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Abstract
Empirical evidence on the effectiveness of recent India's Special Economic Zone (SEZ) policy over Export Processing Zone structure is analysed in this article by aggregating data of seven conventional SEZs from 1986–1987 to 2007–2008. The study reveals that introduction of SEZs in place of its predecessor, the Export Processing Zone, is having a significant and positive impact on its trade performance at the aggregate level. However, in terms of contribution to national trade, the Indian SEZs are lagging way behind the expectations of policymakers. Furthermore, the SEZ policy does not seem to be successful in diversifying the exports basket, which in turn has affected the direction of exports by the SEZs. Moreover, these zones were found to be highly susceptible to external shocks. Thus, we strongly argue in favour of a care in deciding the sectoral choice of SEZs and careful scrutiny of its approval across major Indian states.
Acknowledgements
I acknowledge with gratitude the comments and suggestions made by my PhD Supervisor, Professor R.S. Deshpande, Director, ISEC; however, usual disclaimer applies.
Notes
1.This was done specifically through substantial reduction in tariff rates, liberalization of import licensing, provision of export credit at low rate of interest, strengthening export promotion scheme and so on.
2.Such as capital goods, project imports and basic feedstock for petrochemicals.
3.Since the focus of the study is to analyse the effectiveness of the SEZ over the EPZ structure in India, in this context this is to be noted that the seven selected SEZs represent the entire population of SEZs in the country as these seven EPZs only were functional prior to the introduction of the SEZ policy in the country.
4.The currently operating SEZs in the country could be categorized under two major types, namely conventional SEZs and modern/new SEZs. Conventional SEZs are those that were operating under the EPZ structure of the country and currently brought under the SEZ scheme. Modern SEZs, on the other hand, are those that got approval after the enactment of the SEZ policy in the country.
5.The zones were set up, respectively, in 1964–1965 (KSEZ), 1974–1975 (SSEZ), 1986–1987 (CSEZ, MSEZ, NSEZ and FSEZ) and 1989–1990 (VSEZ).
6.Although the present analysis is restricted to the period from 1986–1987 to 2007–2008, but wherever necessary, we have provided the scenario as it existed in the 1970s and 1980s.
7.The world's first full-fledged EPZ came up in Ireland in 1959 (World Bank Citation1992); thereafter, within a short span of time the concept of EPZs spread all over the world, particularly in the developing economies. India was at the forefront in Asia to popularize EPZs as an instrument of trade. Other developing countries, namely Taiwan, the Philippines, the Dominican Republic, Mexico, Panama and Brazil, followed it during the period 1966–1970 (Wong and Chu Citation1985).
8.Under the Indian Constitution, trade is on the central list.
9.The SEZs Act and SEZs Rules in India have been amended subsequently over the last 5 years in accordance with changes required to promote SEZs as an effective government policy.
10.The SEZ approval in the country could be categorized as in-principle approved, formally approved and notified SEZs.
11.Expressed in both Rs crore at Constant Prices and US Dollar (million).
12.In addition to this, two remarkable positive trends in exports earning was noticed in the 1970s and 1980s. The trend noticed in 1970s was analogous with India's exports. At this particular juncture, the country's exports (in value terms) more than doubled due to depreciation of the Indian currency. As Nayyar (Citation1976) noted, there was 21% increase in the rupee value of India's exports in the first half of the 1970s. The steady improvements in exports by these enclaves in 1980s were due to the increase in the number of operational zones in the country from two to six and the corresponding increase in the number of exporting units in these zones.
13.Since the former allows 50% sale of production in the domestic market without any additional tax. Such sale under the SEZ scheme, however, requires payment of custom duties because the SEZ policy does not allow sale in the domestic market.
14.The Vizag EPZ was brought under the SEZ framework in 2003 along with the Noida, Falta and Chennai EPZs.
15.Kandla, Santacruz, Cochin and Surat were brought under the SEZ purview in 2000.
16.As explained elsewhere in the article, one of the reasons for improvement in exports earning is due to improvements in the general macroeconomic scenario of the country and the policy addressed these zones in particular.
17.For a disaggregate-level analysis of this issue, see Tantri (Citation2010a, Citation2011).
18.Historically such scenario is revealed in the case of Philippines, Bhutan, Taiwan and Chinese enclaves.
19.Chow test is not feasible in the present set of analysis due to the less number of observations, which eventually provides less degree of freedom.
20.In the model, β1 and β2 represent coefficients of respective parameters.
21.Generated from all working SEZs in the country.
22.For the period 2009–2010, it is estimated as 29.7% (Government of India Citation2011).
23.In this context this is to be noted that, China has 6 SEZs, and 14 coastal regions opened for foreign trade. In addition, 15 free trade zones, 32 state-level economic and technological development zones and 53 new and high-tech industrial development zones were established in large- and medium-sized cities to attract technology-intensive and export-oriented industries.
24.For discussion on this, see Masell (Citation1970) and Kingston (Citation1973, Citation1976).
25.Due to data constraints, we could not present the trade scenario of SEZs with any other major countries and regions.
26.Exception to this is the study by Tantri (Citation2010a, Citation2011). However, the scope of the study concentrated on investigating the disaggregate performance of the seven conventional SEZs and does not provide any account of the new SEZs. Further, a little is explored in the literature to explain factors behind such variations in performance.