India Revives an Old Plan for New Growth

[RAM]

India is reviving a system it pioneered 45 years ago by offering companies tax breaks and better infrastructure in designated zones

It takes more than an hour to drive the 25 miles of clogged, potholed highway linking New Delhi to the Noida Special Economic Zone. Inside the gate, it's a different India. A smooth four-lane road connects electronics, engineering, and textile plants. A generator guarantees that the electrical power never fails. The phone system is world-class. "It's the kind of place where one can think of doing business," says Vishnu Pal Singh, whose Noida-based Optic Electronic India sells night-vision devices for rifles and tanks to Germany and Poland.



India is counting on entrepreneurs such as Singh to revive a system it pioneered 45 years ago: using enclaves that offer lower taxes, less bureaucracy, and better roads and utilities to companies that want to boost exports. India tried using the zones in the 1960s and 1970s. The sites were poorly chosen, though, and the initial incentives offered to companies to move to them were inadequate, so just a few zones were opened. China adopted the approach in the 1980s, with spectacular results. The former fishing village of Shenzhen became a special zone that developed into the one of the world's biggest export hubs.



Now India is pushing zones as Prime Minister Manmohan Singh tries to raise manufacturing to 22 percent of the economy from 17 percent. "Improving infrastructure in the entire country will take a long time. So if you want to promote industry, you need to create more islands of excellence, which these SEZs are," says Dharmakirti Joshi, chief economist at Crisil, the Mumbai-based Indian unit of Standard & Poor's (MHP).



Investment in the zones may double, to about 3 trillion rupees ($66.2 billion), by 2012, the Indian Commerce Ministry says. Exports from the special zones more than doubled in the 2009-10 fiscal year, to 2.2 trillion rupees, a quarter of India's total.



About 100 zones now operate in the country, and 478 more have been approved. The government-sponsored areas reduce red tape by using just a single office to handle permits certifying that environmental, export, and other requirements have been met. Companies operating in the zones get tax breaks for 15 years and don't have to pay local excise or customs duties.



Spread over 310 acres, the Noida zone's rows of white, two-story buildings bustle with workers loading and unloading trucks with steel pipes, cement, electrical equipment, and other materials destined for new factories. The zone has its own power plant, bus network, mail center, banks, and automatic teller machines. Proposed additions include a second generator and a six-lane highway to Delhi. Optic Electronic's Singh invested 100 million rupees to start his factory in the zone and plans to expand. "I can do business better in here since it is exempt from local laws," he says.



Companies that help build the zones are benefiting too. Shares in Adani Power, which co-developed the 16,000-acre Mundra Port & Special Economic Zone, one of India's largest by area, have risen 40 percent this year, vs. just under 13 percent for the benchmark Mumbai Stock Exchange index.
Because the government got serious about building the zones only relatively recently, India still lags far behind China. "The difference between Indian and Chinese SEZs is one of scale," says Rajesh Mohan Joshi, who teaches economics at the Indian Institute of Foreign Trade in New Delhi. One of India's most successful, the Santa Cruz Electronics Export Processing Zone, covers 100 acres. China's largest special zone by area is the southern island of Hainan, spread over 13,100 square miles. The Shenzhen zone includes many of the electronics factories of Taiwan-based Foxconn, which employs 430,000 Chinese there. All of India's zones together employ only half a million people.



The political difficulty of acquiring sizable tracts of land also hampers development of the zones in India, says N. R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi: "Unless the government resolves the issue, India will struggle to match the manufacturing prowess of China." Singh's government is backing a land acquisition bill that may be debated soon in Parliament. The bill proposes to guarantee market prices for land seized for the zones and offer resettlement help to displaced residents.

http://www.businessweek.com/magazine/content/10_49/b4206016219076.htm

 

[tarunraju]

In other words, "India is acquiring precious land from farmers at taxpayers' expense, and giving it away to companies for peanuts (and kickbacks to the babus), companies which will anyway use dirty books to evade tax".

 

[Yusuf]

About time that we do this. This thread comes at a time i am in sri lanka looking for business ops and i see that the chinese are all over the place. Every God damn thing is chinese. The people i spoke with said they used to buy from india once upon a time but now its just not possible as the prices quoted by indian companies just do not match with chinese. That said, there is more to it than just SEZ establishment. What about red tape that never goes. My cousin who wanted land in an industrial area in karnataka, not even an SEZ paid a 25L bribe to the person in charge. How will manufacturing ever succeed in india to take on the chinese? The customs people who take a cut even on exports!!! All this adds to the cost. How can we be competitive? Govt needs to have a very deep look into how it is actually a stumbling block for indian manufacturing than being of any help. It has to redress this only then will india go up the ladder. The potential has always been there but not allowed to bloom. Its time we did.

 

[pankaj nema]

It is just that old Export promotion Zones

Now it is called free trade zones with customs excise and banking facilities inside the zone .

However for exports to rise consistently you need to create infrastructure like assured low cost electricity which is always the biggest headache

Just demarcating a few hundred hectares as free trade zones alone wont help

Most export cargo is hauled by railways in containers to ports like JNPT kandla and Chennai etc
So for costs to be kept in check all EPZ will have to be 100 km either side of the track

The Delhi Mumbai Industrial corridor will see a number of small cities on either side, which will be mostly export oriented

 

[badguy2000]

well, to build a zone is not so magical that Indian's manufacturing can prosper.

Before Indian's manufacturing can prosper, India still have take decades to raise the literacy rate and work ethnics of its labours,fix up its industry chains,improve the infrastructures and cut off its bureaucracy and corruption of its governments.

I find that many indians tend to look for magic shortcuts to seek sucecess without pains and hard work. to build zone is just one of many "shortcuts" seeked by many indians.

In fact, there is no such shortcut without pains and hardwork in the world.

 

[Rage]

well, to build a zone is not so magical that Indian's manufacturing can prosper.

Before Indian's manufacturing can prosper, India still have take decades to raise the literacy rate and work ethnics of its labours,fix up its industry chains,improve the infrastructures and cut off its bureaucracy and corruption of its governments.

I find that many indians tend to find some magic shortcuts to seek sucecess without pains and hard work. to build zone is just one of many "shortcuts" seeked by many indians.

In fact, there is no such shortcut without pains and hardwork in the world.

A few things:

India's literacy rate is presently close to 80%, which official figures will not reflect because of the lack of a decade-long census. With such a large pool of labour, that is more than enough to suffice for any manufacturing endeavour.

Low cost, unskilled manufacturing does not require an "educated" workforce.

Indians work longer and harder than most people, including perhaps the Chinese. Most people work on weekends, and 'regular' labour hours, especially for menial workers are regularly flouted. That is not reflected in your knowledge ofcourse, because you rely upon documentaries and 'news articles' about labour unrest for it. And have never seen actual Indians or Chinese at work. Chinese labour unrest was massive in the 1980's, a fact not reflected in news articles ofcourse because of control over the media. Take a course in Chinese economic history.

India's industry chain, despite its relative infancy, works remarkably well. The one major exception is the 'industry' chain for grain produce.

India cannot build up its poor infrastructure overnight, not least because of population density, rules and strictures and the political environment. In consequence, it has to build these "islands" of prosperity, and hope that the spinoff effects, many of which already have, will trickle down.

 

[pankaj nema]

bad guy thanks for your advice but you NEED NOT POKE your nose in every thing.

we are aware of what it takes to succeed but we JUST cant use chinese methods of extremely LOW WAGES TO boost exports

A communist state like you has used slave labour to increase its exports rapidly

 

[Ray]

Should we adopt the Chinese methods of ensuring that the land required for industry and infrastructure is obtained without the usual protestation and obstruction that we encounter in India?

Maybe, democracy is not the sure shot way to success when in an hell fired hurry.

I hope some Chinese poster would enlighten us as to the process how they acquire land, are their protests and if so, how is it resolved and if there are no protests, then do people just give away their ancestral lands that sustained them without a whimper, then,the procedure how they process the applications and the considerations thereof and then how they keep the cost of manufacture low and what they pay their labour. Maybe a touch on the cost of living would help.

There is no doubt that China and its ways of governance is indeed fascinating!

 

[badguy2000]

Should we adopt the Chinese methods of ensuring that the land required for industry and infrastructure is obtained without the usual protestation and obstruction that we encounter in India?

Maybe, democracy is not the sure shot way to success when in an hell fired hurry.

I hope some Chinese poster would enlighten us as to the process how they acquire land, are their protests and if so, how is it resolved and if there are no protests, then do people just give away their ancestral lands that sustained them without a whimper, then,the procedure how they process the applications and the considerations thereof and then how they keep the cost of manufacture low and what they pay their labour. Maybe a touch on the cost of living would help.

There is no doubt that China and its ways of governance is indeed fascinating!

well, there happens to be one example how CHinese government acquire land for urban plans.

the old house where my parents live happens to be demolished, according to the urbanplan. I have discusss how the compensation is on in the following post. it can tell you how CHinese system works.

http://www.defenceforum.in/forum/showthread.php?t=16475&page=3

the government's land-acquiring system in CHina is not perfect and lots of unfair cases happens very year. that is why soo many pieces of news about protests against land-acquring from the government are reported!

However, IMO,Chinese current land-acurqing system is postive to the country as a whole.

 

[badguy2000]

BTW, Chinese local government tends to buy land on outdated avenues or land from farmers at a low price, then "upgrade" the acquired land by building enough roads,electricity-supply,running-water and formating the land.


the "upgrade" of the acqured land costs Chinese government some money.but the government can sell the "upgraded acquired land" at a much higher price and earn a big buck.
with the money earned from the land-acution, Chinese government can buy more land ,"upgrade" more land and earn more money by auctioning more "upgraded land". that is how the loop goes on!

According to CHinese current status quo, before "upgraded" by CHinese government, the land usually is quite cheap . In fact, in most cases, without the "upgrade" from the government, the land price would be even lower than the compensation from the government.

So, in most cases, the land-acquiring and "land-upgading" is win-win deal to both the government and the owners of land.

 

[Yusuf]

well, to build a zone is not so magical that Indian's manufacturing can prosper.

Before Indian's manufacturing can prosper, India still have take decades to raise the literacy rate and work ethnics of its labours,fix up its industry chains,improve the infrastructures and cut off its bureaucracy and corruption of its governments.

I find that many indians tend to look for magic shortcuts to seek sucecess without pains and hard work. to build zone is just one of many "shortcuts" seeked by many indians.

In fact, there is no such shortcut without pains and hardwork in the world.

No you are wrong. We are not looking for magic but yes we are looking for basic government support to help India go up the manufacturing pie of the world. In your entire post you are right only about bureaucracy and govt corruption and that in fact is the main reason as i pointed out in my earlier post.

Apart from that literacy is not of very big consequence when entire labor force in the manufacturing sector is concerned. Not everyone has to be an engineer and not everyone has to be a high school grad also at every level. Same is the case in China too. When i visited Chinese factories i found nothing but robots who just did what they were taught over and over again like robots. They didnt come across as very literate. Same is the case in India. That apart India has quite a lot of engineers and more that many go abroad to find jobs.

Indian infrastructure is way better than what you think it is. Though not up to western standards or even Chinese, but its not like we have mud unpaved roads and no ports, no electricity etc. India has a infra development plan of up to a trillion dollars in the next 5 or so years. All major highways of India are as good as Chinas. I can tell you this as i travel a lot by road all over the place. All roads are tolled roads and are maintained very well.

Ports and air ports are getting upgraded or are have already been done. Every city in India right now has metro trains being built or in the process of finalizing one for their cities and this includes tier II and III cities.

You have the wrong notion that we are waiting for a magic wand to be waved or looking for short cuts. What we are looking for is the kind of support the Chinese govt gives to its manufacturing and other sectors which the Indian govt does not.

 

[anoop_mig25]

GOI must pass land regulation act on lines haryan government which pays handsome dividend in return of land surrender why its waiting to get green signal from mamata banerjee

 

[badguy2000]

No you are wrong. We are not looking for magic but yes we are looking for basic government support to help India go up the manufacturing pie of the world. In your entire post you are right only about bureaucracy and govt corruption and that in fact is the main reason as i pointed out in my earlier post.

Apart from that literacy is not of very big consequence when entire labor force in the manufacturing sector is concerned. Not everyone has to be an engineer and not everyone has to be a high school grad also at every level. Same is the case in China too. When i visited Chinese factories i found nothing but robots who just did what they were taught over and over again like robots. They didnt come across as very literate. Same is the case in India. That apart India has quite a lot of engineers and more that many go abroad to find jobs.

well, you are quite wrong here. educaiton is important to any class.

CHina's total literacy rate is 90%+. Among youth, the literacy rate might be almost 100%.

Besides, northeast confucian countries ( CHina, Japan, Korea and Vietnam) all extremely attach importance to education,so it is not occasional that those countries grow fastest in the world.

 

[badguy2000]

You have the wrong notion that we are waiting for a magic wand to be waved or looking for short cuts. What we are looking for is the kind of support the Chinese govt gives to its manufacturing and other sectors which the Indian govt does not.

China has been centerialized state for 2000+ years and Chinese center government always has absolute authority over local government. Under currency system, CPC has absolute authority among CHinese center government.

unless India were to carry out a through reform of its political structures and insitituion, it would be impossible that Indian government provide support as Chinese government does.

 

[Yusuf]

China has been centerialized state for 2000+ years and Chinese center government always has absolute authority over local government. Under currency system, CPC has absolute authority among CHinese center government.

unless India were to carry out a through reform of its political structures and insitituion, it would be impossible that Indian government provide support as Chinese government does.

You live under one party system with no political compulsion. India has a federal structure of govt where individual state formed on the basis of language has to be considered. That is not bad though. What is, is the corruption and how it political gain ot loss overrides any development agenda. That was the case in Bihar where for years caste matters till the last govt did some good work and development became the agenda and the govt just got voted back to power.

Political will and some focussed development agenda is what is required. Indias growth probably will not be as spectacular as Chinas was because of Chinas system, but the chinese system can blow up. India being a democracy has its checks and balances. It will go a little slower but will surely be more stable. Like i said before, political will and cutting down on corruption will do the trick.

 

[Vinod2070]

The land laws in this country are in major need of reform. This is the last refuse of very scoundrel in this country, the parking lot of most of the black money.

Once we succeed in making the land market transparent and a fair process of land acquisition, nothing can stop India from becoming the fastest growing economy.