India's torrid economic expansion over the past five years delighted investors internationally, but the inevitable shakeout of rapid growth is starting to rub some nerves raw at home. Compared to China, India joined the Special Economic Zones (SEZs) game quite recently. The country first implemented SEZs in 2000, but the zones only exploded in popularity after the SEZ Act, 2005 expanded the program of benefits they offered. Applications for new SEZs spiked, and as of January 2007, the Indian Government had approved plans for 237 projects. Two experts air their views on the various aspects of SEZs in this debate.

SEZs across the globe (especially China), have been prosperous and successful in promoting private investment-led economic growth. What measures do you think that the Government of India (GoI) needs to take for allowing benefits of SEZs to spread to the rest of the economy?

Ramakrishna Nallathiga: It needs to be understood that though the Indian SEZ experiment was inspired by the success of the Chinese, it has taken a somewhat different route. While the Chinese government has made SEZs enclaves of exports, primarily catering to global markets, thereby limiting the benefit flow to economy through exports and employment generation. Indian experiment widened the scope by allowing the selling of a proportion of goods in Domestic Tariff Area (DTA) and encouraging private development of SEZs. However, the problems associated with land are complex in a democratic country, like India. Here, the Indian government has to act as a facilitator and assist in the negotiations rather than acquiring private land with `eminent domain' laws. The SEZ experiment has also opened up another market for players to develop the SEZs, as it resulted in more number of players and proposals, market needs to consolidate with mergers and withdrawals of proposals. The incentives normally extended to infrastructure segment—soft loans, priority lending have to be withdrawn for SEZs, as the RBI has rightly identified it as tantamount to real estate development activity. The `thematic SEZs' concept has to be integrated with the `clustered industrial growth' and ensure that there will be no waste of capital by relocation of industries.

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