The Hindu Business Line : Problem is absence of will, not lack of resources

The country is banking on SEZs for a large chunk of its growth. They are in the rural areas and they cost less but are not necessarily better. This is because they are designed to please investors, but not the people who will work there, says P. V. INDIRESAN.

How fast will India grow this year, next year? That is a question that intrigues most of our economists today. The Finance Minister has been saying that growth will be not less than 7 per cent this year. The truth is nobody knows. It has been said that last year, we grew 9 per cent.

Did our basic amenities, our social capital — water supply, housing, education, healthcare, transportation, security and the like — improve by 9 per cent? The answer is probably not. Did poverty decrease by 9 per cent? The answer, once again, is probably not; it is even possible these things became worse.

Can we grow, and continue to grow by 7 per cent? Possibly yes. Can economics alone help us grow? That is doubtful. We need better governance, better distribution of resources, and greater inclusion of the poor. That may not happen if we continue to expand our most expensive cities, but neglect expansion of social capital. Social capital — better schools, healthcare, water supply, transportation and, above all, better sanitation — needs larger connected populations than our villages provide but not as large a population as a metro has. India’s metros are frightfully expensive; land prices are higher than in the US. Water is scarce; security is an unresolved problem; sanitation is atrocious; and overcrowding is endemic.

The country is banking on SEZs for a large chunk of its growth. They are in the rural areas and they cost less but are not necessarily better. They are not better because they are designed to please investors but not the people who will work there. For instance, according to the government note, the main objectives of the SEZ Act are:

(a) Generation of additional economic activity;

(b) Promotion of exports of goods and services;

(d) Creation of employment opportunities;

(e) Development of infrastructure facilities. It is important to note that the objectives do not include the welfare of employees. The development of infrastructure facilities could have included employees but it does not.

No mention of employees

The government note continues “…the SEZ Rules provide for: Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs; single-window clearance for setting up of an SEZ; single-window clearance for setting up a unit in a Special Economic Zone; single-window clearance on matters relating to Central as well as State Governments; and simplified compliance procedures and documentation, with an emphasis on self-certification.”

Further, the incentives and facilities offered to the units in SEZs and to attract investments into the SEZs, including foreign investment, include:

Duty-free import/domestic procurement of goods for development, operation and maintenance of SEZ units;

100 per cent income-tax exemption on export income for SEZ units under Section 10AA of the Income-Tax Act for first five years, 50 per cent for the next five years and 50 per cent of the ploughed back export profit for the next fiveyears;

Exemption from minimum alternate tax under Section 115JB of the Income-Tax Act;

External commercial borrowing by SEZ units of up to $500 million in a year without any maturity restriction;

Exemption from Central Sales Tax;

Exemption from Service Tax;

Single-window clearance for Central and State level approvals, and

Exemption from State sales tax and other levies

It is worth noting none of these has any concern for employees. It is worth enquiring whether there will be truly growth for the people when the most significant development programme of industrialisation has not one word to say about employees or their welfare.

Staff housing

Should not every SEZ have a well designed housing estate for its employees and for those who serve them? I have talked to several industrialists about the issue of housing employees. Their answer is the “market will provide”. The fact is the market provides, but only for the very rich.

The poor, even the lower middle-class cannot afford housing with basic amenities. They are forced into slums. The Finance Minister has urged industry to cut prices, but industry has not accepted his advice. Both are at fault: The industry is at fault in not looking at a sensible suggestion favourably; the Finance Minister is at fault in not making it worthwhile for industry to do so.

As I have written once before, wherever there is normal distribution, the richest 20 per cent take away half the output, leaving the other half for the remaining 80 per cent. The government does try to ensure such a distribution in incomes but not in wealth, where the top 20 per cent takes over more than 90-95 per cent. Such maldistribution would not have mattered had the government produced public goods such as education, healthcare, civic services and connectivity. .

The Delhi Metro is an exception, but it gets capital at 0.5 per cent, or less, repayable over 30 years. Suppose, further, a similar facility is given to the provision of civic infrastructure — water, electricity, roads, sanitation, markets and the like — provided 20 per cent of the houses are built in half the space and 80 per cent in the other half.

Way to higher growth

In that case, the poorer population will have a chance to own smaller but proper housing and to access quality schools and healthcare. As the construction will be in rural areas, land prices will far less than at present.

India is blessed with large tracts of uncultivable or poorly cultivable land. In most such areas, villagers are very poor. They can be, and should be, made more productive. Suppose we link a cluster of those villages with urban quality transport, set up a few English-medium schools, a couple of secondary-care hospitals, a good market as well as an entertainment centre. That should attract the middle-class families to live there, provided it offers quality housing and suitable jobs too.

It is important that high-income families stay there too, not commute from elsewhere and spend their money inside. That is why I suggest that there should be a good quality housing estate accompanying every SEZ. The SEZ space can be used to stimulate much more demand than they do now. They will, when their employees reside in rural areas. Then, growth can be cheaper, faster and at least one or two per cent higher. Inclusive development would then become a reality.

However, all that needs a change in mindset. Unfortunately, that is not happening. The problem is not lack of resources but the lack of will to use efficiently the surpluses available.

(Concluded)

(The author is a former Director, IIT Madras. blfeedback@thehindu.co.in)

(This is the 239th in the Vision 2020 series. The last article was published on November 10.)

More Stories on : Economy | Infrastructure | Vision 2020

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Protectionist test

Appointment of judges

Problem is absence of will, not lack of resources

A time for protection?

Time to go fiscal?

Tilting at ideological windmills

Bush’s last hurrah!

Credit raters

Rupee depreciation