Bishesh Bithikaa, Research Scholar, School of Business Studies Sharda University, Greater Noida (U.P.)

Transcription

1 (Impact Factor ) Utilization of Blocked Land in Special s of India for Balancing Growth and Development Bishesh Bithikaa, Research Scholar, School of Business Studies Sharda University, Greater Noida (U.P.) Banga Shradha, Assistant Professor School of Business Studies, Sharda University Greater Noida (U.P.) Abstract Special s (SEZ) of India have been floated in various Zones, however, it is observed that almost half of the allotted land remains un-utilized, which otherwise could have been used for generating additional economic activities. The prevalent research work so far has studied the problem of regional imbalance in SEZ allocation. They advocate establishment of more number of SEZs in other Zones. However the analytical focus of this paper is towards strengthening the present SEZs activities instead of increasing the number of SEZs for increase in growth. As such, it is thought to release the blocked land and reallot them to units in other sector whose performance is overall best in the zone. This paper will try to find out this Overall Best performance sector to which re-allotment of land may be offered/auctioned. In any Zone, the performance of different units/sectors will be determined based up on past data in various field like Land requirement, Investment, Employment generated, FDI attracted etc. The relative comparison between the units will be made by virtue of Resource Utilization concept utilizing the ZERO-ONE Goal Programming nique of Mathematical Optimization using MS-EXCEL where the units/sectors are treated as variables among which the BEST is to be determined. Thus, this research rallies around utilization of Blocked land for re-allotment to the units in the strongest sector specific to that Zone. It offers an opportunity for a Zone to generate additional economic activities which may ultimately lead to eradicate regional imbalance in growth. Keywords: Economic Activity, Export, Goal Programming, Land allotment, Resource utilization, Special s. 1. Introduction SEZs are specific geographical regions that have economic laws different from and more liberal than a country s normal economic laws (Wu, 2009). They can also be considered as industrial zones with special incentives for attracting foreign investors. Imported materials or data undergo some degree of processing before being (re)-exported again (ILO, 2002). More specifically, an SEZ is a fenced-in industrial estate offering firms a free trade conditions and liberal regulatory environment and specializes in manufacturing for export (World Bank, 1992). Of late, SEZs have come to constitute an important aspect of the industrialization strategy of the developing economies for increasing their competitiveness and trade flows in international market. They are meant to serve the host nation through export earnings and increased employment opportunities. Further, SEZs are also expected to contribute to the overall development of domestic economy by activating backward and forward linkages and facilitating diversification of the export basket of the host country. The term SEZ is synonymous with EPZs (Export Processing Zones), FTZs (Free Trade Zones), etc., which have been established by worldwide countries to serve as means for accomplishing different economic purposes and objectives. In India, SEZs were set up with the aim of generating foreign exchange reserve. They also develop export-oriented industries, stimulate investment and generate employment opportunities besides creating an internationally competitive environment of export production at low cost. The zones were also meant to be safe havens for eliminating constraints imposed by India s trade and industrial policy on exporters. id- irjmss@gmail.com Page 346

2 (Impact Factor ) The first SEZ in India (as well as in Asia) was set up at Kandla in Gujarat in Thus India became a pioneer among Asian countries to have recognized the effectiveness of the EPZ model in the promotion of exports. This was followed by Santacruz Electronic EPZ (SEEPZ) near Bombay in 1973 followed by the Madras EPZ (now Chennai) in South (1984), Falta EPZ near Kolkata in the East (1984) and Noida EPZ near New Delhi in the North (1984) Cochin EPZ on the West Coast (1984) and Visakhapatnam EPZ on the East Coast (1989). After 1990s, the liberalization, privatization and globalization (LPG) policies of Government of India led to the need for drastic changes in the erstwhile policies relating to industrialization and EPZs. This paved the way for introducing SEZ Policy in 2000 to permit the establishment of SEZs in the public, private, joint sector or by the State Governments. This policy also converted the erstwhile established EPZs into SEZs. To encourage private participation the SEZ Act was enforced in 2005 followed by SEZ Rules in 2006 and this resulted in an overwhelming response leading to 600 formal approvals of SEZs in the country. The number of operational SEZs has also gone up from seven in the year 2000 to 173 SEZs in 2014 (up to January), with the notified SEZs rising to 577 in number. Special s (SEZs) have emerged as a widespread strategy for attracting foreign direct investment (FDI) and fostering economic growth and development (Wong & Chu, 1984; Brautigam & Xiaoyang, 2011). The main role of the theoretical framework is to establish through which channels SEZs can lead to structural change. The foundation for this is to a large extent drawn from the concept of unbalanced growth, as popularized by Hirschman and Lindblom (1962). They have to a large extent presented a fully formulated theory of a development strategy based on unbalanced growth. SEZ s help in creating a balanced economic growth in a country if they are properly located and implemented leading to tapping of local talent and contributing to increased economic activity in the area. Empirical research regarding setting up of special economic zones has been attempted to find out various factors which make a zone successful as compared to other established zones in the region. Figure 1: Hierarchy of agencies regarding the establishment of SEZs and their function Success factors for SEZ have been researched by several authors. CII report (2008); Smart and Hsu (2004); and Cling and Letilly (2001) have argued that Geographical location is the most important factor behind SEZ success in India and China. China s experience is relevant to the case of India, even though it is not classified as a transition economy, because India s economy pre-1990s was extremely protected and closed to foreign trade. Litwack and Qian s (1998) empirical study favors balanced economic development policies rather than id- irjmss@gmail.com Page 347

3 (Impact Factor ) unbalanced ones, as the latter would render a strictly lower social payoff. (Litwack & Qian, 1998). Scholars like Brautigam (2010) have found out that the Chinese SEZs have played an important role in the Chinese rapid economic development. Jayanthakumaran (2003) and Jenkins et al (1998) have demonstrated that in Asia and Central America Linkage with domestic economy have been found to be one of the success factors of SEZ. Kumar (1989), and Ge (1999) have found that Economic infrastructure and favorable government policy are critical for SEZ success in South Asia, India and China. They have concluded that availability of labor, machine, money and material is required for SEZ success in Asian context. No identifiable consensus exists among scholars and policymakers as to whether or not SEZs achieve their intended outcomes (Brun et al., 2002). Furthermore, much of the literature is years old, and is characterized by a series of isolated cases, mainly from China (Farole, 2011). As such, evaluations of SEZ performance in the contemporary setting, especially outside of the traditional export-processing context, are sparse. 2. Location- A contributing factor to SEZ Ever since their introduction, SEZs have attracted a lot of attention from varied quarters, especially with respect to their performance (Aggarwal, 2004). However, it is identified that little research has been conducted on SEZ performance in India during the period Incidentally, the aforesaid period has witnessed the most dynamic happenings on the SEZ front. It is therefore considered appropriate to evaluate the performance of Indian SEZs. Various recent empirical research and literature suggests that location can be a contributing factor to the competitiveness of a firm (Karakaya & Canel, 1998). Empirical studies suggest that SEZs located in already developed area offering higher chances of pursuing agglomeration, are found to be more successful as compared to those which are located in semi or undeveloped areas (IDFC, 2001). According to Menon and Mitra (2009), scholars at the Centre for Policy Research in Delhi, with the country s GDP growth being fuelled by the services sector, Menon and Mitra advice that locations for new SEZs should be selectively done so that they spread development and address existing regional imbalances. (Menon & Mitra, 2009). An empirical analysis of the presence of SEZs in specific districts in India finds that the presence of an SEZ in a district is a function of the share of male workers in non-agriculture occupations, the share of literacy, share of scheduled tribes, and the share of scheduled castes (Mukhopadhyay & Pradhan, 2009). They found that SEZs are concentrated in more industrialized locations within the states. In addition, pre-existing industrialization of a district is a major determinant for the number of SEZs in that district, especially for the smaller SEZs and the ones focused on Information nology (IT). The current SEZs in India are located in and around industrialized areas, especially around megacities, and this implies that the SEZs may free ride on pre-existing infrastructure. This will in turn exacerbate regional imbalances, and generate costs in lost fiscal revenue without the corresponding benefits of additional employment. (Mukhopadhyay and Pradhan 2009). Laxamanan, L. (2009) calls for a balancing strategy, which is needed to be adopted to safeguard the interest of all the stake-holders without hindering the basic objectives of SEZ proposition. Studies by Aggarwal (2010) have aimed at examining the economic impacts of SEZs in the Indian context. She has established that a strategic approach is required to reap the opportunities offered by SEZs. Policies, Performance and Problems of SEZ in India have also been studied by Singala, Atmavilas, and Singh (2011). They have highlighted the issue of acquisition of private land, particularly farmland, for the purpose of establishing SEZs which has now become one of the important public policy issues in India. Some researchers, including Tantri (2011) have felt that in India the major issue of economic utility (if any) of SEZs is forgotten or not bothered about. Efficiency of SEZ is far below the threshold level as identified in the various literatures, thus, indicating a larger scope for improvement in efficiency of the existing enclaves. id- irjmss@gmail.com Page 348

4 (Impact Factor ) An interesting view point has been presented by Leong (2012) who states that the presence of SEZs increases regional growth but increasing the number of SEZs has negligible effect on growth. He advocates that instead of increasing the number of SEZs, it will be advantageous to increase SEZ activities within the existing zones (SEZ). For increasing these activities, Land is the major requirement. Let us examine the scenario in Indian context. TABLE-1: Zone wise Notified Land Area Details (as on 23 January 2014) SNo. Name of the Zone No. of Notified SEZs Information Received Notified Area Area Utilised (Area in Hectares) Area lying vacant in Processing Area (Area in Hectares) 1 Cochin Special Madras Special NOIDA Special Vishakhapatnam Special Economic Zone Kandla Special Falta Special SEEPZ Special Source: Ministry of Commerce and Industry, Department of Commerce, Government of India as seen on TABLE-2: Inter-regional and intra regional approvals of SEZs and land allotted to them in India, category wise, up to December, S.No Region SEZ Categories No. of SEZ appr oval s Land Allotted (Approx.) (Hectare Category wise percentage share of SEZs and land allotments to their respective regional totals SEZs Land Southern IT/ITES (Andhra Pharma/Bio id- irjmss@gmail.com Page 349

5 (Impact Factor ) Pradesh, Tamil Nadu, Karnataka, Kerala and Pondicherry) 2 Central (Maharashtra, Madhya Pradesh, Chattisgarh and Goa) IT/ITES Pharma/Bio Western (Gujarat, Rajasthan and Dadar and Nagar Haveli) IT/ITES Pharma/Bio Eastern (Orissa, West Bengal, Jharkhand and Nagaland) IT/ITES Pharma/Bio Northern (Uttar Pradesh, Uttaranchal, Punjab, Haryana, Delhi and Himachal. Pradesh) IT/ITES Pharma/Bio- 6 All India IT/ITES Pharma/Bio Source: This table is compiled using the data available from the Ministry of Commerce and Industry, SEZ section, Government of India, January, 2008 A glance at Table-1 gives us an idea that plenty of Land is available in all the 7 major Indian SEZs. This unutilized land can be used to strengthen/augment SEZ activities in the country. The economy will definitely get a boost if a best performing SEZ can be further strengthened. Thus, in this paper we have tried to find out the best SEZ offering largest area of land. The criteria for selection are Maximum: Area notified, Unused available land, Employment, Export and, Foreign exchange requirement; and Minimum: Import and Cumulative investment. id- irjmss@gmail.com Page 350

6 (Impact Factor ) 3. Statement of Problem In our Problem, we have the following conditions: There are 7 SEZ Zones (where i stands for No. of Zones 1,2,3,4,5,6 and 7 respectively for every Zone. Seven factors have been identified and the data for all the 7 zones under these 7 factors are so arranged that they are conflicting in nature meaning any Zone holds different rankings in different attributes and they do not follow any pattern. The seven factors are: A. AREA Notified B. AREA Un-utilized C. Export during D. Import during E. Net Foreign Exchange Earnings during F. Cumulative Investment till March 2009 G. Employment till March 2009 The problem is to select the best performing SEZ which has the Maximum: Area notified, Unused available land, Employment, Export and, Foreign exchange requirement; and Minimum: Import and Cumulative investment. 4. Research Methodology Real world problems are mainly based on multiple objectives rather than single objective. Here we see that we have some goals (Objectives) which are to be maximized whereas; there are certain goals which are to be minimized for getting an optimum selection. It is obvious that one of the ways is to apply mathematical programming model for the management systems. Economical plans are a key in management, applying fundamental programming methods is inevitable. Application of a multi-objective programming model like goal programming model is an important tool for studying various aspects of management systems. One of the technical advantages of multiple goal programming is that there is always a solution to the problem, even if some goals are conflicting. In general the principle idea of goal programming is to convert original multiple objective into a single goal. Goal programming is used to manage a set of conflict objectives by minimizing the deviations between the target values and the realized results (Rifai, 1994). The original objectives are re-formulated as a set of constraints with target values and two auxiliary variables. Two auxiliary variables are called positive deviation d+ and negative deviation d, which represent the distance from this target value. The objective of goal programming is to minimize the achievement of each actual goal level, i.e. since simultaneous occurrence of both over achievement or underachievement is not possible, it will be written as Minimize under or overachievement of target (Minimize d or d+ as the case may be) To understand it more clearly, Say, x1=1, x2=1 Then obviously, x1 + x2 = 2 However, if the Goal is to make x1 + x2 =1, we add a negative quantity d- (called deviation variable d-), with a value of -1, and re-write the equation as, x1 + x2 + d- = 1 then the equation is satisfied. Thus, application of principle of Goal Programmings shows us a path ahead as has been tried in this paper. FORMULATION OF GOAL PROGRAMMING MODEL A model is a simplified representation of a real system and phenomenon. It is a formal description of a real system. The general goal programming formulation considered for n=7 variables i.e. Zones and m constraints (7 numbers. of factors treated as constraints). id- irjmss@gmail.com Page 351

7 (Impact Factor ) Maximization of deviation variable quantity d- for 5 factors (Area notified, area unutilized, Export, FOREX earnings and Employment) and minimization of deviation variable quantity d- for remaining 2 factors (Import and cumulative Investment) which lead to good performance of an SEZ will be our desired Goal. The data for the above criteria considered for our selection is presented in Table 3. TABLE-3: Export, Import, NFE, during and Cumulative Investment & Employment till March, 2009 by EOUs (values in Rupees crores) S.No. SEZs EXPORT In Rs crores IMPORT In Rs crores NFE In Rs crores INVESTMENT Employment In Rs crores 1 NSEZ SEEPZ-SEZ MSEZ CSEZ VSEZ FSEZ KASEZ ISEZ As a number of EOUs have not submitted APRs all the above data are provisional. Source : Dev. Commissioner, All SEZs based on Annual Performance Report submitted by EOUs. Compiled by EOU Division, DOC Average Annual Exchange Rate : (Source : RBI) id- irjmss@gmail.com Page 352

8 (Impact Factor ) The mathematical model and its solution by Excel Solver are presented in Table-4. TABLE-4: Goal programming for selecting best overall SEZ Zone 5. Output Interpretation Optimal solution could not be obtained in 2000 iterations, yet SEZs of Kandla, Santacruz, Cochin, Falta and Vizag have been totally outclassed. Noida SEZ and Chennai SEZ have emerged as the Winners, of course far behind the desired value of 1. Noida SEZ with a score of has out-performed Chennai SEZ which has a score of.0026, and hence, is selected. It also indicates that although selected, Noida SEZ will have to do a lot to improve its attribute rankings in order to optimize the total performance. 6. Conclusion It appears that the Goal Programming has been effectively used to find an appropriate solution for achieving multiple conflicting objectives under complex constraints. Our objective is to increase SEZ activities within the existing zones (SEZ) instead of increasing the number of SEZs. The model has determined that Noida SEZ is our optimized solution hence stress can be given to augment SEZ activities in this zone in order to achieve enhanced economic result beneficial for the nation. This model can be further modified or extended to consider other factors and even a best overall solution. Needless to say that a number of permutation and combination of decision strategies can be obtained. Strengthening Noida SEZ s activities is preferred over increasing the number of SEZs for increase in growth. As such, it is advocated that the blocked land should be released and re-allotted to Noida SEZ as its id- irjmss@gmail.com Page 353

9 (Impact Factor ) performance is overall best in the zone. However, the Central and State governments and the Union Territories must follow a scientific and pragmatic approach in allotting the un-utilized land, for which the governments should take the advice of peers from different fields such as NGOs, technocrats, environmentalists, planners, administrators and, the stake holders of the project. Instead of directly allotting land to the developers of private SEZ, the governments may develop Noida SEZ and allot land to units taking into consideration their actual requirement. The findings (as in Table 2) shows that a discernible portion of land is allocated to IT/ITES and Multiproduct/ Services SEZs and only a meager share of land is allocated to and Pharma/ Biotech SEZs in the Noida SEZ. Hence governments should take a holistic approach in allotting land instead of an isolated approach where the focus is concentrated only a few number of units. This process will not only boost up the overall SEZ performance in the zone as well as in the country but will also make it possible to curb the extraneous tendencies of the private SEZ developers. The governments must lay down detailed guidelines for developers of SEZs and the advantages as well as losses in terms of opportunity costs to the primary sector and the overall impact they will have on the economy must be calculated, otherwise, our primary objective of setting up of these SEZs will be jeopardized. References Aggarwal, A. (2004). Export processing zones in India: Analysis of the Export Performance. Indian Council for Research on International Economic Relations, New Delhi Working Papers. Aggarwal, A. (2010). Economic impacts of SEZs: Theoretical approaches and analysis of newly notified SEZs in India. Munich Personal RePEc Archive_Working Paper_20902 Brun, J.F., Combes, J.L., & Renard, M.F. (2002). Are there spillover effects between coastal and non coastal regions in China? China Economic Review, Vol 13, No 2-3, pages Brautigam, D. (2010). Looking East: Africa s Newest Investment Partners Global Journal of Emerging Market Economies 2(2) Bräutigam, D., & Xiaoyang, T. (2011). African Shenzhen: China's special economic zones in Africa. The Journal of Modern African Studies J. Mod. Afr. Stud., 49(01), CII Report on SEZ, Confederation of industry, Retrieved January 07, 2008, from web site: Cling, J.P., & Letilly, G. (2001). Export Processing Zones: A threatened instrument for global economy insertion? Document de Travail Unite de Recherche CIPRE, DIAL, Developpement et insertion internationale. Farole, T. (2011) Special s in Africa: Comparing Performance and Learning from Global Experiences. Washington:World Bank. Ge, W. (1999). Special s and the Opening of the Chinese Economy: Some Lessons for Economic Liberalization. World Development, 27(7), Hirschman, A. O., & Lindblom C. E., (1962). Economic development, research and development, policy making: Some converging views. Behavioral Science 7 (2): Infrastructure development finance company (IDFC) report on SEZ. (2001). Retrieved August 13, 2005, from web site: id- irjmss@gmail.com Page 354

10 (Impact Factor ) International Labour Office (ILO) (2002). Employment and Social Policy in respect of Export Processing Zones (EPZs). GB. 285/ESP/5, Geneva. Jayanthakumaran, K. (2003). Benefit cost appraisal of export processing zones: A survey of the literature. Development policy review, 21910, Jenkins et al. (1998). Export Processing Zones in Central America. Development Discussion Paper No. 646, Harvard Institute for International Development. Retrieved August 13, 2005, from web site: Karakaya, F., & Canel, C. (1998). Underlying dimensions of business location decisions. Management & Data Systems, 98(7), Industrial Kumar, R. (1989). Indian Export Processing Zones: An Evaluation. New Delhi: Oxford University Press. Leong, C. K. (2012). Special economic zones and growth in China and India: An empirical investigation. Int Econ Econ Policy International Economics and Economic Policy, 10(4), Litwack, J. M., & Qian, Y. (1998). Balanced or Unbalanced Development: Special s as Catalysts for Transition. Journal of Comparative Economics, 26(1), Menon, S.N., & Mitra S.K. (2009). Special economic zones: The rationale. New Delhi: Centre for policy Research, No. 16. Mukhopadhyay, P., & Pradhan K. C. (2009). Location of SEZs and Policy Benefits: What Does the Data Say? Special s: Promise, Performance and Pending Issues. Pages- 61 to 84; Centre for Policy Research, New Delhi Rifai, A. K., (1994) A note on the structure of the goal programming model: assessment and evaluation. International Journal of Operations and Production Management, 16, Singala, S., Atmavilas, Y., & Singh, E. (2011). Special s in India: Policies, Performance and Problems. ASCI Journal of Management, 40(2), Smart, A., & Hsu, J. (2004). The Chinese Diaspora, Foreign Investment and Economic Development in China. The Review of International Affairs, 3(4), Tantri, M.L. (2011). Special s in India: Are these Enclaves Efficient? Working Paper No. 274; ISBN , The Institute for Social and Economic Change, Bangalore. Wong, K., & Chu, D. K. (1984). Export Processing Zones and Special s as Generators of Economic Development: The Asian Experience. Geografiska Annaler. Series B, Human Geography, 66(1), 1 World Bank (1992). Export Processing Zones. Paper prepared by Industry Development Division, Industry and Energy Department and Trade Policy Division, Country Economics Department, USA. Wu, Y. (2009). Special s of China. Journal of Management and Entrepreneurship, 2 (2), Xavier Institute of Management and Entrepreneurship (XIME), Bangalore, India. id- irjmss@gmail.com Page 355