Special Economic Zones (SEZs) have a great potential for economic growth, however, they have achieved limited success in India. Mention the factors responsible and also suggest some steps to address the problem.

Special Economic Zones are industrial clusters, based on the cluster-based development model of China. They were set up under SEZ act of 2005. However, their contribution to exports, for which they were set up has remained limited, contributing only $4 billion to exports.

Issues:

• Approved SEZs were small in size.
• More than 300 were approved, out of which, very less became operational.
• Linking Infrastructure like roads and railways are not developed.
• Free trade agreements with countries like ASEAN hampered competitiveness.
• The introduction of the MAT tax reduced competitiveness.
• Selling of products in the internal market is not allowed, which led to moving out of industrial units from these areas.

Measures for tackling the issue:

• Removal of MAT tax.
• Allowing the selling of a product in the internal market.
• Development of linking infrastructure.
• New approvals only when existing ones become operational.
• Signing of FTAs only when it results in market access growth.
• Decentralization – the power to local bodies for project clearances.

SEZs can prove to be a game changer for export-led growth, especially when the rupee is depreciating – to achieve export targets of foreign trade policy.

Topics: GS-II: Government Policies and Interventions for Development in Various Sectors • GS-III: Indian Economy Issues Relating to Planning • GS-III: Economic Growth Development