Are Special Economic Zones (SEZ) Contributing to Rural Poverty Reduction?
SEZs are being set up under different institutional structures – fully public, fully private or a combination. However, the most common arrangement is a public-private partnership, with government offering off-site infrastructure, fiscal incentives in the form of tax and import duty exemptions, soft loans and equity investment. Operators of SEZs include both domestic and foreign companies like Mahindra, Reliance Industries, Nokia and Motorola. Within each zone, a number of companies set up their operations in industries such as information technology, pharmaceuticals, biotechnology and textiles.
The main advantage for companies operating within an SEZ is that its operator is responsible for ensuring adequate modern infrastructure for efficient industrial activity. With fiscal incentives from the government, these companies are able to reduce their costs, both in initial investment and on-going operating costs. Companies are able to obtain sufficient land at attractive prices to set up their factories outside major metropolitan cities. Cheap labor is also readily available from nearby villages.
All these sound like a win-win situation for all parties. There is no doubt that these zones attract companies that would otherwise have set up their new operations elsewhere without the benefit of good infrastructure. It is also likely that fiscal incentives might induce larger investment. The argument in favor of offering such incentives is that the incremental investment and ensuing business activity generate benefits to the economy in excess of its costs.
The trouble lies in how the benefits from SEZs get distributed. Sure, companies stand to benefit the most from efficient infrastructure and lower taxes; incremental employment is created from greater investment and business activity. But it is not clear as to whether SEZs generate the kind of jobs that would benefit the rural population.
For example, it is reported that Infosys, a major IT company, has recently purchased 200 acres of rural land outside the city of
Poor people who comprise over 80 percent of the rural population hardly own any land beyond what is occupied by their huts/houses. Few landlords and urban investors own most of the available land that are not state property. They are the ones who are benefiting from the land purchase by SEZ operators. Even these landowners complain that they are forced to sell their land by government officials at far lower prices than what prevail in nearby cities. While arguments and protests go on, the rural poor look on hoping that their lives might somehow improve.
The impact of switching some of the rural activity into industrial production is not clear. Some economists make the point that the agricultural sector will suffer and rural lifestyle will change. May be
At the very least, we should expect that companies operating within SEZs do not exploit the rural population. In the name of cutting down on bureaucracy, SEZs are given considerable free hand. Hopefully these companies will employee rural workers at fair wages, and offer proper health and pension benefits. Worker safety is another major consideration, especially since the industrial environment is new to those who have previously been working in the agricultural fields. Environmental controls to prevent water and air pollution and soil contamination must be strictly implemented.
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