Can Pressure from State Governments Bring About Changes to SEZ Policy Norms?

Which forms and sources of pressure are most effective in bringing about changes to existing rules framed pursuant to the Government of India's SEZ Act 2005? This is a question of considerable significance, but not one to which the answer is by any means obvious.

One view is that drivers of policy reform come from within the central bureaucracy -- where turf battles and competing policy priorities between agencies, departments, and other actors combine to produce (or not produce, as the case may be) changes to existing rules. Such claims can be couched in terms of the need for consistency across policy domains, or in order to close enforcement vacuums. For instance, whereas there are rules on sales to the Domestic Tariff Area (DTA), stock tranfers to the DTA are not covered, apparently -- and this, according to some analyses, is the kind of issue that must be subject to constant review. Revenue department officials in the Finance Ministry are a classic source of demands for reviewing the financial implications of various SEZ rules, particularly those that concern the interpretation of tax concessions granted in the Act. Moreover, in some cases gaps in the legislation become evident only once particular scenarios manifest themselves. For instance, the call by the Goa government to denotify SEZs that had earlier been notified met with the response from the Commerce Ministry in Delhi that there was no provision for denotification -- a policy vacuum that surely deserves filling.

A second view is that industry complaints -- about the unworkability in practice of existing rules -- are the key source of effective revision. Here there is a distinction between those reforms that are pushed by a particular firm, and those that are advanced through the lobbying efforts of a sectoral association or even one of the apex business chambers, which of course tend to have their own histories, policy orientations, and indeed sectoral biases. There is also the Export Promotion Council for EOUs and SEZs (EPC-EOU/SEZ), a body constitute by the GoI to resolve issues arising in both types of export-promotion entity. All of these channels can combine to press issues of especially widespread concern, and there are clear cases where the EPC-EOU/SEZ has been successful. The matters arising are often of seemingly minor importance, and mainly of technical interest, but the effects can be significant in terms of bottom-line impacts and the clarity and predictability of the policy regime.

Finally, state governments represent an key channel of influence. State governments play a major promotional and implementation role in the SEZ policy. They are not only in the front lines of dealing with popular resistance to the SEZ policy, but also an important avenue through which firms and business associations can make their voices heard, making the distinction between this level of influence and that exerted by industry (above) difficult to dis entangle.

What is clear thus far is that some states have particular kinds of policy concerns. A recent example comes from Punjab, where the high price of land is (according to the state government) a major constraint on the ability of the state to live up to its implementation potential with respect to SEZs. Eighteen SEZ projects are curently in the works in Punjab, but only two have been notified by the GoI thus far. The Punjab government has highlighted the scarcity and price of land as a key constraint, arguing that the rules on minimum size should be amended so that the business feasibility of a given project -- not its bureaucratic categorization (whether for warehousing, or sector-specific activity, or a multiproduct SEZ) -- should determine how large an area is considered sufficient.

Politics matters in this kind of lobbying, of course. Whether the chief minister of Punjab's voice will carry much weight in Delhi, given the current party-political configuration is an interesting point. If joined by other state governments from regions where the Congress or its allies are in power, it may be that the volume of this particular appeal will be amplified. In this connection, it will be interesting to see whether Railway Minister Mamata Baneree's campaign demand that the SEZ rules be reviewed and revised (especially, not surprisingly, with respect to land-acquisition issues) are acted on now that the Trinamool Congress is part of the ruling coalition.