Event ReportsPublished on Jul 23, 2007
Observer Research Foundation and ORF Chennai-based business magazine Industrial Economist organised a one-day seminar on 23 July 2007 titled SEZs - Prospects & Challenges.
SEZs will create 4 million jobs

Observer Research Foundation and ORF Chennai-based business magazine Industrial Economist organised a one-day seminar on 23 July 2007 titled SEZs – Prospects & Challenges.

Twenty specialists, including policy makers and administrators, developers and operators, and consultants, over five sessions, focused and deliberated on policy and implementation, land acquisition and resettlement and the ICT sector’s prominence when discussing about Special Economic Zones.

Delivering the inaugural address, Gopal Krishna Pillai, Commerce Secretary, Government of India, said that SEZs will account for an investment of Rs300,000 crore by end of 2009 and create 3-4 million jobs. “Currently SEZs employ more than 35,000 people and have attracted investments of over Rs43,123 crore,” he said.

The top most priority of SEZs will be to create jobs, the Commerce Secretary said, and pointed out that this objective is being fulfilled. SEZs are also fairly well-distributed across the country, with exceptions being Bihar and states in the north-east.

Speaking about the contentious issue of land acquisition for SEZ development, Pillai said that land acquired for the 362 SEZs which have been granted formal approval has been by consent and not compulsion. He also added that tax losses are notional. “There is a loss of Rs48,000 crore in tax revenues projected; against this there is an economic gain of Rs50,000 crore from the economic activity generated,” Pillai reasoned.

Former economic adviser to the prime minister and advisor to ORF, Dr S Narayan said that while promoting the concept of SEZs, we might well be creating wealth for some by making others poorer. “Since most of the land was purchased by state governments prior to the real estate boom, governments are in a happy position whereas the benefit of this additional valuation has failed to reach the original land owner who may be worse off after the sale,” Narayan pointed out.

Tamil Nadu Industries Secretary Shaktikanta Das said that the state government views SEZs as an excellent means of employment generation. “SEZs have attracted investments into the state in automobile, and auto component sectors, IT, electronic hardware… of Rs.11,000 crore generating employment for 110,000,” Das added.

Indian businesses suffer due to high transaction costs and efficient SEZs would help reduce these, said S Ramasundaram, chairman and managing director, Tamil Nadu Industrial Development Corporation. “The Chinese went in for SEZs because they understood the need for accelerated growth and created enclaves similar to Singapore and Hong Kong,” he explained.

Special Secretary, Industries, Government of Tamil Nadu, K Rajaraman dealt with implementation issues pertaining to SEZs that included provision of infrastructure, human resources and CSR. “Provision of world class infrastructure by the developer would have to be sustained with responsibility for its maintenance; the government needs to provide external infrastructure like connectivity, water supply and power,” Rajaraman added.

Referring to the importance of the manufacturing sector, Vivek Mehra, Director, PriceWaterhouse Coopers said that nearly 71 million people are expected to enter the workforce in the next five years, two-thirds of which will be from rural areas. “The manufacturing sector has to carry the major burden of increasing employment opportunities,” said Mehra. The concerns voiced by Mehra included those related to connectivity, shortage of trained human resources besides contiguity/ vacancy.

Describing SEZs as an engine for growth, K V Madhan, associate director of Ernst & Young, said that export growth from SEZs is expected to surge from Rs22,839 crore last year to Rs.67,299 crore in 2007-08. “SEZs in India occupy a miniscule 0.065 per cent of land area. Can this be called land grabbing,” he asked, dismissing suggestions that SEZs were being promoted at the cost of agriculture.

One highlight of the seminar was its session on Land Acquisition and Resettlement – which saw the presentation of four case studies.

R P Mahajan, Vice President of Land Acquisition for Tata Realty and Infrastructure, listed some of the common misconceptions associated with SEZs as including creation of private empires, misuse of the Land Acquisition Act for the benefit of developers and acquisition of agricultural land for SEZs. “The controversy gained proportions as a result of public protest, manipulation by political parties and media frenzy,” Mahajan pointed out, adding that awareness on SEZs pros and cons must be created  to avoid such misconceptions.

Narrating Gujarat’s success story, R J Shah, Principal Chief Industrial Advisor, Government of Gujarat, said that the state contributed to 17.2 percent of the investments, 15.6 percent of production, 13.7 percent of value addition and 14.2 percent of exports of the industrial sector in India. “Only 1.2 per cent of land (267 acres total) for all notified SEZs in Gujarat needed government mandated acquisition,” he added.

Sanjay Punkhia, CEO of Reliance SEZ ORF Mumbai, made for the first time a comprehensive presentation on plans for changing the infrastructure face of ORF Mumbai. “The economic hub of ORF Mumbai is positioned to contribute rather than consume the existing infrastructure,” he said. “The new economic hub will host the Navi ORF Mumbai SEZ, ORF Mumbai SEZ, Rewas Port, ORF Mumbai Trans Harbour Link, and the Navi ORF Mumbai Airport, involving Rs.35,000 crore of investment and attract a further minimum investment of Rs350,000 over a decade,” Punkhia said, revealing the grand plans of Reliance.

Neeta Ramnath, vice president of Feedback Ventures, provided a different twist on rehabilitation and resettlement. “While the conventional approach is individual-focused and land acquisition centric, the alternative approach is community-led and development-centric,” she stressed.

In the session on SEZs and the ICT sector, S Mahalingam, Chief Financial Officer of TCS said that the IT industry has delivered what it set out to do and has continuously increased its market overseas. “Currently the sector exports to the tune of $31 billion per annum,” said Mahalingam. He added that TCS currently employs 90,000 people and is looking to become a $10 billion company by 2010.

Dr C Chandramouli, Secretary, Information Technology, Government of Tamil Nadu, described the TN SEZ Act encouraging establishment of new SEZs by private-public partnerships. “TN has the largest number of operational SEZs in India and IT SEZs getting 100 percent booking even before completion of construction,” Chandramouli pointed out.

“Land acquisition takes place at the market rate and farmers are given a stake in the SEZs, as a result, there is creation of more jobs in semi-urban areas coupled with enhanced quality of life,” said M Murali, Managing Director, of Shriram Properties, in the process of setting up SEZs in Bangalore, ORF Chennai, Coimbatore, and Kolkata.  Murali sought the speedy implementation of the single window system.

K R Girish, partner of BSR & Co, a member firm of KPMG, said that SEZs have become the only route for software exporters to claim tax benefits. “As a result, tax cost could outweigh the location advantage and this in turn could result in outsourcing work to alternative locations such as countries in Eastern Europe, Philippines… This is bound to have a severe impact on production and employment in India,” Girish cautioned, referring to some of the tax anomalies from the point of view of the developer and the SEZ unit.

SEZs are going through a consolidation phase, with more issues debugged said K V Rangaswami, Whole Time Director and President (constructions), L&T-ECC. “With the philosophy of export-led growth gaining popularity, SEZs are here to stay,” he added.

Presenting a humorous yet passionate presentation on a “dream,” Arun Nanda, Executive Director of Mahindra & Mahindra, spoke about his experience in setting up the Mahindra World City in ORF Chennai and lessons learned. “Tax breaks in SEZs should not create an unhealthy shift of industries from non-tax break areas,” he warned.

SEZs should be compatible with the local ecological factors said Nanda and added that Mahindra World City—expected to provide employment for 85,000 people by 2010—is giving priority to eco-friendly manufacturing units. He also added “the rehabilitation process should not embark upon a one-size-fits-all approach. What’s suitable for Rajasthan, may not work for West Bengal.”

The seminar, attended by nearly 200 people, ended on a positive note on SEZs: they are definitely here to stay. Investment of the order of Rs.100,000 crore including FDI of $5-6 billion is expected by end of December 2007, during which 500,000 direct jobs are expected to be created.  The benefits derived from the multiplier effect of the investment, additional economic activity in the SEZs and employment generated thus will far outweigh the tax exemptions and the losses on account of land acquisition.

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