Date:30/09/2006 URL: http://www.thehindu.com/2006/09/30/stories/2006093007041700.htm

Business

SEZs only way forward for job growth, says CII

Special Correspondent

Focus on manufacturing and not services

CHENNAI: Special Economic Zones (SEZs) as conceived by the government will be a "powerful instrument'' to achieve rapid growth in manufacturing, employment and exports, according to the President of the Confederation of Indian Industry (CII), R. Seshasayee.

The SEZs offer "the only way forward'' in bridging the gap between India and South-East Asia, including China, in terms of manufacturing and employment, Mr. Seshasayee said in the first pronouncement of the CII on the controversy surrounding SEZs.

Talking to journalists from The Hindu group of publications here on Friday, the CII President said India's economic growth so far was fuelled by services and domestic demand. However, manufacturing had been hampered by the burdens of "embedded taxation, lack of infrastructure and enormous procedural issues,'' all of which added to costs and thus rendered industries uncompetitive. To the extent that the concept of SEZs was intended to address these three issues "bang on,'' it was most relevant, he said.

On issues that had been raised in the context of the SEZs, Mr. Seshasayee said land should be acquired at "close to market rates,'' and also landowners should be given a share, say of ten to 15 per cent, in the post-facto appreciation of land values in the future. "When there is no development, land is of little value. Promise of development augments land value and when development does happen, the value escalates further,'' he said.

Emphasising that the focus of SEZs should be on manufacturing and not on services, he said the fiscal incentives given to units operating in the zones were mainly intended to encourage developers to undertake risks arising from the long gestation period of investment by alluring manufacturers to the zones until they reached a critical mass. Incentives for developers and industrial units were a necessary "initial distortion'' since "with zero distortion there will be no mobility.'' The gap in the fiscal incentives applicable to manufacturers inside and outside SEZs "should not be more than reasonable.''

The CII's vision of the SEZ programme was the creation of five hundred industrial townships and large zones (and not small clusters) with adequate infrastructure. While recognising the risk of abuse of incentives for developing the zones, Mr. Seshasayee said the banks and State governments should exercise vigilance over individual zones to see whether they represented a "land grab game'' or the "infrastructure game.'' It was for the States to decide where to locate the zones, which, ideally, should not be too close to urban centres and at the same time not in the deep agricultural regions, he added.