Sunday, February 12, 2006

A study in contrast - SEZ bill and RTE bill

Some background:

SEZ (Special Economic Zone) Act:
Special Economic Zone Act 2005, is a act which stipulates rules for setting up these zones and incentives offered by the government. SEZ can be established anywhere within the country (there are some size restrictions) and units setup within these will get special incentives. The major incentives include: 1. Single window clearance for central and State laws. 2. Special infrastrucutre within SEZ. 3. SEZ are "foreign" for the purpose of custom duty. There wont be any duties on items exported to SEZ from India. 4. Units setup within the SEZ do not pay any income taxes and many other taxes for the next 10 years.
Most of the incentives for the Act are listed out in the bill itself.,%202005.pdf

RTE (Right to Education) draft bill:
This is bill to provide fundamental right to education to children aged 6-14 years of age. Its lists out what it means to have fundamental right to education. The bill is very vague and lacks details. My opinion, is that is not at all remarkable enough to change the education system or status in India. There is nothing new in the bill.

There are several points I want to make:
a) SEZ bill is a business friendly bill which is utterly unjustifiable. Why should SEZ units, which dont pay any taxes, get better infrastrucute and incentives while other businesses pay taxes and get bad infrastructure?. Doesnt this equate to what middle class say about slums. Middle class claim that slums dont pay any taxes and use the infrastructure (water, sanitation) and hence should be demolished. Why should we encourage SEZ's then?

b) There are only size restictions on what cant be an SEZ. So all big businesses and projects will now be setup in an SEZ and get all tax benefits (pay no taxes). So where will govt get its taxes from? Only the indiviuals?

c) I think of the SEZ bill as a huge corporate subsidy. Economists talk about reducing the various social subsidies. I dont see that much oppostion to this type of subsidy. Rather none of the articles refer to as subsidy. Isnt this a subsidy given to profit making businesses and why is it justified?

Now I come to the contrast between the two bills mentioned before:
1. SEZ bill has passed parliament and came into effect on Fb 10th.
RTE bill is in draft form and there is no set time frame of when it will be presented. In 1993 Supreme court declared education as fundamental right and only in 2002 was the constitution changed and 2005 a draft bill prepared.
Infact in SEZ case some 117 SEZ's are already approved.
This shows how much govt has commitment towards the bill.

2. SEZ bill is specific and all incentive details are listed out in it. RTE bill is vague and details are onitted. It omits things as to what provisions will be made for special children or what does it mean by neighbourhood or equitable education.

3. There have been massive protests to get RTE bill out by many public groups and still govt hasnt moved. People are suffering and children lives are at stake. While SEZ bill will provide incentives to industry which is still growing at a healthy rate of > 10% (Industrial growth in India for past few years has been > 10%). So why the urgency to get the SEZ bill?.

4. There are huge discussions in the planning commission on the financial impact of the RTE bill. State governments are opposed to funding the bill. But there havent been any committees set up to determine the financial loss in terms of lost taxes or businesses moving to SEZ's. No state govt are complaning. Infact state governments are eager to provide additional incentives. Our Commerce ministry is talking only about additional investment which this will bring and nothing about lost taxes.

Though not a systematic study, this clearly shows how govts work/ busineeses work. Businesses when given subsidy are happy but when subsidy is given to poor or money spent on social sector they call it "populist" and talk about federal prudence and budget deficits.
Govts. (even our democratic one) work by means of lobbying and for busineeses. They only look after constituencies for short while at time of elections.

This needs to change.

I might look into doing a more systematic study of this later.


At 10:39 AM, Blogger Vishnu said...

One quick question: does the act/rules say anything about the situation where people are displaced by the SEZ, other than

The Developer shall make adequate provision for rehabilitation of the displaced persons. [page 66, sez-rules2006.pdf]

I tried searching the pdfs and the webpage with keywords like 'rehab', 'displace' etc, but could only find this.

At 2:11 PM, Anonymous Anonymous said...

Both the bills seems totally different and only correlation is that they are coming from same govenment. if one dept and minitry is more efficient then one may move faster.

Also, you should look at long term impact. I feel that both bills are developed to make long term impact on their area. Also, SEZs should be evaluated in total business developed in economy by them rather than by themselves only.


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