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Have SEZs Helped India to attract Foreign Investments?

By: property vertical, Wed Sep 20th, 2006 02:19:12 PM

Foreign direct investment continues to play an important role. India has the opportunity to become a manufacturing hub for textiles, automobiles, steel, metals, petroleum products etc. for the world market. In 2005, FDI was estimated at $ 4 billion, without counting reinvested earnings and other capital. The ministry of commerce estimates an investment of Rs 1 trillion in these SEZs in the next few years and employment generation of 5, 00,000. The Government of India (GoI) first launched the concept of SEZ in the Exim Policy 2000 to boost the country’s exports and attract FDI. International experience shows that SEZs are pockets of manufacturing excellence which apart from driving export growth and attracting FDI are also contributing tremendously to generation of employment and thereby contributing significantly to the economic growth of the country. Since the inception of the SEZ policy in India, 14 SEZs are in operation and more than 140 SEZs have been approved. The SEZ policy framework also comprises an attractive package of incentives, including several fiscal concessions for the developers of the SEZ and the units to be set up in these SEZs. The SEZ Act has been passed and the SEZ rules and regulations have been put in place. Second, international experience shows that private sector has limited experience in development of these zones. So, it probably makes more sense to develop these SEZ projects under the public-private partnership format where the state governments concerned jointly market the zone along with the private developer. This would increase the “comfort level” of the locating industries. Though the Government has hiked the sectoral cap for FDI over the years, it is time to revisit issues pertaining to limits in such sectors as coal mining, insurance, real estate, and retail trade, apart from the small-scale sector. Government should gradually put more sectors under automatic route for FDI. Bringing more sectors under the automatic route, increasing the FDI cap and simplifying procedural delays need to be addressed with more vigour. Various sops are provided to foreign investors setting up export oriented units (EOUs), Special Economic Zones (SEZs), or industrial and electronics hardware parks. SEZs in India have increased their performance in recent years. However, there is an urgent need to improve these SEZs in terms of their size, road and port connectivity, assured power supply, flexible labour laws and decentralized decision-making. India’s advantage lies in its strong economic growth prospects, availability of large and skilled workforce, comparative advantage in several industries, a strong policy framework, availability of supporting ancillary industries, strong growth in the external sector and a huge domestic market. These factors, combined with a proactive role from the government in marketing the SEZs, will go a long way in providing the much-needed momentum in development of SEZs and in attaining the overarching objective of boosting India’s exports and attracting export related foreign direct investment (FDI) .

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