The China Example- In 1980s, China created very large Special Economic Zones (SEZs) along its coast. One of the best examples is the coastal city of Shenzhen in China, which from a group of fishing villages in 1980s has become the hardware capital of the world. The SEZ provided flexible land and labour markets, attractive incentives to foreign investors and a foreign trade regime that was liberalized over time. Global firms which found their operations turning expensive due to high and rising wages shifted to Shenzen and bought with them the much needed technology, modern management practices, investment and links to export markets to the zone. The zone’s coastal location allowed these firms to import inputs from abroad, process them using Chinese labour and export the final products.
Due to the high and rising wages in China, many large multinational firms on the Chinese coast,especially in labour-intensive sectors, are turning uncompetitive and are looking for alternative low-wage locations for production. India must take advantage of this potential migration.
India must create two Coastal Employment Zones (CEZs), one each along the east and west coast with the following features:
- Large area with flexible land conversion rules – CEZs must be spread over a wide geographical area of 500 square kilometres or more. The CEZ must have flexible land conversion rules to ensure economic activities on a large scale thereby generating economies of scale and scope.Also, there must be flexibility in Floor Space Index (FSI) thus allowing more efficient use of space.
- Liberal Economic Environment and Tax Incentives – CEZs must be liberal labour laws (as currently in Special Economic Zones in Gujarat). More liberal land acquisition rules must be introduced. For firms that are early entrants into a zone and commit to creating a threshold level of employment, a limited-period tax holiday on corporate profit tax maybe provided.
- Proximity to deep draft ports – It is critical that CEZs are located close to deep-draft ports where large ships can dock. The coastal location next to ports will allow firms to import inputs and process and ship them back to the world markets in a timely manner. Port-led development has had some success in Gujarat. Gujarat accounted for 45% of India-wide exports from Special Economic Zones in 2013-14.
- Public Interest and Autonomy – The government must create the necessary infrastructure (e.g. supplying electricity at subsidised rates, warehouses etc.) in the CEZs. Also, the CEZs must be provided enough administrative autonomy to create a liberal business environment.
- Trade facilitation and Trade Liberalisation – Frictionless movement of exports and imports from the CEZs must be ensured. The current clearance time of both exports and imports is very high.
Source: NITI AAYOG Three Year Action Agenda, 2017-18 to 2019-20.