The Indian government has approved proposals for 170 special economic zones (SEZs) and counting. SEZs can invite foreign direct investment, provide jobs, and promote the development of secondary industries to service firms. Why, then, the spirited outcry over India’s recent moves in this direction? For one thing, many of the approved sites are located on prime agricultural land – leading to complaints that the SEZs are more of a coordinated land grab by the rich than coordinated economic development.
Creating so many SEZs would seem to exacerbate widening inequality in India – both in terms of individual income and national infrastructure. We’ve already seen the results of the technology revolution emanating from Bangalore: isolated areas of development with limited benefit to the broader economy. Destroying valuable agricultural plots seems especially ill-conceived, as farmers are not likely to make an easy transition to the jobs on offer at these SEZs.
India isn’t having too much trouble attracting foreign investment as it is. Okay, so maybe the government hasn’t hit the $10 billion a year target, and India lags China. But most observers expect FDI to India to continue to rise. In the next two years, Goldman Sachs plans to invest $1 billion in real estate and infrastructure. The Indian government would do better to focus on the real barriers to its foreign investment goals – namely inflexible labor laws and poor roads and other infrastructure.
See the recent World investment prospects to 2010: Boom or backlash? for more FDI predictions. Also, a while back we held an online discussion on whether the benefits of SEZs outweigh their costs. Finally, I highly recommend Goldman Sachs' slick new video projecting fantastic growth to 1950 for the BRICs (Brazil, Russia, India and China), if only for its beautiful presentation style.
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