Skip to main content

Are Special Economic Zones (SEZ) Contributing to Rural Poverty Reduction?

There is plenty of talk about Special Economic Zones (SEZ) bringing about an industrial revolution in India. Introduced in the year 2005, SEZs are intended to generate new economic activity that lead to greater investment, exports and employment. Currently, India has over 800 industrial units operating in 10 or so functional SEZs, each on 50-300 acres of land. So far, investments in excess of $10 billion have been made in these zones, and new employment generated has been around 100,000 persons. Official projections call for total investments in excess of $75 billion and new employment of over 1.8 million persons by the end of 2009.

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 Hosur, Tamil Nadu. Many land owners were only happy to sell their land at prices far above prevailing levels, turning them into very wealthy individuals in short order. Some of the land is fertile and the remaining barren, and those who were previously employed in agriculture now expect to be employed as industrial labor. It is unlikely that a technology firm can expect any new employee from the nearby villages for its well-paying jobs as computer programmers and specialists. Those jobs will be filled by those coming from the cities.

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 India will be better off exporting industrial goods and services and importing agricultural products!

Rural India offers opportunities for many industries in food processing, herbal products, alternate fuels, cement and tile, lumber and pulp, meat, dairy and poultry. Investments in these can create large numbers of sustainable jobs. Unfortunately, SEZs seem to attract mostly high technology companies that cannot offer well-paying jobs to the rural population. For the foreseeable future, the rural population will not have the educational background to be trained for those jobs.

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.

Countries like China and Brazil have established major industrial centers around their SEZs. While those centers have raised the level of employment and income for many people, the rural population is still not sufficiently benefited. Lack of adequate environmental controls has made many areas unfit for human habitation. We can only hope that India will not follow the example of those countries. Economic activity that assures adequate and fair participation of the rural sector and with concern for the environment is what will reduce poverty in India.



Please visit us at www.tgfworld.org or www.indiauntouched.com

Comments

Bhamy V. Shenoy said…
I agree with your conclusions. SEZ is not an efficient tool to promote India's development or to help the poor of India. We all believe that to promote industry and private enterprise we need better governance and less corruption oriented regulation. Instead of implementing these two conditions all over India, in the name of improving investment opportunities in some select areas SEZs are created using the successful Chinese model. But India is not China which all of us know. We need our own development model and SEZ is not good for India. As it is we have islands of prosperity surrounded by oceans of poverty which we should try to correct. Instead we are taking just the opposite strategy.

Popular posts from this blog

Simple Solutions to the Rural Education Crisis

It seems many people are trying to find innovative solutions to improving the quality of education in rural areas, especially among the poor. Since most rural children study at government-run schools, the focus of any effort to improve quality and performance must be on those institutions. Without waiting for the state government to act, NGOs can directly interact with the administrators of those schools, especially the headmasters, and village leaders to implement measures that can yield positive results. That is precisely what The George Foundation has been doing since 2004 in the 17 villages surrounding its own school, Shanti Bhavan.

Three years ago our foundation initiated a community development plan that included working with government-run schools in our area. Deverapalli Government School was the first one we took on, and within two years of starting the program, it was judged as the “best” in the district by the educational authorities. Based on this project and our Shanti Bha…

A Second Front

It has been quite a while since I wrote my last blog. For some reason, I had concluded that there wasn’t enough readership interest in my personal notes and critiques of the country’s system. But recently, a friend of mine who stumbled upon my earlier blogs urged me to continue. Moreover, I had promised in my last blog to write about my experiences as an artillery officer along India’s western border with Pakistan, but I hadn’t kept my word. So finally I made up my mind to venture into writing blogs once again. My medical leave following the dynamite explosion in which I was injured while at Se La Pass was to last six weeks. I had returned home to Trivandrum sufficiently frost bitten to have my large ear lobes and nose turn dark, and skin pealing like a snake’s scales. It was a central topic in several hilarious conversations with guests when they visited our home, and I had a lot of stories to tell about my adventures in the snow-covered mountains of the Himalayas. Everyone wanted to …

Rape, Incest and Other Contradictions

The recent Delhi rape incident has elevated national attention about nonconsensual sex and violence.There is no doubt that most reasonable people disapprove sexual violence against women. Yet, the picture about what constitutes rape is not clear in India. The subject is further complicated without any legal guidance on incest.
For the starter, let me briefly describe the laws in India. Marriage for girls is permitted after 18 (except Muslim girls who may marry at 15) and 21 for boys.  But many underage marriages take place, and the government does not intervene. Sex with a “minor wife” below the age of 15 is punishable. But no one bothers if a man marries a girl below 15 as long as the couple does not disclose that they had sex with each other.
There is no law in India concerning incest, often described as having sex between a parent and a child, or between siblings. If one is to believe ancient Indian writings, incest was not very uncommon. Today in India, sex with a close relative gir…