With deadlines in prospect for time-bound development rights for SEZs in many states, promoters are having to seek extensions. This is the case in two high profile SEZs : Quark City in Punjab (the state's only IT SEZ), and the (Mukesh) Ambani Reliance Haryana SEZ (a 90:10 joint venture betweeen Ambani and the state government). In both cases, the reasons cited for the delay in completing the planned developments is the global financial-crisis-cum-recession.
It is clear, however, that in both cases, other factors have been at work. The Reliance-Haryana project has been beset with problems from the outset, including slow acquisition of land, the changing size-ceiling norms under the SEZ Act's amended rules, frictions with the state government, and charges of corruption (leveled by Bhajan Lal's son, no less).
The Quark City project in neighbouring Punjab is also facing delays arising from a broadly similar set of constraints, though the size issue is of a different magnitude (it is much smaller). The fact that Quark's promoters also have two other SEZs under development in the state may influence the decision on their request for more time.
There are other cases elsewhere in India where extensions will be needed/requested. A key issue will be the attitude of the state governments concerned (thought the official decision on whether to grant an extension rests with the BoA in Delhi). It will be revealing, perhaps, to see how inclined state governments are to accommodate the various promoters -- particularly in states where elections have seen a new party or coalition come to power.
Wednesday, August 5, 2009
Tuesday, August 4, 2009
SEZs and Labour Laws
A short article on the position of existing labour law within India's SEZs (and the larger SEZ policy regime) highlights the ambiguities involved. The author, Jaivir Singh, calls into question claims made in the 2006/07 and 2007/08 Economic Surveys concerning the allegedly negative impact on employment produced by India's existing labour laws and regulations.
Singh makes the point that businesses have found all kinds of ways of avoiding labour laws -- including contracting out, casualization, and collusion with labour inspectors, among other techniques. This is consistent with arguments concerning the politics of liberalization which stress that India has witnessed over the past two decades a process of policy change that can best be described as 'reform by stealth'. The ability to evade labour regulations effectively, Singh points out, has been 'assisted to various degrees by ongoing executive and judicial practice'.
Singh's larger point is that SEZs take this logic a step further by blurring the formal-informal distinction in practice:
'Given the overall desire of the SEZ endeavour to push for labour-intensive export oriented consumer goods, the entire enterprise is probably best understood as being located at the border between the formal and informal sectors, drawing the labour force from the informal/agricultural sector. At this location, the very act of employment generates a dilemma because the instant a worker is drawn from the informal/agricultural sector and ‘employed’, she becomes eligible for all the benefits provided by law to formal sector workers. If this were indeed to be allowed, it would raise perceived labour costs which would presumably dampen national and international investment. If disallowed explicitly, the political rhetoric associated with the SEZ enterprise would end up being more widely challenged. Given the frontier location of the labour involved, the solution to this dilemma has been to nudge the practice of law in a manner which minimises the coverage of labour law without actually changing the law—a relatively smoothly accomplished step, given the nature of Indian labour law as well as the structure of the enabling law associated with SEZs.
Singh makes the point that businesses have found all kinds of ways of avoiding labour laws -- including contracting out, casualization, and collusion with labour inspectors, among other techniques. This is consistent with arguments concerning the politics of liberalization which stress that India has witnessed over the past two decades a process of policy change that can best be described as 'reform by stealth'. The ability to evade labour regulations effectively, Singh points out, has been 'assisted to various degrees by ongoing executive and judicial practice'.
Singh's larger point is that SEZs take this logic a step further by blurring the formal-informal distinction in practice:
'Given the overall desire of the SEZ endeavour to push for labour-intensive export oriented consumer goods, the entire enterprise is probably best understood as being located at the border between the formal and informal sectors, drawing the labour force from the informal/agricultural sector. At this location, the very act of employment generates a dilemma because the instant a worker is drawn from the informal/agricultural sector and ‘employed’, she becomes eligible for all the benefits provided by law to formal sector workers. If this were indeed to be allowed, it would raise perceived labour costs which would presumably dampen national and international investment. If disallowed explicitly, the political rhetoric associated with the SEZ enterprise would end up being more widely challenged. Given the frontier location of the labour involved, the solution to this dilemma has been to nudge the practice of law in a manner which minimises the coverage of labour law without actually changing the law—a relatively smoothly accomplished step, given the nature of Indian labour law as well as the structure of the enabling law associated with SEZs.
'Though the Special Economic Zones Act, 2005 overrides certain other laws (particularly granting fiscal benefits to firms located in a SEZ), the Act maintains that in relation to labour, standard labour laws are to continue to operate in the SEZs. While there is no change in the laws, under this regime the implementation of labour law is shifted from the control of the Labour Commissioner to the Development Commissioner of the SEZ, a figure who is given substantial power over all aspects of governance of the SEZ. Furthermore, the ability of workers to organise strikes is curtailed by undertaking a general policy measure that labels economic activity within a SEZ as a ‘public utility service’, which under Indian law makes strikes in units labelled as such entirely illegal. All these factors taken together result in the fact that while the ‘speak’ says that labour laws are supposed to be operational in a SEZ, they are almost entirely absent in practice.'
Singh goes on to discuss a variety of studies of labour practicies within SEZs. The literature on India's SEZs is thin, largely because the SEZ Act is so new, having been passed only in 2005. Still, some of the pre-2005 Export Processing Zones (which had been converted to SEZs following a change to the Export-Import policy of 2002) have been around long enough to have attracted the scrutiny of scholars.
Singh cites, in particular, Padmini Swaminathan (2005) “The Trauma of ‘Wage Employment’ and the ‘Burden of Work’ for Women in India” in Kalpana Kannabiran (ed.) The Violence of Normal Times: Essays on Women’s Lived Realities, New Delhi, Women Unlimited). In terms of the net impact on women's well-being, the study paints a mixed picture. But in terms of the application of labour laws to SEZs, the sense is that enforcement mechanisms are even weaker than in the formal economy as a whole, though (in a de facto sense) clearly have more of an impact than the non-existent regime affecting the informal sector. All of this refers to the pre-2005 SEZ Act dispensation, which may be a different animal altogether.
Monday, August 3, 2009
Can Bangladesh Competition Increase Pressure on India's States to Provide More Sops to SEZ Promoters
It has long been recognized that competition between India's states for inward investment (from Indian or foreign capital) plays a significant role in driving state governments to improve their business climates. But of course the original version of this dynamic was international in nature, with national governments seeking to outdo one another with better tax concessions and less onerous regulatory regimes (as well as greater political stability, lower labor costs, more secure property rights, and whatever other factors might motivate investors).
A combination of these two levels of inter-jurisdictional competition -- between countries, and between regions within countries -- appears to be on the rise in South Asia at the moment. Not only has the SEZ policy of Sri Lanka been something of interest to investors (and state governments in India eager to attract them), now Bangladesh has upped the ante. Prime Minister Sheikh Hasina Wajed came out recently with a directly competitive statement, claiming that SEZ promoters who may have wanted to set up shop in India should consider coming across the border to Bangladesh.
Interestingly, it is the SEZ-related political problems encountered by the neighbouring state of West Bengal -- primarily, but not exclusively, stemming from the Nandigram SEZ -- which has animated the Prime Minister's statement. That Bangladesh provides a more conducive and stable policy environment in which to do business is surely a slap in the face of the West Bengal authorities, as well as an indirect slight (palliative words by the PM notwithstanding) to India's Railways Minister, Mamata Banerjee, who spearheaded the anti-Nandigram resistance.
A combination of these two levels of inter-jurisdictional competition -- between countries, and between regions within countries -- appears to be on the rise in South Asia at the moment. Not only has the SEZ policy of Sri Lanka been something of interest to investors (and state governments in India eager to attract them), now Bangladesh has upped the ante. Prime Minister Sheikh Hasina Wajed came out recently with a directly competitive statement, claiming that SEZ promoters who may have wanted to set up shop in India should consider coming across the border to Bangladesh.
Interestingly, it is the SEZ-related political problems encountered by the neighbouring state of West Bengal -- primarily, but not exclusively, stemming from the Nandigram SEZ -- which has animated the Prime Minister's statement. That Bangladesh provides a more conducive and stable policy environment in which to do business is surely a slap in the face of the West Bengal authorities, as well as an indirect slight (palliative words by the PM notwithstanding) to India's Railways Minister, Mamata Banerjee, who spearheaded the anti-Nandigram resistance.
SEZs and Demonstration Effecs, Economic and Political
India's adoption of the SEZ model of promoting infrastructure/investment/development has in the past been justified in terms of its likely demonstration effect. Once it becomes apparent how dynamic firms within these zones are, it is sometimes argued, greater impetus will emerge to adopt similar policies (fast-tracking investment, reducing regulation, streamlining bureaucratic procedures) for the country as a whole.
It is increasingly clear, however, that this logic can cut both ways, particularly when the political dimensions of SEZs are taken into account. First there was the argument, voiced at the time the SEZ policy was first being introduced, claiming that the narrow applicability of these policies (limited only to 'special zones') is an admission that the architects of the SEZ policy were well aware that the country at large was not politically ready for such far-reaching policy change.
Second, the resistance movement that have sprung up during the implementation of the SEZ policy -- particularly with respect to land acquisition -- have led to speculation that the SEZ approach may spur a negative demonstration effect, politically speaking. That is, the SEZ experience has highlighted the high political costs of pushing through these policy measures, even in the geographically circumscribed form they have taken thus far. This can put governing elites off the idea of more radical economic reforms for the economy writ large.
A newer position has been staked out by market-friendly commentators, including two Harvard Business School professors, writing in the Christian Science Monitor. They argue that the political controversies that have arisen in implementing the SEZ policy shows that, in fact, a MORE radical approach to policy reform is needed -- one note confined to special zones. Briefly recapping the opposition to SEZs in a number of regions, they ask: 'Considering how thorny the issue has become...Does India really need them?' Their answer is that 'The best policy for the government may be to provide the benefits of SEZs – low tariffs, reasonable taxes, good infrastructure, little red tape – to all firms in all parts of the country.' The authors do not spell out how opposition to such policies, if pursued nationally, could be overcome.
It is nevertheless intriguing to see friends of liberalization taking the position that SEZs may not be worth the political costs they inevitably impose.
It is increasingly clear, however, that this logic can cut both ways, particularly when the political dimensions of SEZs are taken into account. First there was the argument, voiced at the time the SEZ policy was first being introduced, claiming that the narrow applicability of these policies (limited only to 'special zones') is an admission that the architects of the SEZ policy were well aware that the country at large was not politically ready for such far-reaching policy change.
Second, the resistance movement that have sprung up during the implementation of the SEZ policy -- particularly with respect to land acquisition -- have led to speculation that the SEZ approach may spur a negative demonstration effect, politically speaking. That is, the SEZ experience has highlighted the high political costs of pushing through these policy measures, even in the geographically circumscribed form they have taken thus far. This can put governing elites off the idea of more radical economic reforms for the economy writ large.
A newer position has been staked out by market-friendly commentators, including two Harvard Business School professors, writing in the Christian Science Monitor. They argue that the political controversies that have arisen in implementing the SEZ policy shows that, in fact, a MORE radical approach to policy reform is needed -- one note confined to special zones. Briefly recapping the opposition to SEZs in a number of regions, they ask: 'Considering how thorny the issue has become...Does India really need them?' Their answer is that 'The best policy for the government may be to provide the benefits of SEZs – low tariffs, reasonable taxes, good infrastructure, little red tape – to all firms in all parts of the country.' The authors do not spell out how opposition to such policies, if pursued nationally, could be overcome.
It is nevertheless intriguing to see friends of liberalization taking the position that SEZs may not be worth the political costs they inevitably impose.
Wednesday, July 15, 2009
Punjab Passes New SEZ Bill (2009)
15 July 2009
With the SAD-BJP government clearing the much-awaited Punjab Special Economic Zones Bill, 2009, on Saturday, the decks have been cleared for developers to give a major boost to the development of the SEZ’s in the state.
As per the norms laid down in the policy, the requirement of areas for setting up SEZs in case of a multi product SEZ is 1,000 hectare, product-specific 100 hectare, IT-specific 10 hectare and warehousing 40 hectare. Speaking about the policy, state industries & commerce minister Manoranjan Kalia said due to paucity of land and high cost in the state, the government has asked the Centre for relaxation in the aforementioned norms and has also sought permission for development of SEZs as per viability of the project, to be determined by the developer.
Although the new industrial policy is yet to get the Cabinet’s approval, Punjab has now become the 6th state in the country after Haryana, Gujarat,West Bengal, Maharashtra and Madhya Pradesh to enact the SEZ Act.
The Punjab Act is little different from the SEZ Acts in other states, as it provides exemption from payment of any tax, duty, fee, cess or any other levy, whereas the Acts of Gujarat and Maharashtra specify exemption from sales tax, VAT, motor spirit tax, luxury tax, entertainment tax, purchase tax and other state taxes. These exemptions under Punjab Act will be on export or import of goods in SEZ, inter-unit transaction in SEZ, movement of goods in SEZ for value addition and on any service to SEZ developer or unit. All SEZ units will also be given public utility status. Moreover, the Punjab Act will provide exemption from stamp duty, registration fee and social security cess on purchase of land for SEZ and on first transfer or lease of immovable property within SEZ for industrial, commercial or residential purposes. The allocation and transfer of land within the SEZ can be done only by way of sale or lease as per the Punjab Act.
While referring to the over all SEZ scenario, Mr Kalia told ET that the Centre has given formal approvals to 578 projects in the country, out of which seven are from Punjab. Among the 322 notified SEZs, two are in Mohali — QuarkCity India for IT industry and Ranbaxy Laboratories SEZ in the pharma sector.
The total investment envisaged in the SEZs projects on all India basis comes to Rs 1,08,903 crore while the 18 projects to come up in Punjab would entail an investment of Rs 10,182 crore. “QuarkCity would cover an area of 13.75 hectare with a proposed investment of Rs 500 crore and give employment to some 27,500 people, whereas the Ranbaxy Labs SEZ would cover 32 hectare with an investment of Rs 265 crore,” said Mr Kalia.
In order to make the clearance of projects more convenient and hassle free, the state government has made a single-tier approval system instead of two-tier process. A project approval committee headed by the chief secretary, along with administrative secretaries concerned will look after all the SEZ proposals in Punjab. The committee will give in-principle approval, if land is not in possession of the developer and will grant final approval after land possession. After approval by the committee, the proposal will be sent to the Centre. The SEZ Act also provides permission for generation of electricity in or outside SEZ for consumption of units in SEZ, whereas in other states, generation of electricity is allowed only within SEZ. There will be no electricity duty on generation, transmission, distribution and consumption of electricity within SEZ. The state government will also notify the SEZ after approval by the Centre. The SEZ developer will prepare the development plan of SEZ in accordance with the development plan or master plan of the area, where SEZ is to be located.
Mr Kalia further said that the Act enables the SEZ developer to demarcate the sites for industrial, commercial, residential and other purposes in SEZ and also let them free to fix the rates for transfer of land/building within the SEZ to the units. The Act allows the developer to maintain the SEZ and also empowers them to levy charges for maintenance. However, the developer will have to pay the charges to local authority in case its services are utilised. SS Channy, industries & commerce secretary, said that with the implementation of Punjab SEZ Act, the road is clear for proposed 18 SEZs to set up their ventures in the state. This will give boost to rapid industrialisation and will also attract more SEZs in Punjab. He pointed out that Punjab Industrial Facilitation Act, 2005, providing single-window clearance in a time bound manner with the provision of deemed clearance if approval is not granted in the notified time schedule, will also be applicable in the SEZs.
Large SEZs unviable
The Punjab government’s decision to not acquire land for SEZs has sealed the fate of multi-product SEZs in the state which require at least 1,000 hectares, reports Parshant Krar from Chandigarh. The mega size multi product SEZs would remain elusive in Punjab due to the lack of compulsory acquisition of land even though the state government has offered unmatchable list of concessions in the SEZ Act. The policy and high cost of land have affected the land acquisition for proposed product-specific SEZs that are allowed only on 100 hectares. The multi product SEZs mooted by DLF Universals at Amritsar and Ludhiana were stalled by company after the Amarinder Singh government decided against acquiring 1,218 acres of land for the SEZ in Amritsar due to stiff competition by farmers. Ruffled by the hurdles, DLF Universals dropped the plans in Amristar even though the company is believed to be still interested in setting up SEZ in Ludhiana. “There isn’t much land available in Punjab and the land requirement under the SEZ policy is not viable in Punjab,” industries and commerce minister Manoranjan Kalia said while detailing features of the newly formed Act. “Under the Act, the state government has no role to play in acquisition of land for SEZ projects,” the minister said.
Courtesy:- ET dt:- 13-07-09
Tuesday, July 14, 2009
Stalin Proposes Solution for Nationality Question
No, not that Stalin -- M.K. Stalin, Deputy Chief Minister of Tamil Nadu and likely successor to the current Chief Minister, Mr Karunanidhi. And the 'Nationality Question' in this case is not what to do with the Ukranians and others, but how to accommodate the specialized infrastructure and other needs of investors from a range of nations. The idea is to build country-specific SEZs for firms from particular nationalities.
Orders have been issued for the development of country-specific industrial parks for Japan, Korea, Finland, Germany and France. Each industrial park will be spread over 100 acres and will be developed by the State Industries Promotion Corp of Tamil Nadu (Sipcot)
This would allow the SEZs to cater to not only the sectoral focus of each country's investors, but also, presumably the requirements for social amenities (schools, shops, etc) tailored to each country's cultural background.
Whether such an approach will be perceived as parcelling out Indian territory to foreign entities, or whether it will meet with less resistance (because the new policy approach is also combined with an effort to ensure that the new SEZs are spread more widely across the state), remains to be seen.
Orders have been issued for the development of country-specific industrial parks for Japan, Korea, Finland, Germany and France. Each industrial park will be spread over 100 acres and will be developed by the State Industries Promotion Corp of Tamil Nadu (Sipcot)
This would allow the SEZs to cater to not only the sectoral focus of each country's investors, but also, presumably the requirements for social amenities (schools, shops, etc) tailored to each country's cultural background.
Whether such an approach will be perceived as parcelling out Indian territory to foreign entities, or whether it will meet with less resistance (because the new policy approach is also combined with an effort to ensure that the new SEZs are spread more widely across the state), remains to be seen.
Monday, July 13, 2009
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.
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.
Subscribe to:
Posts (Atom)