Jagdish Bhagwati Speaks on Indian SEZs

Some views of Jagdish Bhagwati on SEZs (Special Economic Zones) are here as told to Dinesh Narayanan & Anil G Nair of ‘Times of India’.

Columbia University’s Jagdish Bhagwati opposes India setting up special economic zones, “SEZs are a sort of scaffolding with which you climb into more openness. Hopefully, that demonstration (of openness in SEZs) will show that it is worth having these policies. But now that you have the building, why do you need the scaffolding? Already the policies have changed. So, I think it’s a backward step,”

Bhagwati is one of the world’s most ardent advocates of globalisation. He was shortlisted even this year for Nobel economics prize, but missed.

India needs only clear policies that will integrate the country into the world market. ”We don’t need to learn lessons from China anymore, because the main lesson was outward-orientation. We should concentrate on making the additional reforms for reducing trade barriers.”

China needed SEZs because it had an export-oriented strategy, which relied on its eastern seaboard with four provinces and 700 million workers as a platform to experiment with the policy while the rest of the country remained closed.

”Basically, what they did was to take an export-oriented strategy, which was married into investment as well, because investment was more or less geared to export promotion. We did not cash in on that, partly because we were too scared of foreign investment.”

”And the way it (the SEZs in India) is being managed, you know the politicians are getting their hands on it and ultimately you have to take land. There is nothing wrong with it as long as people pay for it. And if you get politicians to assign it, then you can be sure there is a rent, and clearly when you have something like that, you are offering a temptation to the politicians or bureaucrats or whoever. That is also when you build resentment, when peoples’ lands are taken. But we are a democratic system. ”Similar things are happening in China, which is experiencing land grab. There they have no recourse at all. They don’t have any NGOs to go to, they don’t have a free press, no independent judiciary, and no opposition parties. So, what do they do? At least here it’s being discussed. But as I said, we don’t need the damn thing.”

Somehow, I do not agree with Bhagawati’s damning of India’s SEZs policy. SEZs are coming up almost like the big PSUs such as HMT, BHEL, Steel Plants at Bhillai, Rourkela, Bokaro, and Durgapur, and before that, even private companies in almost new locations- Tata’s TISCO and TELCO at Jamshedpur, Birla’s Jute Mills at Birlapur or Hindustan Motors at Hind Motors. The whole lot of facilities developed and townships grew all around. Presently, no one sets up plants with all the infrastructure such as a township, hospital, and educational institution as the cost of the plant increases, making a new project unviable.

SEZs perhaps are the business solutions to make industrialization of the country viable where the real estate portion of the area will be generating revenues as those will be owned by different users. However, the two things are very important. Promoters of the SEZs must not grab the land without proper compensation to the owners of the land. The owner farmers must get integrated in the project so that they become stakeholders and their future is safe and protected. And secondly, the SEZs must have clear roadmap of the industrial activities so that the creation of employment potential is part of the major primary objectives. Unfortunately, the allocation of SEZs till date doesn’t give a confidence that the manufacturing sector will get a significant boost once those are in place.

I think in all the SEZs, the provision of the professional educational institutions from trade training institutes to specialized engineering and management colleges that provide the required talent for the industrial activities of the zones, must exist. For example, the SEZs of auto components must have trade schools and engineering college specializing in design and manufacturing, a tool room catering to the tooling requirements, and engineering service provider to cater the maintenance and process planning necessity for the units. Similarly, one SEZ for textile manufacturing must have all the infrastructure facilities including a fashion design institute, a research and development laboratory and a machinery-manufacturing unit that will be of use to all the units.

SEZs can be a success, if it is an honest means to get India ahead and not only to provide the easy route to make money.


Yechury asks Nath to study Chinese SEZ model

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