Indirect Effects of SEZs

Among the effects of various policy changes in India, as elsewhere, is the indirect effect they have on interest groups who feel 'left behind'. So, for instance, tariff increases in one sector often lead to demands for similar reductions in allied sectors. Demands for 'parity' -- in rates of taxation, forms of regulation, levels of subsidy, or other public-sector decisions that affect competitiveness -- are a familiar feature of policymaking processes.

It should therefore be no surprise that this process can be found in the domain of SEZ policy as well. Indeed, in tallying up the impacts of the SEZ policy, one would need to examine the indirect policy effects as well as the direct economic effects. A classic example can be found in the discussions leading up to this year's Budget. Som Mittal, president of National Association of Software and Services Cos (NASSCOM), put it this way: “One of our demands is that STPI units get the same benefits as SEZ units ....'.

It is worth distinguishing two versions of the 'policy parity' demand. One version -- of the type represented by the NASSCOM statement -- is articulated in terms of the need to provide a level playing field for direct competitors. The idea here is to restore balanced conditions favourable to market operation. The other version of a parity demand is more overtly political in nature -- no organized demands made on public decision-makiers can be divorced completely from politics -- and involves a moral claim. So when sugar farmers in Maharashtra demand that their subsidies be increased in line with those 'enjoyed' by rice farmers in Andhra Pradesh, their claim is made on grounds of fairness, not in terms of adverse market impacts likely to be suffered as a result of rice subsidies. The two are not substitutable goods

Whether NASSCOM gets its way will have more to do with the political clout of its membership -- and the inclinations and calculations of those who make decisions -- than with the merits of their case. Either way, SEZ policy must be seen to have effects beyond the specific issues (or firms) falling within its purview.