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Summary

SEZ as a concept was introduced to provide an internationally competitive and hassle free environment for exports. It was implemented with a noble intention of providing employment to scores of people, generate export earnings, improvement in skills or technical know - how and increase in manufacturing base. China's success boosted the confidence among developing countries to take SEZ route for their development. But nobody thought of its disadvantages.

The paper talks about how SEZs can be or have been revenue drainers for the countries, especially developing ones. It rebukes all the advantages that a SEZ promises to give and proves through various examples and research papers the cons of having SEZs.

SEZs will be successful if there is balanced growth strategy i.e., when all the sectors of the economy are developed simultaneously. This scenario is not possible in the case of developing countries due to lack of resources. Hence, developing countries will have no option but to use unbalanced growth strategy. This will have detrimental effect to the country's economy as proved by a research paper.

Thus, long term effect of making a SEZ is a negative one. The paper will show how it has failed worldwide and will be a failure in India. In India we have discussed how SEZ has become euphemism for grabbing farmlands. Its huge downward impact on Tax: GDP ratio & the worst part, common man has to pay the price of it. Also, SEZs prove to be a challenge for national sovereignty. Too much freedom given to the foreign investors generally does not translate into benefits for the host country. Plus there doesn't seem to be any economic sense in relocating business units to these areas and most importantly the exploitative nature of these areas. Here, there are relaxations on the labor laws which are present right now. For example: The basic law of right to freedom of associations is being curbed in these areas.

In global scenario we have discussed how it failed in Ukraine (a developing country). To add on, there are researches done by various economists who prove why SEZs are bad idea.

Lastly, what is the way forward? How can SEZs be converted into a valued proposition for a country? We have tried to answer these questions and suggested policy changes.

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* Contributed by: -
Rarul Abrol & Saurabh Nanda,
MBA - IInd Year,
Institute of Management Technology, Ghaziabad.