Political Economy of India’s Special Economic Zones: a Conceptual Frame Work

				middle class to consume more so as to raise the
Every country stands for its own development. For				internal demand. This resulted in the raise of imports
this purpose the state introduces and implements				and the growth of Foreign Direct Investment. The
new policies and programmes such as Special				government tried to raise the level of exports in
Economic Zones Act. After 60 years of its				order to balance this phenomenon. In 1984, the Free
independence India with its 110 core population has				Zone policy received a fresh start. By 1991, the
evolved a new paradigm of its political economy				Indian economy was opened up for linking up the
which is confusing. The policies and programmes				Indian market with the world leading to free flow of
initiated by Indian government to create a ‘global				trade and commerce .The multilateral Financial
village’ based on free market economy and free				Institutions like the World Bank and the International
trade among nations cutting across all barriers,				Monetary Fund while assisting the developing
abolition of national boundaries and dismantling the				countries like India also insisted upon restructuring the
nation –state system giving priority to				polity and the administrative machinery. Following a
‘market’ over the ‘state’ . After				change in the policy regime in this period and the
the enactment of Special Economic Zone Act 2005, it				formation of the World Trade Organization (WTO)
created tremendous effects on political economy of				with India becoming its founder member, it opted for
the country.				a liberalized capitalist strategy. There had been
The term ‘political				introducing policies since July 1991 particularly in the
economy’ came from the two Greek words				industrial sector.
‘Politiko’ and ‘Oikonomia, where				De-reservation of industries for the public sector was
‘Politiko’ stands for the state and society				one of the major step taken by the government as
and ‘Oikonomia’means managing the house				part of the policy changes in the industrial sector. It
hold economy. Political economy thus means a study				was against the earlier 17 industries were reserved,
of the state, society and house hold economy. The				there are now industries like defense production,
concept of political economy arose historically as the				atomic energy, coal and lignite, railways and mineral
economic doctrine of a new class – the capitalist				oils reserved for the public sector. Core industries like
class. It has been evolved since the days of Aristotle				iron and steel, electricity, air transport, shipbuilding,
who gave a model of public good through				and heavy machinery industries such as heavy
guaranteeing each person private possession of what				electrical plants telecommunication cables and
he was rationally and morally entitled. Private				instruments are now open to private sector
property was elaborated later by Locke, Adam				participation. Besides, equities held by the government
Smith, Ricardo and the physiocrates, who came to				in selected public sector enterprises like ONGC etc
be known as the Laissez Fairists in Economics, or, the				are now available to mutual funds, financial
liberal democrats in politics. Adam Smith referred to				institutions, the general public and workers through a
political economy as a branch of the system of civil				policy of divestment
government. It was concerned with public policy.				In1998, the first private SEZ started its operations in
In Marxian view, political economy				Surat .This was under the jurisdiction of the Mumbai
can be regarded as a subject which studies the social				(SEEPZ)Development Commissioner, who was a
relations evolves between different classes of people				nominee of the central Government.
in course of production, distribution, exchange and				From the beginning of the 21st century, most of the
consumption. Political economy belongs to the broad				developing countries in the world have recognized the
land of economics, which opens on to political science.				importance of facilitating international trade for the
After a prolonged period of hibernation, the subject				sustained growth of the economy and increased
has again been resurrected.				contribution to the GDP of the nation. As part of its
Marxist political economy makes a study of how the				continuing commitment to liberalisation, the
productive forces are used under the given relations				Government of India has also adopted a
of production taking account of the lines and trends				multi-pronged approach to promote foreign
in technical progress; political economy studies the				investment in India. The Government of India has
influence of production relations on such progress and				pushed ahead with second-generation reforms and
its socio economic consequences. Marxist political				has made several policy changes to achieve this
economy starts from the assumption that human				objective. The annual growth rate ranged between
vital activity is objectively based on social material				six and nine percent.
production which includes man’s interactions with				Bharathiya Janatha Party (BJP) government decided
the nature and whole range of relations which arise in				to re-launch the Free Trade Zone Policy in 2000. It
the process. It has been realized that every political				changed the name of Export Processing Zone (EPZ)
action has its obvious economic repercussion, and				to Special Economic Zone (SEZ). The policy intended
every economic action has had its political implications.				to make SEZs an engine for economic growth
The liberal school of political economy offers				supported by quality infrastructure complemented by
economic implications of political facts and factors.				an attractive fiscal package both at the Centre and
The liberal school has economized politics. The liberal				the State level with the minimum possible
system focuses on the atomistic individual as the				regulations.
relevant unit, on the description of economic behavior				The salient features of the SEZ scheme are:v No
in terms of subject choices among alternatives, on				licenses required for importv Manufacturing or service
the notion of social welfare as the maximizations of				activities allowed.v SEZ units to be positive net
individual utility sums. The socialist system views the				foreign exchange earner within three years.v
entire economic system as the basic unit, views				Domestic sales subject to full customs duty and
economic progress in terms of the growth of the				import policy in force.v Full freedom for sub
forces of production and focuses on ‘relations of				contracting.v No routine examination by customs
production’ ‘surplus value’ and the rapid				authorities of export/import cargo.
increase of social product.				The United Progressive Alliance (UPA) government
By contrast the Gandhian system eschews both the				Currently in power enacted Special Economic Zone
notions of the atomistic autonomous individual				Act, 2005 which was passed in June 2005 and came
maximizing his utility in a self regulating economy and				into force on 10th February 2006 with the notification
the notion of processes of production autonomously				of the SEZ Rule in 2006. The Act provides for drastic
effecting changes in the organization of production				simplification of rules and single window clearance on
,class relationship and the magnitude and distribution				matters relating to the union and state governments
of social product instead of the Gandhian model				.The state governments have also been enacted
suggest that the fundamental attribute of human				their own SEZ laws to cover State subjects.
economic behaviour lies in the relationship of individual				The Act provides for single window clearance
to socioeconomic micro groups and the relationship of				mechanisms for developers and operators for
micro groups to society .The basic economic act is				ensuring orderly development of SEZs, the
neither the choice between economic alternatives nor				responsibility is assigned to the Board of Approval,
the social division of natural products, but the				constituted by the union Government. The Union
adjustment between individual and the micro groups				Government may set up a SEZ on its own or on the
to which they belong, and of those micro groups to				basis of proposals of the state government or
society .It is this collaboration which is the basic				private developers after the Board of Approval has
theme of the Gandhian system of political economy.				duly screened them .At the regional level, the
The Gandhian system is viewed in micro groups that				Development Commissioner and his /her office will
are fundamental constituents of the economic				exercise administrative control of SEZs. The Labor
system and given full scope to develop their potential				Commissioner’s power is also delegated to the
in the context of no coercive forms of political				Development Commissioner. There is an approval
control. Social welfare is defined in terms of the				committee to approve /reject /modify proposals for
functioning of the collaborative micro groups vis				setting up units in SEZs. All suits of civil nature and
–a-vis its members. Gandhi believed that the				notified offences in SEZs will be tried and settled by
introduction of technology and patterns of				specially notified courts and affected parties may
development must be consistent with the full				appeal to high courts against the orders of the
employment objective.				designated courts. The corporate units operating
Today economist speaks of sustainable development				under SEZs will enjoy special privileges and protection
and ecological values. Gandhi was not against industry				granted by law.
but as he predicted it could not give people more				The Act offers a special fiscal
employment. His constructive programmes were to				package to the units set up in the SEZs. This
give employment to all people whether it be kadhi,				package includes, exemption from customs duties,
gobar gas or tree plantations, where all can be				central excise duties, service tax, central sales taxes,
engaged in constructive work. Gandhian economics is				and securities transaction tax to both the developer
an alternative to overcome the exploitation of both				and the units set-up, tax holiday for 15 years like 100
capitalism and communism for the exponents of				percent tax exemption for five years ,50 percent for
human social order.He was against the large scale use				next five years, and 50 percent for the ploughed
of machinery which kept millions without work.				back export profits for the next five
Swadeshi is one of the core elements in the				years.100percent income tax exemption for 10 years
socio-economic organisation of Gandhian system.				in a block of 15 years for SEZ developers.
Gandhi observes				There is a three-tier administrative structure. On the
“Life here will				top, a Board of Approval at the level of the Union
not be a pyramid with the apex sustained by the				Government has been set up for the functioning of
bottom, but it will be an oceanic circle whose centre				the SEZs. Next an authority has been created by the
will be the individual, always ready to perish for the				state governments for creation and promotion of the
village, the latter ready to perish for the circle of the				infrastructure within each state. Finally, in SEZ
villages, till at last the whole becomes one life				mechanism /authority is provided for single window
composed of individual, never aggressive in their				approval. According to the 2005 Act, these zones
arrogance, but ever humble sharing the majesty of				can be set up by the developers, who could be
the oceanic circle of which they are integral				private real persons, companies, both Indian and
units’. The idea of the circle stands for				foreign, as also the State governments or the central
integrating, fullness and self-sufficiency. He wrote that				government by themselves or jointly with private
independence must begin at the bottom. Thus every				parties. It is also being envisaged that some of the
village will be a republic or Panchayat having full				existing Export Processing Zones would be converted
powers. It follows therefore, that every village has				into Special Economic Zones. The SEZ Act, 2005
to be self sustained and capable of managing its				supported by SEZ Rules, has come in to effect on
affairs even to the extent of defending itself against				10th February 2006.
the whole world.”				THREE CATEGORIES OF SEZ
Politics and economy are considered as two basic				In India SEZs are divided in to three categories,
factors in determining the nature of the state and				Multi-product SEZs Sector specific SEZs, Free Trade
society. They are interrelated to such an extent that				and Ware housing Zone (FTWZ). The first category
the changes in one affect the other, and hence both				signifies a SEZ where units may be set up for
are ‘dynamic’ and ‘flexible’				manufacture/rendering of services of two or more
ingredients of the national and the international				goods in a sector or good/services falling in two or
systems. Politics and economy taken together as				more sectors. For multi-product service SEZ, a
political economy refers to ‘managing the				contiguous area of 100 hectares or more is
economy of the state’. Conceptually political				required.
economy connotes the relationship between the				The second category defined as a zone meant
state, society and the economy, the				exclusively for one or more product/services. The
cause–effect relationship between technological				minimum area requirement is 100 hectors of
change and the process of development, the				contiguous and vacant land. Within sector specific
economic relations among the different nations of				SEZs, Bio-technology, Gems and Jewellery, Non
the world.				conventional energy, electronics, hardware and
DEFINITION OF SPECIAL ECONOMIC ZONE				software SEZ-including IT can be set up with
A special economic zones is a				minimum area has been relaxed to 50 hectares for
geographical region that has economic; laws more				Assam, Meghalaya, Nagaland and, Arunachalpradesh,
liberal than a countries typical economic laws.				Uttaranchal, Sikkim, J&K, Goa and the Union
According to the SEZ Act 2005, A SEZ is a				Territories.
‘specially delineated duty free enclave and shall				Free trade and warehousing zone (FTWZ) is the
be deemed to be foreign territory for the purpose				third category which minimum area requirement is 40
of trade operations and duties and tariffs. A SEZ also				hectares of contiguous and vacant land. Built up area
been viewed as “a geographical region with				should not be less than 10 hectares.
different economic laws than a countries typical				There are 19 functional SEZs in the country which
economic laws with the main goal of attracting				were set up prior to SEZ Act, and 154 SEZs that
foreign investment’. “A SEZ or a Free Trade				were notified under SEZ Act 2005. The maximum
Zone (FTZ) is typically an enclave of units operating				numbers of SEZs are coming up in the IT sectorThe
in a well –defined area within the geographical				total land requirement for the formal approvals
boundary of a country where certain economic				granted till date is approximately 44,268 hectares.
activities are promoted by a set of policy measures				Out of this, about 87 approvals are for State
that are generally not applicable to the rest of the				Industrial Development Corporations (SIDCs) State
country”.				Government ventures which account for over
The concept of special economic				21,169hectares
zones is not new. In an International Labour				ISSUES RELATING SEZs IN INDIA
Organization (ILO) report traces the roots of the				One of the main issue is related with SEZ is locating
concept to 13th centaury Spain and in more recent				land for SEZs. Many state governments are in the
times to Ireland and Puerto Rico, which established				process of establishing SEZs. The issue of
Export Processing Zones (EPZ). Export Processing				displacement, that of compensation or land price,
Zones is the former name of the Special Economic				rehabilitation, residential property development and
Zones. The countries like China, United Arab Emirates,				land speculation, the threat of possible relocation of
Malaysia, India, Jordan, Philippines and Russia have				units from other parts of the state to SEZs and the
utilized the concept of SEZ. In 1986, there were 176				consequent loss of revenue have been flagged .
zones across 47 countries. Now the number has				Farmers are protesting against the forced acquisition
increased to over 5000 across 147 countries.				of their lands. The development of SEZs would lead
The zones are known by different names in different				to the destruction of employment of peasants
parts of the world. Most often these are Free Trade				whose land will be acquired and will create very little
Zones (FTZ),Industrial Free Zones (IFS) Export				employment for high tech or high skilled persons and
Processing Zones (EPZ) Bonded Free Zones and				total net employment generated may well be
Special Economic Zones (SEZ).				negative. Handing over thousands of hectares of land
Export Processing Zone is the				cheaply to promoters of industry and relaxing the
ancestor of SEZ. An Export Processing Zone is				laws of the land, including those that relate to the
relatively small geographically spread area within a				welfare of the industrial workers, protection of the
country. The purpose of which is to attract export				environment, taxation, etc, would automatically
oriented industries, by offering them especially				promote industrialization and solve the nagging
favorable investment and trade conditions as				unemployment problem of the country overnight.
compared with the reminder of the host country.				The farmers/peasants in various states such as
The EPZ is just an industrial enclave but SEZ is an				West Bengal, Orissa, Maharastra, and Punjab have
integrated township with fully developed				opposed acquisition of their land for SEZs. The
infrastructure. The UN Industrial Development				highest level of opposition has been observed in
Organization (UNID) identifies five basic attributes of				West Bengal when land was acquired by the state
EPZ s are:				government for the Tata group at Singur and Salim
? EPZs are dominated by market mechanisms.				group of Indonesia at Nandigram. Besides the loss
? EPZ are restricted to a limited region.				of agriculture land, concerns have also been raised
? EPZs specialize in the production of exports goods				about the project affected People.
and offer special incentives for such production.				Using water for SEZs is one of the major problems
? Their major aims are to attract foreign				rising from different parts of the country. Mundra
investments, earn foreign exchange and to				SEZ as per official website of the SEZ, it expects to
generate employment				get at least 6 million liters per day from the Sardar
? Secondary aims are technology transfer,				sarovar project, as promised by Gujarat water
development linkages and regional				infrastructure Ltd.
development .				The another main issue is rising from different parts
Policies taken by the governments for the				of the country, the labour laws applicable to the rest
development of the nation obviously affect the				of the country have been relaxed for the SEZs. The
people. SEZ policies are for the development of the				existing laws are well intentioned and they promote
country. These Developmental projects have				worker welfare. Relaxing such laws exclusively for
economic, political and social impact. In Gandhian				the SEZs shows the government’s lack of
political economy, village level development is needed.				conviction in its own commitment to social justice.
Land needed for the establishment of the SEZs				In some SEZs, the state governments are joint
projects also affected the political economy of the				venture partners. In the case of some, special
country. Tax incentives, Foreign Direct Investment,				incentives by way of concessional electricity and
New type of employment generation also affect the				water tariffs have been offered .In almost all the
political economy of the country. The macro				cases, valuable lands have been given away at
economic changes driven by SEZs will push the				concessional prices.
countries down the path of increasing socio-political				Considering the SEZ Act, it violates the letter and
crisis.				spirit of the Indian Constitution; it infringes the
A BRIEF HISTORY OF INDIA’S SPECIAL				Fundamental Rights of the citizen guaranteed in part
ECONOMIC ZONES				3rd of the Constitution. Relaxation /inapplicability of
India became independent in 1947 and chose self-				many labour Laws (including under the Industrial
sufficiency along with economic autonomy. The				Dispute Act, Contract Labour Act, Factories Act,
Industrial Policy Resolution of 1948 marked the				Minimum wages Act, Trade Union Act), Environment
beginning of the evolution of the Indian Industrial				(Protection) Act is inapplicable to SEZs ,No
policy. The Resolution not only defined the broad				environmental clearance needed. Violates
contours of the policy. But it delineated the role				Panchayat Raj Act (1996) for local self government,
authority of the state in industrial development both				violating laws granting rights and control to adivasi
as an entrepreneur and as an authority				communities over their land, violating many
The industrial policy Resolution of 1956 gave the				international conventions on human rights.
public sector a strategic role in the economy. It				To sum up, SEZs and other emerging developmental
categorized industries, which would be the exclusive				issues can be seen in a broad perspective and
responsibility of the state or would progressively				theoretical underpinnings of neo-liberalism. As far as
come under state control and others. Earmarking the				Indian polity is considered the implications emerging
pre-eminent position of the public sector, it envisaged				from SEZs may cause increasing socio-political crisis
private sector coexisting with the state and thus				because the society is far more complex than we
attempted to give the policy framework flexibility.				assumed and that will result in organized or
India opted for a planned economy with emphasis on				unorganized resistance and that may even cause
state sponsored industrialization. The argument was				anti-neo liberal political forces. So, in order to avoid
that capital being scare in India, it was essential to				the polarization of the society, civil society should
regulate the flow of the available capital in to socially				engage to create a consensus on developmental
desirable channels. This was achieved by an elaborate				issues. More over, in order to understand the
system of industrial licensing and state monopoly and				continuities and changes that are taking place in the
control over key				developmental scenario it needs further
�				study.
More than 80% of the Indian population is still living in				Endnotes
agricultural field. Agri-centered model of development				Bijoiny Mohanthy and S.C Hazary(Ed), Political
was prevalent during the 1950sand the 60s.				Economy of India Retrospect and Prospects (New
Agriculture contributes approximately one-fifth of				Delhi: APH Publ).
total gross domestic product (GDP). It provides the				S.C Hazary, Political Economy of India Retrospect
means of livelihood to about two-thirds of the				and Prospects, ( New Delhi: APH Publi,1997.)
country’s population. The Sector provides
employment to 59 percent of the countries				Sukhendu Mazumder, Politico-Economic Ideas of
workforce and is the single largest private sector				Mahatma Gandhi (New Delhi: Concept Publishing
occupation. Agriculture accounts for about 10 percent				House, 2004.).
of the total export earnings and provides raw				B.Mohanan,(Ed), Gandhis Legacy and New Human
material to a large number of industries.				Civilisation, Gyam publishing house, New Delhi,1999.
During the Jawaharlal Nehru’s period, foreign				Vineetha Sharma, ‘Implications Of A Special
collaborations were promoted in certain sectors and				Economic Zone on Project Affected People a case
foreign investment was encouraged. First Export				study of Reliance Haryana SEZ”, Man &
Processing Zone (EPZ) was set up in 1965 at Kandla,				Development, Vol.39,Dec,2007.
in Gujarat. This was a predecessor of the Special				Jermy Grasset and Frederic Landy, ‘Special
Economic Zone in India. The Santa Cruz EPZ in				Economic Zones in India Between International
Mumbai became operational in 1973.				integration and Real Estate Speculation’, Man
After the death of Jawaharlal Nehru, Indira Gandhi				&Development, Vol. 39,No.4, Dec, 2007.
became the prime Minister of India in 1966. She also				India 2008, A Reference Annual, Publication Division,
did a lot for the economic development of the				Ministry of Information and Broadcasting , Govt:of
country. The Foreign Investment Board was set up in				India, New Delhi,2008.
1968. In 1973, Foreign Exchange Regulation Act				Partha Mukhopadhyay, “The promised land of
(FERA) was enacted.. India set up the Santa Cruz				SEZs” Seminar, Jan, 2008
Electronics Export Processing Zone (SEEPZ)				.
between1973-74. It was the first EPZ which was				Sheetal Sharma and Kishan Pratap, “ The
dedicated to the electronic industry.				Prosperous Few and the Pauperized Many: A
Doors of the Indian economy were opened during				Perspective on Special Economic Zones”,
the 1980s, by Indira Gandhi and later by Rajiv Gandhi.				Mainstream, February,23-March,1,2007.
From 1984 to 1989, the policy was to enable the

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Political Economy of India’s Special Economic Zones: a Conceptual Frame Work