Page 289 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes Commission of India, although the law does not bar retrenchment or closure and only
requires prior approval, in practice the Act has been interpreted in a way that has made
retrenchment almost impossible. In practice, termination at the end of a probation period
has also been treated as retrenchment, even if the termination was due to failure to pass a
test that was a condition of employment.
The original draft of the new SEZ law intended to give state governments the freedom to
allow implementation of flexible labour laws within the SEZ area. However, before the
final approval from the lower house of parliament, the government was forced to drop
this clause in the face of Leftist opposition. The National Common Minimum Program
(NCMP) of the United Progressive Alliance also prevented the government from
implementing a hire and fire policy. Labour being a Concurrent issue, individual states
still have the option to amend their specific legislations to allow labour flexibility in SEZs
set up under their jurisdiction.
7. Private sector may not take up development of large SEZs needed: Most of the infrastructure
facilities for SEZs tend to be public. In addition, investment returns from SEZs tend to be
spread over a long period. These investments are best suited for government balance
sheets than the private sector. We do not expect the private sector to be very enthusiastic
about undertaking such investments.
8. Some policymakers oppose the SEZ law: The Ministry of Finance (MOF) has been vocal in
opposing the government’s liberal approach towards the setting up of SEZs. The MOF has
been concerned over potential revenue loss and has suggested an increase in the minimum
area required. The government-appointed empowered group of ministers has decided
against this. The government, however, has decided to cap SEZ approvals at 150 during
the first six months after the notification of the SEZ Act (February 10, 2006). The government
has also indicated that it will not allow the movement of existing businesses into SEZs. We
believe that given the tax savings, companies may choose the new SEZ route for expansion
plans that they otherwise would have pursued outside the SEZ area.
9. Good concept, but poor execution: Although, trade expansion in the last six years has been
good at 23% CAGR, India’s share in world goods exports is yet very small – at 1.5% for
2008. Experts say it is due to poor execution of policy framework governing international
trade; red tape, bureaucracy and wrong handling of widely known gaps in the business
environment. The existing SEZ policy does not seem to be in tune with Indian SMEs,
which contribute almost 40% of India’s foreign trade. The present SEZ policy has failed to
create bigger inroads into small and medium scale manufacturing and trading. Efforts
shall be made to make existing SEZs policy particularly helpful for small and medium-
scale entities, which cannot afford to set up captive infrastructure facilities, but can certainly
emerge as competitors in cost and scale of operations due to their specialization in
horizontal production lines and can successfully attract foreign capital and technology in
their specialized areas of activity. Moreover; India has to tailor its SEZ policy such that it
should promote and encourage the country’s manufacturing exports in international
markets, so that India can also stand at par with China as a low-cost supplier of goods to
world.
10. Is undertaking large SEZs a real solution?: One dimension of the present debate is that
India should focus on developing large-size SEZs in a few key states. The prime motive of
attractiveness of SEZs is low cost of operations due to good infrastructure and allied
services. Hence the Central Government and key state government should pool their
resources along with private sector players to create SEZs that can compete with China
and attract foreign capital and technology.

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