Issue of taxation
The policy of carving out special economic zones (SEZs) in India was thought to be an effective way of promoting large-scale industrial clusters and exports.
But the attempt to replicate the Chinese model of creating manufacturing enclaves has not been very successful.
Of the 564 SEZs that have been formally approved so far, only 192 were operational in June this year. Total employment in these enclaves was 1,277,645 in 2014, as against an expectation of 1,743,530 by 2009.
While the share of SEZs in total exports rose from six per cent in 2006-07 to 28 per cent in 2010-11, it is believed to have declined in subsequent years. The total area under SEZs currently stands at 61,624 hectares, while Shenzhen in China alone covers 49,300 hectares.
Industry experts argue that a key issue plaguing SEZs is that of taxation.
Under the original scheme, businesses in SEZs were exempted from the minimum alternate tax (MAT) on book profits and developers were exempted from payment of the dividend distribution tax (DDT).
But with indications that companies were misusing the policy for real estate arbitrage and that information technology companies were using the policy to recoup tax benefits that they lost when the Software Technology Parks of India (STPI) scheme ended, these exemptions were withdrawn.
Image: Chinese President Xi Jinping and Indian Prime Minister Narendra Modi during the former's visit to India in September 2014.
Text: Ishan Bakshi, Business Standard
Image courtesy: PTI