Development of Port based Special Economic Zones (SEZs) in Gujarat

Development of Port based Special Economic Zones (SEZs) in Gujarat

Author : Harsh Shah (2304), Faculty of Technology, CEPT University, Ahmedabad : Prof. P. V. Akalkotkar, Faculty of Technology, CEPT University, Ahmedabad

Abstract:
A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The SEZ policy came into existence in April, 2000.The idea behind the setting up of SEZ was to increase the exports and hence accelerate the economic development of the country. As the SEZs are developed several issues that need to be addressed have arisen: Lack of social infrastructure, clarity in labour laws, the lack of enough land required for setting up huge units, absence of Single window clearance system, bureaucratic devices etc. This paper aims at identification of various infrastructure issues in the development of Special Economic Zones and to assess the impacts. For this purpose Kandla SEZ and Mundra SEZ have been taken as the case study. Finally the paper concludes that the impact at local level is more than at regional level and this can be reduced by provision of proper infrastructure facilities. The recommendations are given for successful development of port based SEZs.

Key words:
Special Economic Zone (SEZ), Free Trade Zone, Export Processing Zone (EPZ), Foreign Direct Investment (FDI), Multiproduct SEZ, Port based SEZ, Social Infrastructure, Multimodal Connectivity, Strategic Location, Domestic Tariff Area(DTA)

Background
Liberalization of trade in goods and services, new integrated transport networks, information and communication technology developments have created unique opportunities for trade and transport industry. Export processing zones (EPZs) are an international phenomenon influencing increasing share of trade flows and employing a number of workers. India was one of the first in Asia to recognize the effectiveness of the EPZ model in promoting exports, with Asias first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. There are other issues and irritants like bureaucratic devices, computation of fiscal benefits, and jurisdiction of other entities over SEZs, basis of user charges for infrastructure services, etc.With a large number of special economic zones (SEZ) set to come up within the next few years across the country, the urban development ministry has expressed concerns regarding urban planning nightmares that may arise in the form of unplanned new townships on the periphery of these SEZs. Infrastructure is the main determinant of SEZ success. In light of this the study is been taken up to study the development of SEZs and identify various issues and their impacts.

Objective and Scope

To identify various infrastructure issues in the development of special economic Zones and assess impacts. The scope is restricted to port based Special Economic Zones in Gujarat region.

Need for Study

SEZs when operational are expected to offer high quality infrastructure facilities and support services, besides allowing for the duty free import of capital goods and raw materials. However, as SEZs have developed, several issues have arisen that need to be addressed to unleash this potential. Lack of enough land required for setting up huge units and lack of clarity over the labour laws in a SEZ are turning big entrepreneurs away from these SEZs. SEZs lack social infrastructure. Even though, on paper, SEZ legislation calls for a single-window clearance system, in practice, multiple clearances are required.

SEZ Concept
SEZs, the new engines for export led economic growth, is defined as: Specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs The objectives behind setting up of SEZs are Generation of additional economic activity, Promotion of investment from domestic and foreign sources, creation of employment and development of infrastructure facilities.

School of Building Science and Technology, CEPT University 1

Development of Port based Special Economic Zones (SEZs) in Gujarat

Development of SEZs
Three decades back there were around 80 zones in 30 countries. It generated barely US$6 Billion in exports with employment of 1 Million people. Now this Global scenario has completely changed. There are over 5000 zones in 120 countries generating US$ 800 billion exports and employment over 50 million people. SEZs have contributed to the growth and development of the Indian economy in terms of exports, employment and investments. It is the key growth driver of nations economy and has made the country globally competitive. There are 53 SEZs in Gujarat, covering an area of approximately 20,858 hectares. Gujarat owns three functional SEZ, Kandla SEZ, Surat SEZ and Surat Apparel Park, covering an area of 506.54 hectares.

Governmental

Issues: Policy framework, Administrative set up and Fiscal Incentives

Planning and Construction Issues: Planning of

infrastructure facilities, Land use, Policy issues, Environmental considerations.

Data Analysis
The data based on identified issues were gathered through two questionnaires. The first questionnaire was for the industries which mainly included the physical, Economical, Governmental and Environmental Issues. The second questionnaire was for SEZ employees which was mainly focused on the quality of life and working conditions of the employees in the SEZ.

Physical Issues Findings from the Literature Case studies:

The success of the SEZs attributes to the following factors. Strategic Location Multi modal connectivity Bigger size and multiple productivity Provision of infrastructure facilities in processing as well as in non processing area(Social Infrastructure) Liberal Economic policies and incentive packages Proper planning and management Administrative framework Flexible Labour laws Export performance and Total investments The issues have been identified based on the above factors and these issues were studied for the Kandla SEZ and Mundra Port SEZ.

Mode of Transportation for Import/Export

Road and port are the two modes used maximum for import and export. Though the Kandla port is nearby the zone, the industries prefer Mundra port for import and export. Because of the lower draught (12.5 m) it cannot accommodate large vessels and there is lot of traffic congestion at Kandla Port which is not handled.

Physical Infrastructure facilities

There is a scarcity of water supply. So the units have to purchase water from outside. Garment and chemical industries are facing maximum problem due to insufficient water supply. Existing drainage system is poor which needs to be upgraded. Non trade effluent waste is discharged through the drainage. There is no separate drainage for chemical industries. The satisfaction level of power and telecommunication is very high, for transportation it is high but utilities it is bad.

Identified Issues for the study

Based on the literature case studies the issues have been classified in to 7 major issues.

Physical Issues: Location and Accessibility, Size

of SEZ, Connectivity, Industry Focus Infrastructure Facilities in processing Area and

Social issues
Social Infrastructure facilities
The Kandla SEZ lacks in providing social infrastructure. The housing colony is provided only for the administration staff. There is no provision of other social infrastructure such as hospitals, schools, commercial facilities within the zone. The satisfaction level for social facilities is average.

Social Issues: Infrastructure facilities in non

processing area(Social Infrastructure), employment, quality of life of workers, Labour laws and regulations

Economical Issues: Export/Import Performance,

industry growth and investment

Employment Generation
There is an increase in the employment after 2002 which is one of the successes of the KASEZ. Out of total, 40 to 45% is the female employment. Engineering units give maximum employment to skilled and semi skilled workers. These units also provide good training facilities for the workers. 2

Environmental

Environment Regulations, Provisions to protect environment(environmental Infrastructure) the city, Growth of the city, Land use pattern

Issues:

Spatial Issues: Socio-economic characteristics of

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Development of Port based Special Economic Zones (SEZs) in Gujarat

Primary Survey of Workers

The workers are classified in three categories namely skilled, semi skilled and unskilled. The survey results show that semi skilled and unskilled workers are predominant in all types of industries. The maximum workers are of age more than 30. No child labour is engaged in any of the industries.

Background of workers
Out of total workers 54% are migrants. Majority of them were from Bihar, Uttar Pradesh, West Bengal and Rajasthan. There is a negative impact due to migration. The population is increasing and there is a pressure on the existing infrastructure systems of Gandhidham Town.

SEZ operations due to the intervening epoch-making event of earthquake. There was a whopping growth of 52.50% in the export in this year. Then there is a slow down which resulted in to negative NFE in the year of 2005-2006. Average growth rate of export of last ten years is 21.10%. The share of DTA out of total exports is between 2 % to 5%. But DTA export has decreased over last five years. Maximum export is from chemical industries which is 60%.

Total Investment
Total investment in KASEZ in year 2006 was 346.76 Crore. Where Government Investment is 73.56 Crore, Private investment by the units is 254.17 crore and Foreign direct Investment (FDI) is 16.03 Crore.

Working conditions
Mostly the workers are working hours are 6 to 10 hours a day. Unskilled and semi skilled workers are paid on daily basis as per working hours. One of the adverse problems that the workers are facing is frequent unavailability transportation. The wages are given as per the Minimum Wage Act. The working condition in SEZ is an indicator to assess social impact on the lives of workers. For maximum workers, the working conditions are average. Majority of the workers are satisfied with what they have in terms of salary as they are paid as per their work but there are no infrastructure facilities for them.

Spatial Issues
KASEZ contributes to the largest share of factory employment in the district of Kutch. The Zone plays a catalyst role in the socio-economic development of this region. Two towns (Gandhidham and Kandla) are affected by the floating population because of development of Kandla Port and Kandla Special Economic Zone. There is a lack of social infrastructure such as schools, colleges, hospitals in the Kandla town because of which lot of people have moved towards Gandhidham. Kandla region is not fit for cultivation as Kutch region falls under coastal zone. Only 2% land is used for agricultural purpose. Kandla SEZ has maximum industrial area which covers almost more than 70%, which according to new guidelines should be 50% for SEZs having area more than 100 hectors. Not much land is provided for social infrastructure.

Economical Issues
The exports from the KASEZ have been continuously increased. KASEZ has the highest net foreign exchange earning record, as a percentage of its Exports in last five years (65% of its exports). For KASEZ, 2002-2003 was effectively the first year of its
2000 1750 1500 1250
INR Crore

Export/Import Performance of KASEZ

1000 750 500 250 0 2000-2001 527.89 154.87 373.02 2001-2002 529.26 202.48 326.78 2002-2003 807.14 356.97 450.17 2003-2004 1072.51 441.77 630.75 2004-2005 1115.83 418.31 697.52 2005-2006 1101.11 411.59 689.52 2006-2007 1517.20 497.03 1020.17 2007-2008 1938.85 791.40 1147.45

Total Exports Total Import NFE

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Development of Port based Special Economic Zones (SEZs) in Gujarat

% of Total Area 34.53% 17.48% 5.26% 4.30% 21.34% 15.79% 1.30% 100.00% As Per Guidelines (Max.) 35% 22.75% 9.75% 9.75% 6.50% 9.75% 6% 100%

Environmental Issues
There is no common effluent treatment plant in the zone. So all the units dispose of the waste and scrap in the dumping yard and then it is transported for further process. All the units have approval of GPCB and the type of waste and pollutants that each industries produces are within GPCB limit. Due to development of Kandla Port and Special Economic Zone, the fishing industry is adversely affected. Most of the industries store the waste and dump it in the yard. The dumping yard is just opposite to Kidana village. It is affecting the villagers adversely. On the other hand, the good thing is that 60% of the plastic industries import the scraped plastic of other units and prepare HDPE, LDPE pipes from the plastic agglomerates and granules.
Land Use Industrial Residential Commercial/Mixed Public, Semi Public Recreational Transportation and Ware Housing Utilities Total

Area (in Ha.) 5094.46 2579.07 776.09 634.63 3148.4 2330.09 191.58 14754.32

Planning of Infrastructure facilities

The infrastructure in the MUNDRA SEZ area has been provided keeping the various planning principles of sustainability, resource conservation and to provide state-of-the art infrastructure.

Governmental Issues
KASEZ administration offers an export friendly environment through simplified procedures to provide a single window clearance system. Though there is a facility of single window clearance from the central and state level approvals, 55% of the industries are facing problems regarding single window clearance. There are long delays in decisions by the officials at the time of pre establishment services.

Drainage: 27 drainage catchments with the storm

water being collected in 27 lakes / ponds.

Water: The water demand for the MUNDRA SEZ area will be 166.5MLD. Narmada water (piped and canal), seawater (desalinated), harvested water (rainwater harvesting) and recycled water (STP) are the sources of water supply for Mundra SEZ. Power: A total maximum demand of 581265KW has been calculated. The various industries in SEZ demand a continuous power supply, hence, a captive coal based thermal power generation plant is proposed for the SEZ generating at 11KV. Telecommunication:
The Department of Telecommunications will be requested to provide with a 200MB-bandwidth connection with connections using fiber-optic cables.

Planning and Construction issues

With the development of the port and the proposal of the SEZ, a new impetus was introduced in the economic development of the area. To complement this scale of economic development proper planning becomes imperative in order to regulate the growth and conserve the natural resources. With a large number of SEZs set to come up, the urban development ministry has expressed its concerns regarding urban planning nightmares that may arise in the form of unplanned new townships.

Social infrastructure: This is provided to serve

the population at different level, viz. at the City Level, Zonal level and the Layout Plan Level. In the present case, Social Infrastructure is to be provided to serve a population of 3,00,000 at City Level; for 1,00,000 population at the Zonal Plan Level and 15,000 population at the Layout Plan Level.

Land Use Distribution

On detailed examination of 16,900 hectares of landmass, around Mundra Port, contiguous pockets with aggregate area of 14,754 hectares (87%) have been identified as suitable for development within Mundra SEZ boundaries. Further 13% land is reserved open area. The land use plan follows the master plan guidelines except for recreational facilities. Following from the conceptual framework the land use plan has been developed in the form of interconnected yet largely independent zones.

Construction of Structures
As Mundra SEZ falls within Extreme Risk Zone (0.5 to 3.0 Km from High Tide Line), it follows the guidelines of Coastal Regulation Zones(CRZ) along with the General Development Control Regulations. The buildings are designed for appropriate wind leads.

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Development of Port based Special Economic Zones (SEZs) in Gujarat

Impact Analysis of KASEZ

KASEZ is responsible for three major success factors Employment Generation and employment for females, Revenue Generation for Government and earning foreign exchange. Land, labours and raw materials are easily available because of the Strategic location of KASEZ. It also has multimodal connectivity so there is convenient transportation of goods and services. The multiple industries have more investment. The administration is export friendly which have increased the opportunities of investment. The Zone doesnt provide adequate infrastructure facilities and it lacks in providing social infrastructure. Because of this people in nearby area are greatly affected due to pressure on the existing social amenities of Gandhidham. There is also growth of slums in the surrounding region. Environment monitoring is also very poor which has lead to environment degradation in the surrounding region. The investment by government is more comparing to FDI in KASEZ. There is loss of revenue because of the various tax exemptions according to Ministry of Finance.

Recommendations
Impact at local level is more than at regional level. But this impact can be kept under control by improving in zone infrastructure, developing social amenities and providing proper environmental management systems. Certain guidelines should be prepared for collection and disposal of the waste. There is a foremost need to develop a secure landfill site in zone for disposal of scrap. There is no green belt in Kandla special economic zone as of now; 30 m will be kept for green belt on all sides of zone as per the guidelines. Kandla falls under CRZ norms, so future development should be as per CRZ norms. There must be certain norms regarding size of SEZs or restricted numbers of SEZs in the State. The workforce in the administration should be increased to reduce the prolonged time taken in approval procedures. Development of SEZs needs to be integrated with existing Master Plans and Regional Plans. There is need to develop regional/sub regional plan around the SEZ areas. Here, State Town and Country Planning/Urban Development Authority should play a key role.

Impact Analysis of MPSEZ

Strategically located and having multimodal connectivity MPSEZ has no impacts as such on the surrounding region. Environmental regional planning is such that it unlikely pose any threat to the ecological sensitive area. There is protection of environment by provision of wind breaks, water recycling and STP, CETP and green shelters at required locations. Efficiencies of operations would be improved and there are chances of more investment because of sufficient supply of physical infrastructure facilities. The social infrastructure and townships would give better quality of life and living standards to the employees. The only negative impact that the Mundra SEZ possesses is large size that needs acquisition of large piece of land. The land acquisition and land leveling process may change the hydrology pattern and drainage and may create pollution during process of land clearing.

Conclusion
Increasing the number of SEZs has very negligible effect on economic growth. Taken together, these results suggest that what contributes to greater growth is a greater scale of liberalization, better social infrastructure and environmental protection facilities, rather than increasing the number of SEZs. Environment Management Plan and Environment Impact Assessment are to be made mandatory for all the proposals. The administration should be decentralized where there is an utmost need for participation of local authorities in the SEZ management. The SEZs under development should follow the guidelines for master plan and General Development Regulations to control, minimize and protect environmental damage to sensitive coastal stretches from unplanned human interference.

Reference:
1. Aggarwal Aradhna: Special Economic Zones: Revisiting the Policy Debate, Economic and Political Weekly November 2006, Page 45 2. Dr. Ranjit Singh, Dr. Arup Barman, Article on Special Economic Zones in India-the continuity context Journal of Indian Infrastructure, June 2008, Page 24 3. Special Economic Zone Policy: 2006, Gazette of India, Definitions: Section 3 Sub-Section 4. Special Economic Zone Policy: 2006, Procedure of Handbook, Government of India, Appendix 14 5. www.kasez.com, www.mpsez.com, www.sezindia.nic.in

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