Indian Parliament Considers Special Economic Zones

India is potentially a bigger economic deal than China. Before long, it will have a bigger population, and a significant portion of its population is competent in the global language of business -- English is an official language of India. But its economic growth since independence has been hampered by excessive regulation that was part and parcel of the anti-colonial movement. In their desire to keep foreign business from maintaining economic control after the Raj ended, the Indians shackled their own entrepreneurs with ridiculous red tape. Taking a page out of the Chinese book, the Indian parliament is now considering the creation of special economic zones [SEZ] where the onerous rules won't apply.

In all likelihood, the legislation will pass the Indian legislature. The cabinet has already approved with concept, and it is a matter of permitting enough debate to hush up the opposition. Since there will be special tax and bureaucratic arrangements for the SEZs, there will be a hue and cry, but it the focus will be on which region gets how much of a break rather than should it occur at all.

Unlike China, which concentrated its SEZs along its coast, India will spread its SEZs across the country. Politically, this is expedient as it gives every part of the country a dog in the fight. China, as a communist dictatorship in which the people don't matter, could ignore the wishes of the western, inland provinces. India cannot afford to give regionalism a weapon and expect to carry the day in parliament.

Not only will there be a 15-year tax holiday for activities that occur within an SEZ, but the business will have access to the SEZ's own airports, rail stations and port facilities. This will make sure the SEZs don't have the infrastructure problems that dog much of India. In addition, there will be a separate enforcement authority; in India's legal system, cases can drag on for years, even decades.

The SEZs will focus on exports, which the Indian government has identified as an under-exploited opportunity for Indian-based business. Units set up in an SEZ for "manufacture of goods or rendering of services" must be net foreign exchange earners. Offshore banking operations are permitted in India's SEZs. The full legislation is available on the SEZ website.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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