The Hindu Business Line : Enabling enclaves

WITH THE CHINA development experience becoming the benchmark for a range of public policy initiatives, it is no surprise that the Centre should come up with a proposal for setting up special economic zones for export processing on the lines of the Chinese model of such enclaves. The passage in the Lok Sabha of a Bill for Special Economic Zones marks a step closer for the Government achieving that goal.

In substantive terms the proposal contained in the Bill are neither novel nor revolutionary as they are very much part of the current regulatory regime that units engaged in predominantly export activity are subjected to. The tax holiday on profits or the freedom to import goods and services on a duty-free basis or rebating domestic levies on export turnover are already available to these units. Also, many industrial parks have come up in recent years, both in the public and private sectors offering state-of-the-art infrastructure for units engaged in export manufacture. Even the aspect of a liberal `no-questions-asked' labour law regime (subject to the State government consent, of course) that the Bill promised initially and something on which the Government had to beat a retreat while moving the Bill to vote, in the face of opposition from the Left, is really not an issue for many of the sweatshops engaged in software development and business process outsourcing. Without too much of a difficulty, they seem to be able enforce norms on working conditions and achieve levels of output that would have been the envy of the US steel barons of the early 20th century. So, it is difficult to accept the official reasoning that a new law has become necessary as the extant regulatory regime does not inspire confidence among potential foreign investors that the Indian environment is benign enough.

While the Chinese model has been without doubt a huge success — that country's export performance in the last decade and half is ample testimony to it — it is nevertheless a moot point if the same can be replicated in the Indian context. For one, the advantage of lower costs and a lax labour law regime has already been competed away with many other nations with similar cost endowments and a far greater determination to brook no militancy on the labour front than India could ever muster politically also taking this path. India is competing for the available investible foreign capital with many other countries. Further, the global investment in the creation of such infrastructure has far outstripped the current potential for world trade and, if anything, the momentum will only be sustained in the near future.

For all the brave talk by the World Trade Organisation and the proponents of trade liberalisation, in the short run at least, for developing countries it is more a case of attracting investments at the cost of others rather than partaking of a larger share of a growing investment pie. Topping it all is the fact that both at the national and regional levels the dominant administrative culture is oriented towards extracting what private profit there is in facilitating fresh investments than national welfare. The Bill would do nothing to address that problem.

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