Competing with the Dragon – Part 4

“All power ultimately, you’re never going to end up with a country that’s a huge power without its economy being in good shape” Tony Blair

India is a booming economy and has been since the 90’s except for periods under socialist leadership be it that of the United front government or the UPA government. Several domestic and foreign companies are interested in investing in India, investing in India has duel advantages that of a big domestic market and then a demographic dividend which allows for exports. An integrated approach is required to harness all these advantages and it maybe prudent to relook Vajpayee’s special economic zone policy of 2000.

India’s special economic zone policy was first envisioned in 2000 by the then Vajpayee government, the idea behind setting up these SEZ’s was to promote manufacturing in India, bypassing bureaucratic red tape which is generally associated with manufacturing in India, this policy was more in line with what was achieved in Chine in the 80’s through its SEZ’s set up in Guangdong (Shenzen) initially and then taken to its coastal areas including Shanghai (Pudong) eventually. Initially what was conceived in 2000 was setting up large SEZ’s catering to certain industries in certain areas but by the time this policy become an act there had been a change in government, the new UPA government riddled with contradictions on one side you had a person as Prime minister who was generally associated with India’s reform movement of the 1990’s supported by the Communist party of India (M), the act this government passed was nothing of what was envisioned before, In this act SEZ’s were treated as real estate development plays instead of nation building play’s, where in any company owner looking for a tax break sets up shop in these SEZ’s. The result that came out was  mult product SEZ with no sharing of logistics or expertise. i.e In one SEZ you have jeweelry, pharma, leather all clubbed together, hence not adding any value to each other’s supply chain. Like all policies under the UPA era even this policy was also compromised to suit vested interests of the then government. This has led to Indian manufacturing not garnering scale it should have by now. The problem with such defective policies is they fail because they are designed in such a way that they benefit a few not the nation at large and once they fail public opinion turns against the policy itself rather than the shoddy blueprint and the faulty implementation of the policy.

Learning from China-

The Chinese experimented with special economic zones in the late 1970’s and 80’s. They first picked up areas near Hong kong as Hong kong was already developed by then and had the capacity to invest its own money as well as bring in capital from the western world and Japan. Deng Xioping who can be considered father of modern day China envisioned this policy as he wanted to modernize his country and he understood doing it with the present frameworks was just not possible and changing their frameworks of the 70’s would take a very long time and this would lead to unrest amongst people. After a slow start these SEZ’s started attracting big capital, modern technology coupled with Chinese demographic dividend helped these zones to become major growth engines for the entire Chinese economy. These zones covered very large areas  in some cases going beyond hundreds of kilometres, this ensured infrastructure developed for these zones was developed in an integrated manner unlike what the UPA government did where in no new infrastructure could be planned for these SEZ’s as the size of these zones was so small. The first Indian SEZ was set up in Kandla in 1965 much before China got its act together unfortunately we could not scale this up until 2000, a good policy was envisioned in 2000 but the unfortunate mandate of 2004 scuttled any chance India had for manufacturing growth.

Way forward-

The SEZ policy of 2000 needs to be relooked into and re implemented with vigour. We cannot become a manufacturing powerhouse till all the factors of production have been factored in. With the nature of the political discourse in our country due to Nehruvian socialism followed for so many years by our ruling class any sort of meaningful debate on labour reforms in the whole country seems difficult, hence we should be more pragmatic and impose more favourable labour laws in these special economic zones, this move will not topple the applecart but act as a template for the rest of the country to see that these archaical labour laws are in fact an impediment to labour welfare and employment creation, they do the opposite of what they are meant to do. Land acquisition in India has always been an emotive issue and will rightly continue to be, in these circumstances we should look at land pooling instead of outright land acquisition this will help us side step one the biggest problems we have faced with modernisation of our industry. The other factors of production like capital, technology and entrepreneurship will sort itself out if we are able to deal with the first two in a cordial way. Indian banks are flush with funds at the moment, but industry is reluctant to borrow. The western world and Japan are yearning for India to grow its economy at a much faster rate as they see India as the only natural counterbalance to Communist China in the days ahead so technology from these advanced countries is bound to follow. We will have to make our special economic zones as big and as modern as Shenzen or Pudong to compete with the Chinese.

As the Chinese strategist Sun Tzu once said “To know your Enemy, you must become your Enemy.” We must learn from the Chinese on how they modernized their economy at their speed, once we do that we will not need to wage war with them ever, we will never need to worry about them stepping into our borders.

Siddharth Goenka

(Views expressed are personal)