Liberated enclaves

Government must make the whole country a viable NMIZ

Two decades after Prime Minister Manmohan Singh first unleashed his dose of economic liberalisation, industry continues to be shackled — an average manufacturing unit has to comply with 70-odd legislation, each of which requires at least one licence/certificate. All told, a unit has to fill up around 100 returns a year. In addition, there are the usual issues of lack of labour flexibility, the time it takes to close units down, and so on, basically all the issues that ensure India is at the bottom of most ‘doing business’ surveys. To the extent the services sector, like the IT/ITeS segment, was relatively less shackled, it grew faster. Not surprisingly, the government wants to increase the share of manufacturing to 25 per cent by 2022 — it’s around 16 per cent right now if you don’t include construction and around 25 per cent if you do — since this will also create large-scale employment. So, it has a proposal for special industrial enclaves, called the National Manufacturing and Investment Zones (NMIZ), and the paper that is up for discussion can be downloaded from the industry ministry’s website.

In principle, the NMIZ is much like the Special Economic Zones (SEZ) for exports — the idea is to give tax and other breaks to developers and units within these zones, to provide world-class infrastructure, simpler environment and other clearances, less rigid labour laws (the paper even encloses a draft of a loss-of-job insurance contract), and so on. NMIZs are also to have ‘processing’ and ‘non-processing’ areas, for production and residential/commercial uses, respectively. While the NMIZs themselves are principally promising a subvention of interest rates by 4 percentage points and income tax exemptions to input suppliers, the proposal suggests you can have SEZs inside the NMIZs — that is, the NMIZ is SEZ-plus on the tax-breaks front.

Theoretically, the principle behind NMIZs is appealing and is a familiar one, namely that since the government can’t risk the political and other wrath of changing labour laws across the country, why not do it in specialised enclaves? This, as this newspaper has pointed out in the case of SEZs, is fraught with problems since there is no way of knowing whether the investment being put into these SEZs is incremental in nature or whether it is investment that would have come in anyway keeping in mind India’s growth and increasing productivity and is now getting diverted to SEZs. If it is the latter, then that’s a fiscally ruinous pattern of industrialisation, more so at a time when the government is increasing its spending and taking on larger social responsibilities on jobs and food security. Nor, apart from the labour laws, is it clear why the government clearance procedures can’t be expedited across the country without incurring political flak, after all Dr Singh did it in 1991. Like the SEZ policy, this one will also run into problems in acquiring large tracts of land (this has to be done solely by the state governments) and it is unclear if states will agree to relax labour laws for NMIZs since they haven’t for SEZs either. Since a large part of the fast-tracking of clearances and approvals the NMIZ wants are related to the environment ministry, it will be interesting to see its comments on the proposal.