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Borrowing China’s CEZ model

May 1, 2017 | Expert Insights

In 2016, China’s electronic information industry grew rapidly after the liberalization of its economy under the policy of accelerating ‘informationization’ of its industrial development. Since 2011, China has been the world’s second largest market for personal computers with Haier, Huawei, Lenovo, Xiaomi all originating from China. However, with the declining demand for Chinese goods overseas, there is an opportunity for India to accelerate its production of electronic goods and acquire a share of the global market.

Creation of Coastal Economic Zones

Niti Aayog, an Indian think tank has recently proposed to the Indian government to construct CEZs (Coastal Economic Zones) under the Make in India scheme to increase its trade in electronic goods. India has numerous SEZs (Special Economic Zones) but these have not grown as much as they have in China since the 1980s due to issues of size and location. CEZs may be 200 to 250 km wide from the coastline. They would have relatively flexible labor and land acquisition laws and also provide for easy entry and exit of firms. Goods moving into and out of the zone will face minimum barriers. The importance of creating CEZs to open up the Indian firms to the global market rises further because real wages in the manufacturing sector in China have been rising at 10% per year since 2007. This has led firms in China to look for locations with less expensive labor to continue their trade.

Investment incentives and feasibility

The investment threshold set by the government for the creation of CEZs in India according to Niti Aayog should be such that a tax break of 10 years should be given to firms investing $1 billion in export goods and create 20,000 jobs. However, unlike China, India has an open domestic migration policy. This means that CEZs would harbor segmented development in India, particularly in richer coastal areas, which goes against the policy of Make in India which is to promote development of all regions. Along with this, chemical waste, untreated sewage etc in the region would increase due to industrialization which would harm the coastal ecosystem. Thus, the question that arises is how feasible are the CEZs in reality?

Assessment

The government should assess how feasible the CEZs would be on the basis of their environmental impact and the development of areas that already seek trade advantages such as the coast of Gujarat, Maharashtra and Andhra Pradesh.

If CEZs are still created after thorough analysis, large firms should agree to support medium and small scale firms in the zones as ancillaries only after which they should be able to avail the government provided incentives, the main objective being job creation.

The Indian government should also give utmost priority to research and development in the electronics goods industry for innovation which is crucial to better quality of goods as well as large scale manufacturing and trade.