India in the WTO

We still don’t know who will be given charge of India’s commerce ministry, but this announcement can be expected by Tuesday. My sense is that Mr Kamal Nath himself is keen on continuing as Commerce minister and conclude the unfinished Doha round as well as FDI and other industrial  sector reforms.

In an interview to CNN-IBN (see the text here) Mr. Nath spoke about the prospects of the Doha round:

Rajdeep Sardesai: Between 2004-09, Kamal Nath came to be identified with the World Trade Organisation (WTO) talks. Do you believe that with this clear mandate you will have a freer hand in the sense negotiating at the WTO you should be the commerce minister. Do you see a quick completion of the Doha round?

Kamal Nath: I think India needs to have a rule based multilateral system, we have a big stake in that. But today I think the Western countries who are bigger proponents of this are the ones getting cold feet and not India.

Rajdeep Sardesai: Yes, exactly that is why the US democratic administration seems protectionist.

Kamal Nath: That is what I am saying, they are getting cold feet not us.

On FDI:

Rajdeep Sardesai: Just before the elections, you had amended the Foreign Direct Investment (FDI) policy through a press note. Now investments made by a company registered in India in which a foreign company has a less than 50 per cent stake will not be considered as FDI. Some believe this has allowed foreign companies to breach sectoral limits, was this the objective to open up?

Kamal Nath: When we have a global recession, we have to make India a good investment destination. I want to separate ownership and control and this seeks to do that and get more investment.

On FDI in retail:

Rajdeep Sardesai: In your first tenure, between 2004-09 there was this ghost of Left which was always haunting you. This time it doesn’t even exist, will there be FDI in the multi-sector retailing or do you believe that this might affect the kiranewalla (small grocery shop) and that might be a concern that your fellow Cabinet Ministers will against you?

Kamal Nath: It is not FDI, it is big versus small and if it is big you can have a multi-brand Indian company, you have Reliance, ITC etc.

Rajdeep Sardesai: Will you allow FDI?

Kamal Nath: No, I am not talking about retail. As long as FDI doesn’t displace existing employment it is good but talking about the retail sector it is a very grey area.

Rajdeep Sardesai: You see it as a grey area, I thought at one point of time you believed that it would help Indian agriculture.

Kamal Nath: No, we cannot generalise on retail. Retail is not cement and motor, it is technology. If we can have access to retail technology and in fact we must not be looking at man at the moment, we must be looking for the niece and the son and the daughter. And that is the key thing to look at.

On liberalisation (FDI) in education:

Rajdeep Sardesai: The Commerce Ministry had also been wanting to liberalise high education but the HRD Ministry previously under Arjun Singh was not helpful. He is no more there but the fact is that will it happen now?

Kamal Nath: I can’t say that this will happen, I can only say that we have to ensure that our youngsters have the access to the best education in India. Why are we sending thousands of youngsters abroad, why can’t they stay here and study at a fraction of the cost?

On the need for export stimulus measures:

Rajdeep Sardesai: Exports, a critical area again. The export sector has been badly hit by recession. Your (Commerce) ministry had proposed a one year exemption in the payment of the fringe tax to these export oriented companies. Will we see that?

Kamal Nath: Exemption is about competitiveness and cost. Today, if the economy is in recession we can’t plan a package for Europe or the US. We are going to ensure that all levies and taxes are refunded and are not there for export.

Rajdeep Sardesai: But the aam aadmi is the one who is being hit. Do you think the time has come for a comprehensive package for the export sector?

Kamal Nath: There is a need for a comprehensive package to refund taxes, levies on anything that is being exported. Today you go anywhere in the world and you buy something from a shop, you refund immediately. So, you must have all taxes and levies because no taxes and levies are exported.

On differences between the Commerce and the Finance ministeries (in the previous administration the Commerce and Finance ministries had differed over SEZs and over sops for exporters):

Rajdeep Sardesai: Last time there was a feeling that the Commerce Ministry and the Finance Ministry were not on the same track. Will it be different this time with Pranab Mukherjee as the Finance Minister?

Kamal Nath: Well, I think the job of the Finance Ministry is to collect the revenue and see that they do resource management so any Finance Ministry would do that. But you need to weigh it off, you may not export and you may be having an economic impact because of that.

On financial sector liberalisation:

Rajdeep Sardesai: The new Government this time is largely free of the pressures of allies and therefore you will expected to push it with reforms. Last time, every time you were asked about reform you said look my hands are tide. Your hands are no longer tide, will it be different this time?

Kamal Nath: Let’s not say that there were no reforms in the last government. There were reforms in the financial sector which we didn’t do but let us recognise this. We should remember that the reforms that were asked by those financial icons of the Western world, the ones which were wound up.

Rajdeep Sardesai: So, are you among those who think that it is good to be cautious about financial sector liberalisation?

Kamal Nath: No, it depends which reforms we are talking about. We are looking at the reforms which are India specific; we can’t be talking about reforms all over the world. Today the most important reform is the reform in the governance. Reform in our Labour Act, the labour laws must be made employment generating.

On labour law reforms:

Rajdeep Sardesai: So, you would support reforms in labour laws which allow companies to hire and fire easily?

Kamal Nath: We must recognise this that for example if a textile company wants to hire some people to complete an order in four months but they can’t take that order because he can’t hire them for four months. So at that point of time, we are losing on that amount of employment.

Rajdeep Sardesai: But will the politicians allow this kind of labour laws reform? The problem is this is where the politics seem to clash with good economics.

Kamal Nath: No, I am all for the reform in labour laws which generate employment, provide employment security. We have to have this because employment generation is our No 1 priority with the young population.

On Special Economic Zones:

Rajdeep Sardesai: But let’s look at land because there has been controversy over Kamal Nath’s policies as commerce minister when it came to the Economic Zones. You were looked at someone who was liberally granting Special Economic Zones (SEZs), some suggested that it was little more than a land scam. And now you have got Mamata Banerjee who after Nandigram and Singur is going to get tough with any attempts made to liberalise land acquisitions.

Kamal Nath: Let us not talk in the abstract. There are SEZs today on the ground, you can measure easily how much investment is coming to the nearest rupee. We can measure how much employment has been generated, how much export has happened so all that are stories of the past. There are concerns in high density states.

Rajdeep Sardesai: But after Singur and Nandigram, won’t there be pressure to sort of modify your land acquisition policies, your own minister will suggest that.

Kamal Nath: I am all for that and that is what I am suggesting that there was a Cabinet committee, there was a group of ministers selected for that. That has moved the new land acquisition rehabilitation suggestive policy and that parliament had approved that and now this Parliament will take it up.

The videos of this interview (in 5 parts) can be watched here.

Siddhartha Mitra,  Special Economic Zones in India: White Elephants or Race Horses, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=969274

Abstract:
On the basis of economic theory and history we can conclude that absorption of agricultural labour is necessary for sustained economic development of a developing country. Special Economic Zones (SEZs) constitute a medium for such sustenance. However, the SEZ policy in India has suffered from permission being granted for far too many sub-optimally sized SEZs or for others serving as appendages to mega cities and therefore inheriting all the diseconomies associated with the large size of the latter.

Anirudh Burman, Special Economic Zones: Issues in Corporate Governance available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=954934

Abstract:
A SEZ(SEZ) is a geographical region that has economic laws that are more liberal than a country’s typical economic laws. In India, eight previously existing Export Processing Zones have been converted into SEZs. The policy provides for setting up of SEZ’s in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing Export Processing Zones would be converted into Special Economic Zones.
Over the past few years, the policy of promoting zones has found favour with the government of India. In 2005, it enacted the SEZ Act and the SEZ Rules were notified in February 2006. The policy is expected to give a big push to exports, employment and investment in SEZs. The SEZ Act gives a wide area of discretion to the State and Central Governments to regulate an SEZ as they see fit.
What is crucially different about other south-Asian projects from the Indian model is that all these export promotion zones, special economic zones, free trade zones etc. were by and large state initiatives. The Indian SEZ program instead, shifts the burden of development and maintenance to the private investor. Again the legal regime inside a specific SEZ is the initiative of the concerned state government.
In the context of a SEZ, the most pertinent facet of Corporate Social responsibility is the aspect of Corporate Social Rectitude, or corporate ethics. Writers have also tried to bring in a difference between social obligations and social responsibilities. They argue that social obligations imply corporate functioning within legal and social constraints, whereas social responsibility implies keeping in step with the prevailing social norms, values and expectations of performance. Concluding, a new initiative towards industrialization and manufacturing cannot violate basic fundamentals of corporate ethics and responsibility.

 

Ramakrishna Nallathiga, Potential of Special Economic Zones in Promoting Industrial and Regional Economic Development: An Analysis, The Icfai Journal of Industrial Economics, Vol. 4, No. 1, pp. 62-77, February 2007

SSRN Abstract:
Special Economic Zones (SEZs) are insulated export areas that offer benefits such as duty concessions to manufacturing exports, and have several advantages, such as boost to industrial productivity, innovation, technology and management. The economic benefits of SEZs are well documented across the world. Their success in China, however, drew much attention. India has also embarked on the creation of SEZs as the drivers of industrial production and export trade. This paper examines the concept and evolution of SEZs, overviews international experiences with SEZ experiment, and critically evaluates the performance of the Chinese experiment of SEZs to provide insights into their potential for promoting industrial and regional economic development in India. Finally, it reviews the evolution, features and recent performance of SEZs in India, and highlights the critical factors for the successful development of SEZs in the Indian context.

 

Mamta Baranwal, Special Economic Zones: Issues, Opportunities and Ground Realities, The Icfai Journal of Infrastructure, Vol. 5, No. 3, pp. 66-72, September 2007

SSRN Abstract:
The government is of the view that the development of Special Economic Zones (SEZs) will lead to the development of business and economy. In the process of establishing a SEZ, land acquisition plays an important role, which is also a sensitive issue among different players, such as NGOs, local people, politicians, developers, and the industrialists. Any delay in SEZ development leads to cost overrun of projects that is painful to the developers who have to pay a huge amount towards interest on their investment to banking institutions. This paper discusses how industries are ‘migrating’ from their existing sites to SEZs for getting tax exemptions. A good example is that of Videocon which has hired 50 farmers in 100-acre SEZ project at Aurangabad. However, Article 243G of the Constitution provides the necessary guidelines that the local government and the Planning Commission may examine each proposal and decide whether to continue or discontinue with the sharing of local resources. The paper also briefly discusses the salient features of Rehabilitation and Resettlement (R&R) Policy and concludes that India has to learn from the Chinese strategy—to implement not more than 50 SEZs initially, learn fully and carefully from one’s own experiment, and then move forward slowly to achieve a bigger target.