalisation of units in the existing special economic zones in the context of the overall national export performance. As an ICRIER study of November 2004 pointed out, while there had been a surge in exports from these enclaves in the initial years, their share in the total quantum of exports has tended to stagnate with export growth rates of both converging.

This would seem to suggest that the advantage of a superior infrastructure and policy framework, such as there were, for these units, have been considerably whittled down, if not eliminated, in recent years. After all, it is now well accepted that the post-1990s reforms in industrial policy, taxation and foreign trade have improved considerably the climate for enterprises in the domestic tariff area. The ICRIER study also found that even as late as 2002, the number of units that can be set up in these zones is much larger than those operational. For instance, the Santa Cruz SEZ could have accommodated another 250 units against the 96 operational, then (at the time of the study).

The truth is, rather than units seeking export competitiveness in special economic zones, those that are already export-competitive are seeking to locate themselves in special enclaves that simply happen to be labelled differently. Indeed, the current business paradigm is that businesses have to be competitive in a global sense even if they are pursuing opportunities in the local, as opposed to the export, market. This becomes quite clear when one considers that a liberal `no-questions-asked' labour law regime, on which proponents of the special economic zone concept were relying, finds no place in the new legal framework. Of course, the fact remains that over 100 proposals, backed no doubt by investment support from would-be entrepreneurs, have been cleared by the Government. Clearly, the prospect of greater flexibility in the creation of such facilities and an emphasis on a `total-solution' that private capital brings with it, are definite advantages for investors to sign up in such large numbers. This is in contrast to the standardised one-size-fits-all approach that characterised the design of industrial estates of the 1950s and the 1960s which got reflected in the creation of the special economic zones.The air of freedom in these special economic zones may not be a pre-requisite for business success but it wouldn't hurt of one could savour it either.

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