Triple Bottom Line Concept and Its Benefits for Businesses

Triple Bottom Line Concept and Its Benefits for Businesses Introduction The concept of Triple Bottom line is just a popular concept that has been applied in the understanding of social duties among companies that are looking forward for the incorporation of non monetary values in their businesses. Its notion has become of much fashion in management, investing and management over the last few years. It has been explained that the ultimate success of corporations ought to be measured not just by the use of traditional financial bottom line, but need also to be measured by on the ethical and environmental factors. In fact most individuals have accepted that, organizations have a lot of responsibilities to their stakeholders to have responsible behaviors. In addition, it is also true that, it is not possible for firms in the long run to be successful if they disregard key stakeholders interests. Its apparent novelty lines in the contention of its supporters that the overall attainment of duties to the society, clients, employees as well as suppliers should b e either calculated or audited and even report presented just like financial performance of public firms have been for over a century now, (Bowen, 1953). As a matter of fact, TBL can not be taken as if it is an award, certification or even an accreditation that can be earned, but it is a continuous process that just helps companies to keep on ensuring that they are working towards greener business, as well as the demonstrating to the local community that, they are not just working towards enriching themselves, but also to the common good. Its major aim is to ensure sustainable development strategy. Literature review Historical Perspective The origin of triple Bottom Line dates back in 1990s, when the management thought accountability started using the phrase in its work. In 1997, the phrase got currency with 1997 publication of British edition of John Elkingtons Cannibals with Forks: The Triple Bottom Line of 21st Century Business (Elkington, 1998). As a matter of fact, there were very few literatures on it, and many individuals thought that, Elkington coined the idea. However, after its publication, it has spread just like bush wire. It has been embraced and promoted by different organizations like the Global Reporting initiative and accountability by applying its concept in corporate world. Not being taken as a surprise, most firms accounting firms have incorporated the concept in an approval way when offering services that help companies that want to audit or even measure their additional bottom lines. In the same way, there have been sizable portion of industrial investment that have been devoted their energy din the processes of screening firms on the foundation of their environmental as well as ethical/social undertakings. As a matter of fact, most of them use 3BL language. Not only companies, but different governments, government departments as well as political parties have also been well represented in the increasing documentation of those proposing the fact. The Triple Bottom line was originally inspired by Patrick Urbanist, who came up with similar ideas at the start of 20th century. These concepts depends much on the triad of folk, work, and place, which encouraged the use of a multifaceted approach to policy and economic analysis (Robertson, 1992). At the later stage, in a similar function, the aspect was adopted by both environmental and business theorists. In particular, the most renown theorists was Elkington, with his intention of coming up with an approach to social/ethical responsibility that was far much practical for business managers and leaders. This is based on the fact that, it does not regard or even water down the social/ethical as well as environmental values of much more ethical business. There have been a number of different appr oaches have been trying to come up with a very better metrics, that are far much helpful in the calculation of a triple bottom line since that time. Some of such approaches have been considered legislation in some parts of the world, for instance, Oregon and Minnesota States in the United State. Other nations or countries include Australia. Essentially, the aspects of TBL were just an attempt of introducing a paradigm of accounting to the social environmental domains. Originally, the concept was just introduced as a tool of corporate tool of business. As an effect, individuals wonder if during its introduction, the notion was that the phrase would be picked and applied universally as it is now. To some extent, the phrase is not as new as such, this is based on the fact that, the concept just applies accounting knowledge to what was formally called corporate social responsibility. Sometimes back, lots of companies used to scorn the notion of Triple Bottom Line reporting systems; currently, there are those who have taken its task fully. Its effects have been experienced in the positive flow on their suppliers. Since chains of supply are also accountable to the companys performances, they are also scrutinized well in the Triple Bottom Line audits. The best examples in U.S are some big box stores which are greening up their actions, and as an effect, demanding their suppliers to use less packaging. Elements of Triple Bottom Line Concept The elements of Triple Bottom Line include profit also called Economic value, people (Social values) and the planet (Ecological value.) this is according to the description provided by Sustainability influence by 200th century Urbanist Patrick, in his notion of folk work as well as place. Ecological values (planet) One of the elements that make up Triple Bottom Line concept is ecological values. In its sense, it refers to environmental practices that are sustainable. The Triple Bottom Line company struggles itself to ensure that it has benefited the natural order as much as it could, or at least to the level that it will not harm and curtail environmental effects. A Triple Bottom Line endeavor ensures that it has reduced its ecological footprint by considering other factors. This is usually done through; careful management of its energy consumption as well as the non-renewable. This usually goes hand in hand with the reduction of waste manufacture, along with rendering waste products less toxic before disposing them din a safe and legal manner. The phrase Cradle to grave is uppermost in the thoughts of TBL manufacturing businesses which typically conduct a life cycle assessment of products to determine what the true environmental cost is from the growth and harvesting of raw materials to manufa cture to distribution to eventual disposal by the end user. Accompany that considers A triple bottom line, does not in any way produce harmful products, or even destructive products for instance, weapons, chemicals that are toxic or even batteries that contain heavy metals that can be termed as dangerous (Giddens, 1995). In the current times, the expenses involved during dumping of non-degradable products or even toxic waste products, is very high. As a result, are borne financially by different stakeholders like for instance, Governments and environmentally by those individual who reside near the dumping site and also elsewhere. According to the thinking of A triple bottom line, an industry which engages itself in the production as well as marketing a product which will at one point create a waste problem, should never at any cost be provided with an easy ride by the society as a whole, even the government should never provide any incentive on it. It will be considered more equitable for all businesses that involves themselves and sales products which might be taken as problematic, or might cause some troubles in future, , need to bear part of the expenses of its ultimate disposal. Practices which can be considered as being ecologically, for instance, overfishing activities or any other activity that in one way or the other tries to endanger the depletion of some resources are all avoided by A triple bottom line company. In most cases, environmental sustainability is a more profitable course for investors in the long run. However, arguments stated that it is much expensive to be environmentally sound are often specious when the course of the business is analyzed over a period of time. Generally, sustainability reporting metrics are better quantified and standardized for environmental issues than for social ones (Porter 1998). There are a number of respected reporting institutions as well as registries, are under existence, for instance, the Global Reporting initiative, institute for sustainability, CERES, as well as the institute for sustainability, among others. The reality so far is that, practice or companies that that create a lot of economic wealth, but do not at any cost prevent the deletion of natural resource, eventually can be considered as sustainable triple bottom line. This is based on the fact that, at one single time, the product or organization, will at one time lacks natural resources to continue its operation. In addition, it has been proved that, operations that do not factor at any level environmental costs of production sends false signals to customers and government. If in any case a business entails in the externalization of business environment, in most cases consumers tent to believe that, the cost of producing such a product is much lower than reality, due to lower prices for instance, demand tents to be higher. Tipple bottom line Sustainability, looks forward in addressing such like issues. Profit (economic value) This can be termed as the economic value that is usually created by any organization after the deduction of all expenses of any input, even after the exclusion of tied up capital. As an effect, it differs much from the traditional accounting definitions of what the profit is. Originally within sustainability framework, the concept of profit is supposed to be seen as being the real benefits that the host community enjoys. It is presumed to being the economic impacts that an organization might have on its economic environ. This in most cases is confused with the limited to the internal profit made by a company or organization (which nevertheless remains an essential starting point for the computation) (Matt, 2010). As an effect, the original Triple Bottom Line approach can not in any way be interpreted as being traditional corporate accounting profits on top of social and environmental effects, except when the profits of other entities have been included as social gains. Just as any other element of Triple Bottom Line, the point of profit includes net profits or losses. All business practices that leads to the creation of both environmental social advantages, but ends up losing money, is considered as not being sustainable in any way. This was not based on the fact that, at one point the business might lack its operations funding. As a result, the Triple Bottom Line does not have any intention of excluding profit incentive from operations. It exists to balance the profit incentive with the costs of production decisions that are often externalized: (Matt, 2010) both environment and social bills. Those proposing sustainability Triple Bottom Line initiative, explain that operations that in one way or the other, but only create costs similarly not suitable are unsustainable as well. People, (social value) This refers to the and fair and beneficial business operations towards labor and the community and region under which the firm carries its activities. A Triple Bottom Line firm aims at benefiting many constituencies; by ensuring that it does not endanger any group neither destroys it. Part of the profits gained from finished product marketing back to the original raw materials producer. As a matter of fact, Triple Bottom Line business never uses child labor and will always monitor contracted firms for the exploitation of child labor. Such firms will also pay better salaries as well as maintaining safe working conditions, along with tolerable working hours. They also look forward to giving back to the community, by contributing to its growth with things like health care and schools. The quantification of such bottom line is new, subjective and often problematic, Fine (1991). Theories and Opinions According to Michael Porter, economy is just a social construct. This is based on the reason that, it is as an effect of policies, institutions as well as interactions that makes up the society. Secondly, the meaning of economy and what it is, originates from narratives made by society members. In this manner, the economic bottom line is not separable from social issues, including societal issues. According to Michael Porter, both economic and social issues cant be separated at a cost; this is based on the fact that it is far much difficult to for anyone to reject the fact that, the relationship between economy and society are different. It has been found by economists that, economic processes that increases competitiveness, and better financial bottom line, results to long-term social trade off. It is true that, through the erratic nature of innovation, improved forms of production are developed but their Adoption is hindered by the lack of supporting services and infrastructure once abundant but no longer Available. (Porter 1998) On the same note, economic efficiency might result to other forms of social stresses. This is especially when advantages of higher efficiency is not distributed equally. At this very point at any time, for instance, many producers of vegetables across U.S may be arguing that, the current chain of supply arrangements gives rise to non-producers in the chain of supply for instance, processors and retailers capturing and never passing on the interests of the efficiency that is gained by producers. At this point for instance, this in most cases occurs when economic notions those results to social equity are in facing head on each other. On the other hand, constructivist school sociologists like Grove-White (1997), and Fine (1991), have brought the point that; natural environment by itself is already a human construct. Cultural groups have led to the construction landscapes as their own reflections. Any form of change in environment has been associated with social along with cultural symbols. According to Finer, the definition of a group has been renegotiated to refer to the conception and definition of what the environment is. Constructivists have therefore give TBL different meanings, for instance, the existence of environmental factor will not exist unless socially constructed. As a matter of fact, the environment can be given collective meaning depending on the collective social affiliations that are attributed to them. This is because, in one way or the other, the environment can be considered as being inseparable from the sociology. Though such like statements are philosophically challenging, but they make sense when individuals start translating personal perceptions into shared point of views. For example, to different individuals, a river might be a source of water, to another person, source of beauty while to the rest might view it as recreation source. Secondly, environmental issues in most cases reflect social interaction. This is based on the fact that, scholar have even stated that the environment by itself is constructed by socio-culture. It has been argued by White-Grove that problems as a result of environment are just physical phenomena. environmental problems and issues which society recognizes at any one moment are shaped and determined by processes of human judgment and social negotiation, even in their very definitions (White-Grove 2011). This view has been has been supported by other researchers like Woodhills who has concluded that In the recent past, there have been calls for the addition of fourth bottom line on the Triple Bottom Line, that will be based on culture however, individuals have argued that, this will just increase a fourth leg to a concept that is in many ways flawed, it does provide a lead to defining some pragmatic ways of dealing with the flaws (Spiller Lake 2003). This call has attracted a lot of attention to the effects that accumulated stresses that are currently measured by TBL. Globalization has played a major part in the TBL concept development; however, the paradox that has come with globalization is that, it has resulted to greater global integration of both national and regional economies and cultures, it accentuates, rather than minimizes, the significance of the local context for innovative activities (Acs et al 1996). At first such like contradiction was referred to as glocalization. This paradox has a very strong suggestion of regionalism, and calls for collective practices at local levels trying with a lot of effort to challenge the point of globalization, but on the other hand, it tries accommodating it to enhance competitive advantage. This kind of advantages is in most cases just a very complex mix of issues which under Triple Bottom Line framework. In addition, the issue of glocalization tends to explain the way forward. First and foremost, it tries to integrate factors that underlay the TBL, other than accumulating credits along with deficits that make up bottom lines that tent to have greater meaning to those individuals who tent to live the events other reporting them, (Bowen, 1953). Application, Impact and Discussion Positive Impacts The company might experience increased income and market share. This suggests that, managers believe that, their organizations have the ability of benefiting a lot from the Triple Bottom Line efforts. Market share impact also indicates that the management believes that, both customers and stakeholders have responded positively to the action. As a fact, managers will be seeing economic value; cause, it can help in cost saving along with incomes from new markets and innovation opportunities. There is also increased employee retention after Triple Bottom Line (TBL) implementation. Having stronger sustainability is helpful in the retention as well as recruitment of better talents. Research has shown that, employees kin U.s prefer getting lower salaries but work with responsible institutions. Managers look at increased societal support as being an advantage to TBL. This sis based on the fact that, the local society influences firms operation license. When firms engage in societal activities, like addressing community problems and engaging in social impacts, it is presented as a good citizen corporate and partners. As an effect, managers view this as a chance of opening dialogue door and positive stakeholders. The TBL implementation also assists in the avoidance of legal issues, and angering special interest teams while encouraging good publicity. Managers look at increased societal support as another positive impact of TBL. Companies that provide support to society, impact their environment beyond the firms boundaries. Activities like development of education and health system, leads to a reduced risk. This means that, when organizations implement TBL, they become safer enterprises, hence, to them, funds procurement is much easier. As an effect, an organization might use such positive impacts for the creation of a framework that rewards practices and decisions made by its management for the support of sustainability along with TBL. In general, TBL leads to the hiring of top talent, higher retention of top talent, increased employee productivity, reduced manufacturing expenses, reduced expenses at commercial sites, increased revenues and market share, reduced risk, and easier financing (Willard, 2002). As shown in figure 1 bellow. Figure 1 organizational advantage to TBL from: ttp://www.ccl.org/leadership/pdf/research/tripleBottomLine.pdf Negative Impacts Division of labor is one of the characteristic of rich societies, and a major reason that leads to massive accumulation of wealth. This then leads to the point that organizations contributions are majorly to the welfare of the community din all areas when managers are focusing on what they can do best, for the benefit of all. Sat the time, business is satisfying the society, TBL is then thought to be very harmful, as it diverts business attention far from its main goals and values. For instance, just like charitable organization like Red Cross are not expected to handle environmental issues. As an effect, mangers have to know that they are not required to concentrate on concerns outside companys main objective, given that the enterprise is not doing any harm to the environment or people. The concern for social and environmental issues is hardly found in poor communities, it is only a concern for richer societies. As an effect, application of TBL acts as an example of choices available to the citizens of a society made wealthy by businesses attending to business (Willard, 2002). As an effect, the creative attention to only business makes the business to contribute effectively to the betterment of all society angles, like social, environmental as well as economic. Though socially responsible managers will say that is harmful to the society, however, TBL pressurizes libertarian managers to a mechanism that might or might not be the best option. It is not ethical to force businesses to undertake duties that are outside there core area of concentration. This is so particularly in areas that the firm does not harm either the environment or people in any way. In the implementation TBL, most managers face the difficulty of achieving global agreement on simultaneous policy that might render such like measures found in TBL at the best advisory, hence unenforceable. For instance, individuals might not be willing to face depression or recession with the aim of replenishing lost ecosystem. One of the major shortcomings of TBL framework application is capability of being applicable in monetary-based economic system. Since there has been never and still there will be no single way in monetary terminologies that can be used to measure society and environment as there is with profits. TBL does not allow mangers to get the sum of all three bottom lines. Due to this, it is far much difficult for managers to recognize the benefits of TBL implementation in the firm. Mangers implementing TBL have been criticized by the TBL left wingers on the fact that, this method is just an attempt by otherwise exploitative corporations to avoid legislation and taxation and generate a fictitious people-friendly eco-friendly image for PR purposes (Giddens, 1995). Application of Triple Bottom Line Concepts in Management It is being applied as an accounting and reporting tool as promoted by Elkington. This application has gained rapid adoption especially among global organizations that are looking for ways to enhance their image a good global citizen. For instance, Shell was amongst the first firm in the United States. Many organizations have ended up hiring the Consultancy Organization Sustainability by Elkington, in developing tools that assists in their accounting for their progress against TBL (Shell International, 1998). The process of developing TBL into a framework unto which firms can make a presentation of their performance accounts, has ended up promoting flurries of studies, money and consultancy firms. The goodness is that, all of them are on the way of improving the tools and processes involved. As a matter of fact, the global Reporting Initiative has been established with the objective of providing central concentration for such like activities, and also setting some international stand ards for reporting sustainability. This application of TBL reporting has gained its application in various public sectors as well as smaller entrepreneurs. The concept of TBL has introduced the factor of measurement in the management of organization as urged by Elkington. He explained that what you cant measure, you are likely to find hard to manage (Elkington, 1998). It happened that, he was a fervent believer that, it is very much possible to use Triple Bottom Line in the process of measuring progress. However, Elkington acknowledges two0n major challenges. The first challenge is that, the process of accounting for social dimension, there is a problem. This does not concern how measure social attributes. He continued that, amongst the challenges of Triple Bottom Line agenda, he notes that, when we include the social and ethical dimensions of sustainability, the range of sustainability-related Issues and impacts grow dramatically (Elkington, 2004). He ends up concluding that, the second challenge faced by TBL model is the development of an approach that measure progress din a way that is very much integrated across the Triple Bottom Line. However, lots of those carrying out social studies have criticized Elkington ideas that TBL has been applied in some sort of decision algorithm mechanisms. Such researchers have argued that, the decisions that revolve around sustainability and natural resource management need to concentrate on issues that can count, other than being based on things that can be counted (Vanclay, 2003). There are other researchers who have noted some difficulties in the adoption of framework that leads to decision making systems that incorporates social dimension. In attempting to develop social indicators we encounter immediately the problem that the communities whose health in which we are interested do not resemble the sorts of stable and self-regulating systems we find in nature (Lockie Jennings, 2003) Such like criticism and other reservations were all raised at a workshop that was discussing and debating the Use of Triple Bottom Line concept as a means of incorporating social dimension into other policies along with processes of decision making for Australia. On of the major conclusion that this workshop came up with was that, developing Triple Bottom Line indicators is just one of the operation in a broader process. On the other hand, the subject of identifying indicators is a very important output. This is based on the fact that, it will help organizations make reflections on their overall strategic goals, as the process proceeds well beyond that first step. The process of reporting TBL results to engagements with stakeholders in the creation of new circuits of knowledge exchange, as well as communication. The ongoing monitoring as well as reporting of TBL indicates that it has the capability of developing a new phase of organizational reflection (Elkington, 2004). Apart from t hat, it also leads to the exchange that regards to the quality of measures under use and the performance target that have been put in place. As a planning and reporting tool, the manner in which TBL has been used, is just seen as being a mare approximation of complex aspects for instance, sustainability. This has been taken to be much true in the case of its uptake by organizations. For any company to count for global aspects, for instance sustainability would need a detailed as well as complex analysis of the companys interaction with ecological systems, societies, habitats, resources as well as habitats. In the light of all other firms past as well as present effects don the similar systems. In its place, it can be used during categorizing different matters that can be connected to sustainability pursuit, with an objective that, the organization has the power of monitoring the effects of its activities concerning these issues. Appropriate Strategies and Recommendations The TBL needs a much focused commitment through long term strategic thinking, alignment, planning as well as implementation. When firms propose a certain corporate sustainability, the difficulty encountered depends on the process of incorporating TBL principles onto operations of an organization. There are two aspects which organizations have to consider ensuring successful integration of TBL along with company strategy is that; sustainability needs a lot of innovation. The second point is that, sustainability strategies have to be customized. Studies have found that, the organization size has no effect on whether it wants to incorporate TBL. Consistent with major recommendations of 2003 workshop on social dimension of TBL in rural Australia, I advocate greater concentration on the process of TBL reporting as a way of encouraging the ability of addressing sustainability change. As a matter of fact, there should be a set of criteria which ought to be used in the evaluation of TBL with the major aim of improving TBL outcomes. Organizations need to implement an iterative learning cycle. This will ensure that organizations planning are but on collaborative change reflections that will be seen after an operation by the company in the past. At the core of these operations, should be the opportunity that allows stakeholders engagement in company operations, on both external and internal, (Elkington, 2004). Another recommendation is that, when considering how different activities can result to sustainable future community, I recommend that, TBL reporting need to be promoted by companies. This is based on increasing degree of experience and resources to enable organizations handle TBL reporting dealings. Provided with some of the inherent constraints with organizational-based TBL reporting, it is much clear that organizations need to take TBL as an adaptive long-term adaptive management. This should not be seen as a quick fix, but it needs the development of means of monitoring how organizations, activities are contributing to particular TBL sustainability and the reflection on performance evaluation that ensures that all targets are concentrated upon most significant issues not just those that are most expedient, and that its efforts are addressing these effectively.

European Colonialism and Imperialism in Shakespeares The Tempest Essay

European Colonialism and Imperialism in Shakespeare's The Tempest William Shakespeare’s play The Tempest reveals how ideologies of racial ‘otherness’ served to legitimize European patriarchal hegemony in Elizabethan England. In the Elizabethan/ Jacobean times of England there were many relevant ideologies relevant to this play. In examining the values and ideologies this text endorses and challenges, the society of the time (Elizabethan England), and a knowledge of how it operated serves a great purpose in analyzing these relationships. As in many texts of this time, Shakespeare is endorsing many ideologies of his time, and, although many have labelled him ahead of his time in many respects in his writing, he is, essentially writing from the Elizabethan or Jacobean point of view and time. The Tempest endorses the inequitable relationships between races based upon the belief of European superiority. The representation of race and ethnicity in The Tempest reveals a text that is awash with imperialist European ideologies. In a play which usurpation is a dominant theme, Shakespeare endorses Prospero’s appropriation of the island and it’s aboriginal population. The representation of Caliban and his brother Sycorax reveals the extent to which racist and sexist ideologies function to maintain the balance of power in the hands of a small, ruling, elite. Indeed, it should be noted that The Tempest is more than a simple play. Rather, it is a complex and multi-layered literary construction. As it cannot be reduced to the single issue of race to investigate the imbalance of power in the play. Attention must be given to the way patriarchal notions of gender inform racial representations in order to understand the imbalances of power i... .... An investigation into the imbalance of power in the play reveals the ideologies of race and gender that drive the power dynamics of the play. The construction of the inferior nature of non-European characters is firmly grounded in imperialist, European and patriarchal values. The Tempest presents the appropriation of the island and it’s inhabitants by Prospero’s imperial patriarchal regime as entirely natural and inevitable, based upon the inherent inferiority of the original population. In doing so, the play is a precise repetition of imperialist rhetoric, which legitimizes European annexation of ‘other’ lands and peoples over which they have no legitimate claim. Bibliography/ Works Cited Shakespeare, W. The Tempest. Ed. Sutherland, J.R. (1990) G. Wilson Knight, (1932) The Shakespearean Tempest, Oxford B. Thompson, (1995) Notes on The Tempest

Integration and Animal Farm by Orwell :: Free Essay Writer

Integration and Animal Farm by Orwell Integration of Education in the United States Throughout history, education is recognized as one of the key components of any civilized society. It is a natural instinct for man to learn, and feel the need to pass on that knowledge to their young and to all those who come behind them. People have a passion for education, and will fight for the opportunity to gain the valuable knowledge that education provides. The importance of education in a society is illustrated in two aspects. The first being the actual events in American history regarding the desegregation of schools, and the second being the action of the animals in George Orwell's Animal Farm upon receiving their liberation on Manor Farm. In recent times we have witnessed a struggle in American society for the opportunity of minorities to realize the education that their white counterparts received. It began with slavery, when blacks were prohibited from obtaining even the basic skills to read and write. When blacks were finally allowed this liberty, we began our own makeshift schools, and were content with this opportunity. As time progressed, and more formal schools were established, minorities realized that they were not receiving the same quality education as those of the majority. This sparked a legal battle that lasted over fifty years. The first landmark was the case of Plessy v. Ferguson in 1896. It established the doctrine of "separate but equal." This concept stated that separate public facilities of equal quality do not violate the equal protection clause of the Fourteenth Amendment of the Constitution. This amendment says that no state may "abridge" the privileges of any citizen, nor may any stat e deprive any citizen of life, liberty, or property without due process of the law. In 1954, fifty-eight years later, the Case of Brown v. the Board of Education of Topeka finally settled the debate of whether or not blacks and whites can receive an education integrated with or separate from each other. This time the Supreme Court unanimously ruled to overturn the Plessy v. Ferguson decision. In his opinion, the Chief Justice wrote, "We conclude that, in the field of public education, the doctrine of "separate but equal" has no place. Separate educational facilities are inherently unequal." The Brown case signaled the end of segregation of public places mandated by law.

The Scientific Method

Dianna Baldwin SCI 230 The Scientific Method The first step in the scientific method is to observe. When you are observing you are discovering what is going on around you. The second step in the scientific method is question. To question one must make an attempt to explain the observation that was made. The next step in the scientific method is making a hypothesis. A hypothesis is made to predict a solution and an outcome. The fourth step in the scientific method is making a prediction. When making a prediction you are indicating the outcome. Next is the conclusion.The conclusion details the findings of the testing. This then leads to the final step which is the results. The results are whether your findings based on the hypothesis are supported or refuted. In the activity I applied the steps of the scientific method by observing what was said in the captions and what was happening in the picture. I then had to question what was going on with my observation. I then made a hypothesis and tested the hypothesis and made a prediction. Then based on the outcome of the testing I found the conclusion and gathered the results.A real – life situation that I have used the scientific method would be when I flipped the light switch the light did not come on. I observed the light did not come on when I turned it on. I then questioned what may be the problem. Is it a burnt out bulb or something more complex. I then made a hypothesis on what I thought the problem was. My best guess was the light bulb was burnt out. I predicted that if I change the light bulb and put in a new one it would work just fine. I changed the light bulb and it was indeed burnt out. My hypothesis was supported. The Scientific Method The scientific method is a hypothesis-driven process of inquiry. The goal is to ask and answer scientific questions by making observations and doing experiments. This week we were asked to complete the scientific method activity on the student website. I participated in both experiments, but I found the car experiment to be a bit more of a challenge. I had to apply the steps of the scientific method several times before I finally arrived at a resolution. The Car Experiment. The car experiment began with an observation; something is wrong with the vehicle because it will not start. In an effort to explain my observation I ask the question; â€Å"Why won’t the vehicle start? † There could be a number of reasons why the vehicle will not start, so the next step is to hypothesize the solution and outcome. The website provided us with the following 3 hypotheses: 1. The car needs fluids. 2. The car battery is not working. 3. There are electrical problems. The next step is to make a prediction. I predicted that the vehicle must have an issue with the battery. I chose this hypothesis first, because it is not uncommon for someone to leave a dome light on and accidently drain their battery. While it is not uncommon to run out of fuel, I did not select this answer because in this day and age most vehicle owners keep an eye on their fuel levels to ensure that they have an adequate amount for the next day. The conclusion details the findings of your prediction. In this case the vehicle’s battery was fine. The results tie back into my hypothesis. The result was refuted, and I must now begin the process from the top to find the correct scientific method to remedy the problem. I had to repeat the scientific method 3 times until I found the solution to my problem. The vehicle had faulty electrical issues, and once the fuses were replaced it started right up. A real-life problem that I could use the scientific method to solve is a problem I have been having recently with my new vacuum. It is less than 3 months old and it has been acting strangely. I can use it one day for an hour without any problems, and two days later I can turn it on but it will only work for 3 or 4 minutes before shutting off. The steps that I would take to solve the problem are: 1. Make an Observation 2. Question: â€Å"Why is my vacuum not working properly? † 3. Thesis: Develop a hypothesis about why the vacuum may be acting strangely. It has electrical problems. It is clogged. It is faulty and I should contact the manufacturer. 4. Prediction 5. Conclusion 6. Results The Scientific Method The Scientific Method Hands-On Labs, Inc. Version 42-0130-00-01 Lab Report Assistant This document is not meant to be a substitute for a formal laboratory report. The Lab Report Assistant is simply a summary of the experiment’s questions, diagrams if needed, and data tables that should be addressed in a formal lab report. The intent is to facilitate students’ writing of lab reports by providing this information in an editable file which can be sent to an instructor. Observations Data Table 1: Scientific Method Data Unknown Sample Number #1 #2 #3 #4 #5 #6 Hypothesis:Coffee Potting soilBrown sugarBaby powderFlowerBaking powderColor:Dark brown Old copper(sepia, maroon)Light BrownWhiteWhiteWhite Texture:It’s coarse& fragile particleVery coarse and grittyThe particle is sticky and a bit grittyVery Soft particle &silkyVery softVery soft Shape:In general, it’s coarse-grainedNot regularCoarse-grainedVery fine. It’s difficult to look in detailCoarse-grainedC oarse-grained Smell:It’s totally coffeeNo smell or a faint scant Sweet tasteVery nice. It’s just delicate baby smellNo smellNo smell Soluble:SolubleInsolubleSolubleSolubleSolubleSoluble Density:The dense is less than baby powder(0. 182 g/cm3)Little dense/it’s similar as #6(0. g/cm3)Low dense (0. 467 g/cm3)High dense (0. 867 g/cm3)It’s similar as #6 (0. 454 g/cm3)It’s similar as #5 (0. 5 g/cm3) Conclusion:CoffeePotting soilBrown sugarBaby powderFlowerBaking powder Data Table 2: Calculating Density of Unknown Samples U nk no wn S a m p l e Number Mass of full vial & bag (g) Mass of empty vial & bag (g) Mass of unknown sample (g) Volume (cm3) Density (g/cm3) #12. 0g1. 8g0. 2g1. 1 cm30. 182 #22. 5g1. 8g0. 7g1. 4 cm30. 5 #32. 5g1. 8g0. 7g1. 5 cm30. 467 #43. 0g1. 8g1. 2g1. 5 cm30. 867 #52. 3g1. 8g0. 5g1. 1 cm3 cm30. 454 #62. 5g1. 8g0. 7g1. 4 cm30. 5 The Scientific Method The Scientific Method is a complex, yet simple process. It was designed to help scientist and every day people who face problems come up with a logical and tested solution. According to authors Pruitt and Underwood (2006), The Scientific Method is defined as â€Å"the set of procedures that form the rational approach to studying the natural world. † This method can be applied to something dealing with science or something that deals with everyday life. In the below paragraphs, this writer will explain the scientific method and how it was used to achieve results in a web-based experiment as well as a real life situation. This writer would begin the web-based experiment by researching and discover why plants grow towards the light. Once the results of the search are gathered, this writer would produce a hypothesis. The possible hypothesis is; plants grow toward the light because it is a critical part of the process known as Photosynthesis. This writer’s prediction is that if a plant is placed to grow near a window, the plant will lean toward the light. For the experiment, this writer would put three plants on a table with a window to the left of them and three plants on a table with a window to the right of them. Over the course of three weeks, this writer will observe and document the plants reaction to the light coming through the window. After careful review of the information documented, this writer can safely conclude that the plants with the window to the right of them, grew bent toward the light and the plants with the window to the left of them grew bent toward the light. This information does support my hypothesis that plants grow toward the light to help with the Photosynthesis process. There were many problems that this writer could have tested, but decided to test the most important one of all. This writer’s daughter is at the stage in her life where she is taking off her pamper, but refuses to become potty trained. What is causing this? Not unlike other parents and scientists, this question came from a problem that needed a solution. Through personal experimentation as well as information compiled through secondary sources, this writer came up with effective ways to potty train their daughter properly. While observing the child, this writer noted that whenever the child needed to use the bathroom, she would cross her legs. After the child would receive some type of drink, approximately 20 minutes, she would again start to cross her legs. It became very apparent that the child was very ready to become potty trained. Through these observations, this writer produced her hypothesis. If this writer puts the child on the pot 20 minutes after she ingests any type of drink, the child will gradually become potty trained. This writer tried this method of potty training for two days. During those days, the child did successfully use the pot at the times this writer put her on it, but the child still had accidents on herself. With this information, this writer concluded that their methods were unsuccessful. This writer researched potty training techniques to construct a new hypothesis. According to the Mayo Clinic website (1998-2011), â€Å"when you notice signs that your child may need to use the toilet- such as squirming, squatting or holding the genital area- respond quickly. Once the child successfully uses the toilet, there should be some type of praise. Some people use stickers on a chart and others give special treats such as candy or an extra bedtime story (Infant and toddler health, 1998-2011). With using these techniques as well as cutting off all liquids that the child receives at eight o’ clock every day, this writer has found that the child has not had a day time potty accident in t hree days. Consistent monitoring of children while actively trying to potty train is the most important thing to do if successful results are desired. While potty training is no small feat, each parent who tackles this task knows that not every parent is the same and not all methods work for every child. This is something that will be learned on a case-by-case base. While the two experiments conducted are drastically different, they are both similar in the way that they both followed the Scientific Method. With a sound hypothesis and a thirst for knowledge, using the Scientific Method will always provide valid results backed by science. References Potty training: How to get the job done. (1998-2011). Infant and toddler health. Retrieved on March 24, 2011 from http://www. mayoclinic. com/health/potty-training/CC00060 Pruitt, N. L. , & Underwood, L. S. (2006). Bioinquiry: Making connections in biology (3rd ed. ). Hoboken, NJ: John Wiley & Sons, Inc. Stein Carter, J. (1996). The Scientific Method. Retrieved on March 24, 2011 from http://biology. clc. uc. edu/courses/bio104/sci_meth. htm The Scientific Method The Scientific Method Hands-On Labs, Inc. Version 42-0130-00-01 Lab Report Assistant This document is not meant to be a substitute for a formal laboratory report. The Lab Report Assistant is simply a summary of the experiment’s questions, diagrams if needed, and data tables that should be addressed in a formal lab report. The intent is to facilitate students’ writing of lab reports by providing this information in an editable file which can be sent to an instructor. Observations Data Table 1: Scientific Method Data Unknown Sample Number #1 #2 #3 #4 #5 #6 Hypothesis:Coffee Potting soilBrown sugarBaby powderFlowerBaking powderColor:Dark brown Old copper(sepia, maroon)Light BrownWhiteWhiteWhite Texture:It’s coarse& fragile particleVery coarse and grittyThe particle is sticky and a bit grittyVery Soft particle &silkyVery softVery soft Shape:In general, it’s coarse-grainedNot regularCoarse-grainedVery fine. It’s difficult to look in detailCoarse-grainedC oarse-grained Smell:It’s totally coffeeNo smell or a faint scant Sweet tasteVery nice. It’s just delicate baby smellNo smellNo smell Soluble:SolubleInsolubleSolubleSolubleSolubleSoluble Density:The dense is less than baby powder(0. 182 g/cm3)Little dense/it’s similar as #6(0. g/cm3)Low dense (0. 467 g/cm3)High dense (0. 867 g/cm3)It’s similar as #6 (0. 454 g/cm3)It’s similar as #5 (0. 5 g/cm3) Conclusion:CoffeePotting soilBrown sugarBaby powderFlowerBaking powder Data Table 2: Calculating Density of Unknown Samples U nk no wn S a m p l e Number Mass of full vial & bag (g) Mass of empty vial & bag (g) Mass of unknown sample (g) Volume (cm3) Density (g/cm3) #12. 0g1. 8g0. 2g1. 1 cm30. 182 #22. 5g1. 8g0. 7g1. 4 cm30. 5 #32. 5g1. 8g0. 7g1. 5 cm30. 467 #43. 0g1. 8g1. 2g1. 5 cm30. 867 #52. 3g1. 8g0. 5g1. 1 cm3 cm30. 454 #62. 5g1. 8g0. 7g1. 4 cm30. 5

India vs China Essay

To compete in the global market, the Government of India (GoI) has liberalized export policies & licensing of technology and implemented tax reforms providing various incentives. Special Economic Zone (SEZ) policy is also one of the steps India has taken to boost economic growth through outward looking approach. Special economic zone is a specifically duty fee enclave and shall be deemed to be foreign territory for the purpose of trade operations and duties and tariffs. When SEZ policy was introduced in the country, it made headlines and people started considering it as a policy to create a hassle free and investment friendly environment. The main objective of this research paper is to analyze SEZ policy in terms of export performance, FDI inflow, employment generation and overall physical and financial infrastructure building. This research paper tries to investigate whether having these policies are good for the country or not. SEZs are a larger variant of Export Processing Zone (EPZ), thus performance of EPZ has also been discussed briefly. It has been five years now since all then existing EPZs have been converted into SEZs. Section –II has been devoted to performance analysis of these zones. After the failure of EPZs, a significant change has been made in the rules/regulations and a new package of fiscal and non- fiscal incentives is also being offered to developers and units. According to Finance Msinistry, the government has to forego about Rs. 90,000 crore in direct and indirect taxes over the next four years on account of SEZs. Despite so many incentives, performance of these privileged enclaves over the last five years indicates the failure of this scheme. For instance, the share of exports from SEZs in the total exports of the country has only increased from 4. 2% in 2000-01 to 5. 1% in 2004-05. Some economic experts are also seeing it as a corporate welfare scheme and the possibility of a sharp decline in investments in SEZs can’t be ruled out as tax benefits are only for 10 years. Other issues of concern like the heavy economic cost, real estate scam and labour policies are also discussed in the last section of the paper. Data are mostly secondary but the opinion of different economists and the Development Commissioners (SEZ) has also been taken into account. The zones cannot be insulated from the broader institutional and economic context of the country and be treated as an economy within the economy. Zones are a part of the economy and require overall improvement in the investment climate to ensure success in the long run. They should not, therefore, be viewed as an alternative to the overall development model. This is perhaps the reason why SEZs failed to fulfill the role of engines of economic growth in most countries on a sustainable basis. 3 Major Findings †¢ The union Govt has foregone a whopping Rs 39,704 crore of duty under export promotion schemes during 2003-2004 accounting for 82% of customs duty collected in that year. †¢ The foreign exchange earned by all the 811 units in the 8 zones put together came to only Rs. 8,309 crores, a mere 5% of India’s exports during the fiscal year 2004-05. †¢ During 1966-1980 average annual export growth rates of EPZs was over 77%, whereas during the post 2000 period (2001-03) it came down to 7%. †¢ Total share of FDI investment in Noida SEZ in 1997 was 12. 3% and it went up by a mere 0. 4% in the six years. To tal FDI share in 2003 was 12. 7%. †¢ A slew of tax exemption planned for SEZ to boost exports will erode Rs. 93,900 ($ 20. 62 billion) in government revenue over the next four years. †¢ Haryana Govt has offered over 1700 acres of land near Gurgaon to RIL (Reliance) for about Rs. 60 crore while it is estimated that the land was worth 5000 crore and HSIDC had acquired this land by paying Rs. 300 crore in compensation to the farmers. 4 Section – 1 SEZ Policy: An Overview 5 1. 1 Introduction A Special Economic Zone (SEZ) is defined as a deemed foreign territory within a country with special rules for facilitating FDI for export-oriented production, and for purposes of trade and customs duties. These Zones (SEZs) are geographical region that have economic laws different from a country’s typical economic laws. Different economic institution and government departments have defined it in different ways. As per Ministry of Commerce and Industry they are defined as: Special economic zone is a specifically duty fee enclave and shall be deemed to be foreign territory for the purpose of trade operations and duties and tariffs. SEZs have been established in several countries, including the People’s Republic of China, India, Jordan, Poland, Kazakhstan, the Philippines and Russia. The concept of having free trade zones, export oriented zones and SEZs dates back to 1970. In 1979-80, China opened up its economy to foreign investment with the establishment of Shenzhen SEZ. Situated close to the Hong Kong port, this small fishing hamlet has today acquired the distinction of being the manufacturing hub of the world with a GDP of $20 billion and an annual foreign trade of nearly $50 billion. Inspired by the success of Chinese SEZs our policy makers also tried to experiment with SEZs in India. Despite the failure of Export Processing Zones (EPZs) Murasoli Maran after visiting China in the year 2000 introduced the SEZ policy very same year considering the need to enhance foreign investment and promote exports from the country. The SEZ bill was passed by parliament in 2005 and the Commerce Ministry notified the Special Economic Zones law on February 9, 2006 and the rule came into effect from February 10, 2006 but the rush of proposals for setting up SEZs had begun much earlier and by November 2005 some 61 SEZs were already approved. According to reports, so far, the Government has cleared around 150 SEZ proposals out of around 200 received. The policy provides for setting up of SEZs in the public, private, joint sector or by State Governments. It was also envisaged that some of the existing EPZs would be converted 6 into SEZ. Accordingly, the Government has converted all eight EPZs into SEZs. Table 1. 1. 1 below shows all the EPZs which has been coveted to SEZs with their size Table 1. 1. 1 List of all the EPZs converted into SEZs with their size Location Kandla (Gujarat) SEEPZ (Mumbai) Cochin (Kerala) Surat (Gujarat) NOIDA (UP) Chennai (TN) Vizag (AP) Falta (WB) Size (Sq. KM) 2. 99 0. 38 0. 40 NA 1. 22 1. 04 1. 43 1. 12 Source: Export Promotion Council. Ministry of Commerce, Government of India 1. Evolution of EPZs/SEZs in India The economic policy of 1960’s which were geared towards selective import liberalization and export promotion, marked the development of EPZ’s in the country. The first EPZ in India which was also the first in Asia was set up at Kandla in 1965. The proposal for setting up the Kandla free trade zone was mooted in 1961, with the objective of facilitating the development of the Kutch reg ion, to ensure greater utilization of Kandla port and to create employment opportunities in the Kandla. The second EPZ in the country, the Santa Cruz Electronics Export Processing Zone (SEEPZ), was set up at Mumbai in 1974. This EPZ was developed specifically for processing electronics goods and was expected to generate employment opportunities and facilitate the technology transfer. SEEPZ was initially planed as single product zone for processing electronics goods but by 1986 it was made a two product zone providing for gems and jewellery complex as well. 7 Four more zones were set up in the mid-eighties at Noida (NEPZ), Chennai (MEPZ), Cochin (CEPZ, Kerala), and Falta (FEPZ, West Bengal) and the seventh EPZ in the country was commissioned at Vishakhapatnam (VEPZ, Andhra Pradesh) in 1994. Initially the Central Government was solely responsible for establishing EPZ, but this policy was amended in 1994 to enable state governments, autonomous agencies and the private sectors to participate in the development agencies and operation of EPZs. Following the implementation of this policy, one EPZ was developed by private sector in Surat. A joint sector EPZ (now SEZ) has been approved for Greater Noida (UP). In terms of export performance, employment generation and FDI inflow EPZs failed in India but considering the need of better export performance and infrastructure building, central government came up with SEZ policy in 2000. Section II of this research paper has been devoted to analysis of the failure of EPZs in India. Without understanding the key difference between these two similar policies it would not be fair to comment upon the future of SEZ scheme. 1. 3 How SEZs are different from EPZs ? SEZs are a larger variant of EPZs. Both have a delineated area and permit duty free import of capital goods and raw materials; both aim to attract foreign investment for setting up export-oriented units by providing developed infrastructure, conducive operating environment and a package of fiscal incentives. However, the objective of SEZs is much larger than mere promotion of export processing activities. While EPZs are industrial estates, SEZs are virtually industrial townships that provide supportive infrastructure such as housing, roads, ports and telecommunications hospitals, hotels, educational institutions, leisure and entertainment units, residential/industrial/commercial complexes, water supply sanitation and sewerage system and any other facility required for development of the zone. The scope of activities that can be undertaken in the SEZs is much wider and their linkages with the domestic economy are stronger. Resultantly they have a diversified industrial base. Their role is not transient like the EPZs, as they are intended to be instruments of regional development as well as export promotion. Although the objectives 8 of SEZ policy are quite similar to the objectives envisaged by central government through EPZ policy in early eighties but there is significant difference between these two policies in terms of tax benefits and rules and regulations. The table 1. 3. 1 below summarizes the difference between these two: Table 1. 3. 1 Comparison between SEZ and EPZ India’s SEZ Restriction sectors on Open manufacturing, services trading activities India’s EPZ to Open manufacturing and trading considered SEZ vs. EPZ to While SEZs are and generally open to activities. all activities, EPZs more manufacturing and trading on Services may also be appear to focus Tax exemption Companies in Companies in EPZs SEZs offer more tax than SEZs enjoy a 5 were exempted from attractive year corporate tax corporate tax for a benefits holiday, by more years followed block of 5 years in EPZs 50% first 8 years of exemption for 2 operations. However, under section 10a of the income tax act, the concession was to be Retention foreign exchange earnings of Retain earnings Exchange phased out by in control foreign 2009 100% Retain 70% foreign Companies in Exchange Earner Foreign Earner better Currency over foreign exchange exchange earnings in SEZs would have 9 Foreign Currency Account (EEFC). urrency relation purchase in to of Account (EEFC). imported inputs. Export performance (EP) Foreign Exchange exports (NFEP) & No minimum EP Minimum required. Positive NFEP Net NFEP (varies industries required (varies and EP and Companies in SEZ more across leeway in meeting export performance requirements. required. enjoy across industries and states) Earning as % of states) requirements Duty recovery in Duty recovery is Full duty recovery is Lesser penalty for case of failure to in proportion to imposed achieve positive shortfall NFEP DTA* sales Unlimited sales on full duty Duty imported material free Allowed. raw duty qualify for DTA sales but SEZs achieve NFEP DTA Only 50% of exports SEZs enjoy greater access to domestic market These Allowed, duty More flexibility in and for in 1 inventory planning companies SEZs. Certifications of Imports on self- Imports imports certification basis attestation Development Commissioner require Simplified of customs procedures facilitate movement of 10 free free materials are to production utilized over failing to positive materials are to be years be utilized over 5 year. mports into SEZs Customs inspection No routine Routine of inspections import/export cargo FDI Foreign promotion customs Expedited of movement SEZs investment Easier SEZs and for board quicker FDI flows manufacturing companies. of goods in an out of examination import/export cargo by Cusoms FDI process approval 100% investment through automatic approval is required into route available for for FDI manufacturing companies Source: SEZ Authority, Ministry of Commerce and Industry, Government of India Available at sezindia. nic. in. Accessed on June 5, 2006 1. Objectives of SEZ envisaged by the Government of India The main objective of the SEZ scheme according to the finance and commerce ministries is to create delineated, duty –free zones with world class infrastructure, internationally competitive production environment and fast track clearance system for attracting private investments, especially foreign direct investment (FDI) for setting up export oriented unit. The broad objectives of the SEZ policy are: Attract Foreign Direct Investment (FDI) Earn foreign exchange and contribute to exchange rate stability Boost the export sector, particularly on traditional exports Create jobs and raise standard of living Transfer new skills and expertise to local human resources Create backward & forward linkages to increase the output and raise the standard of local enterprise that supply good s and services to the zone Introduce new technology 11 Develop backward regions by locating such zones in these areas and attracting industries Provide a stimulus to the economy Test key policy reforms in these ‘pilot areas’ According to the Commerce Ministry, investment of the order of Rs. 00,000 crore over the next 3 years with an employment potential of over 5 lakh is expected from the new SEZs apart from indirect employment during the construction period of the SEZs. Heavy investments are expected in sectors like IT, pharma, bio-technology, textiles, petrochemicals, auto-components etc. With the Act and Rules in place, it is expected that many large format, multi-product SEZs that have so far been unable to achieve financial closure will now quickly move towards such closure. It is anticipated that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities. Fiscal and other incentives are being offered to woo investors and SEZ developers. Incentives like tax benefits, single window clearance, flexibility in export and import rules and regulations has made SEZs an important and most sought after destination for setting up the business empire. Unlike most of the international instances where zones are primarily developed by Governments, the Indian SEZ policy provides for development of these zones by the government, private or joint sector. 1. 5 Establishing SEZs : Procedures and Requirements According to Commerce Ministry and SEZ authority SEZs may be developed and managed in the private sector or jointly by state government and a private agency or exclusively by the State Government or their agencies. In the case of privately developed zones, the investors could be either Indian individuals, NRIs, Indian or foreign companies. New infrastructural development works such as construction of Standard Design Factory Building, operation and maintenance of infrastructure in the Zones may also be undertaken through private/joint/state sector in the Export Processing Zones, now converted into Special Economic Zones. Any person, who intends to set up a SEZ, may, 12 fter identifying the area can make a proposal to the Board of Approval (BOA) but will also have to obtain the concurrence of the State Government. SEZ developer will have to get a no-dispute certificate for that area where he wants to establish SEZ from the Chief Secretary of that state. After getting clearance from the state government BOA considers that proposal and if the proposal is within the purview of SEZ act BOA can approve the proposal. However if a state government wants to set up a special economic zone, after identifyi ng the area can make a proposal directly to the board. The central government has prescribed the minimum area requirement for setting up SEZs. Table 1. 5. 1 shows the minimum requirement of area for various sectors. Table 1. 5. 1 Minimum area requirement for various sectors Sector Multi Product Green field Service sector Bio-Technology InformationTechnology Gems & Jewellery All other sectors 10 100 Minimum area required (in hectare) 1000 1000 100 10 10 Source: SEZ authority, Ministry of Commerce & Industry. Government of India. Available at sezindia. nic. in. Accessed on June 15, 2006 The area requirement for multi-product SEZs has been relaxed to 200 hectares and for sector specific SEZs to 50 hectares, for certain States (Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura Himachal Pradesh, Uttaranchal, Sikkim, Jammu & Kashmir, Goa) and Union Territories, keeping in view the difficulty in finding large tracts of contiguous land in such states/union territories. According to the SEZ Act at 13 east 25 % area of the SEZ shall be used for developing industrial area for setting up of such units and the remaining 75% can be used for building infrastructures like roads, hotels, power generation station, educational institution and other facilities. 1. 6 Setting up Units Any person who wants to set up a unit for operating in a SEZ will have to submit a proposal to the development commissioner of that SEZ. Development commissioner submits the application to the Approval Committee and the Appro val Committee may, either approve the proposal without modification, or approve the proposal with modification. A modification suggested by Approval Committee will be well within the purview of SEZ Act. 1. 7 Important Features of SEZ Policy and Incentives given to SEZ In India SEZs are deemed foreign territory within the country with special rules for facilitating FDI for export-oriented production, and for purposes of trade and customs duties. The key implication of being a deemed foreign territory is that individual units within the SEZ are allowed operational freedom in routine activities and not supervised by the customs authorities. Units may be set up in SEZ for manufacture of goods and rendering of services. To woo the investors to the zones, the Central Government has been offering a number of fiscal incentives and concessions. For instance, the zones are deemed as foreign territories as far as trade operation, duties and tariffs are concerned. The units (100% export oriented) also have full flexibility in operations. They are exempt from all direct and indirect taxes. No export and import duties, no excise duties, no central or state sales tax and no service tax. The units don’t require license for importing capital goods and raw material. According to SEZ Act 2005, the firms are eligible for getting an extended Income Tax holiday for 15 years. Income tax exemption for 15 years is available for SEZ units as detailed below:- 14 a) 100% of profits and gains from exports for the first 5 years b) 50% of profits and gains from exports for the next 5 years c) Amount not exceeding 50% which is credited to a reserve account ‘Special Economic Zone Re-investment Reserve Account’ and utilized for business for the next 5 years. The only condition imposed on the firms is that they must have positive net foreign earning (NFE). The important fiscal and non-fiscal incentives given to SEZ developers and firms are as follows: †¢ 100% FDI in the manufacturing sector permitted through automatic route1 except arms and ammunition, explosives, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes. †¢ †¢ †¢ †¢ †¢ †¢ External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels. Facility to retain 100% foreign exchange receipts in Exchange Earners’ Foreign Currency Account. Exemption from Central Sales Tax and Service Tax Facilities to set up off-shore banking units in SEZs. Exemption from duties on import /procurement of goods for the development, operation and maintenance of SEZ. FDI to develop townships within SEZs with residential, educational, health care and recreational facilities permitted on a case-to-case basis. The full list of all the fiscal and non-fiscal incentives being offered to SEZ developers and units has been given in the (appendix-i). Apart from getting tax benefits from central government these zones are also getting tax benefits from state governments. TABLE 1. 7. 1 shows the list of tax benefits given by state governments to all the EPZs which has been converted into SEZs. Table: 1. 7. 1 Exemption From The State Level Taxes By Zone Falta Cochin Chennai Noida Vizag Kandla 15 Sales tax Contract tax Purchase tax VAT State entry tax Octroi tax CESS Luxury tax Entertainment tax Stamp duty and registration chages on land transfers Stamp duty and registration charges on loan agreements/credit deeds Yes No Yes Yes Yes No No No No No Yes n. a. n. a. n. a. Yes n. a. No n. a. n. a. Yes Yes n. a. n. a. n. a. n. . n. a. n. a. No No No Yes No Yes n. a. Yes Yes Yes No No No Yes n. a. Yes n. a. No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No Yes Yes Source: Agrawal,2004 Units within the SEZ and EPZ also get subsidies sometimes on land rents and built up areas are also provided on lower rental rate. In some countries utility services such as electricity, water, and telecommunication are also subsidized. Table 1. 7. 2 shows the list of subsidies being given to zone units in six EPZs (now SEZs): Table: 1. 7. 2 Provision of subsidies by Zone Falta On land rent Factory rent On purchase on capital goods On capital investments Interest rate subsidies Concessional finance Any other Cochin Chennai Noida Vizag Kandla Yes Yes Yes Yes Yes Yes No Yes Yes No No No No No Yes Yes No No No No No Yes Yes No No No No No Yes Yes Yes Yes No No No Yes Yes No No No No No Source: Agrawal,2004 In terms of fiscal and other benefits we are ahead of China but the record of the Indian EPZs stands in contrast even to the performance of the general economy. Unlike other countries, in India, SEZs are being developed by the private sectors as well and to attract 16 he private and foreign investment a package of incentives is being offered by both state as well as central government. Later in the research paper an investigation has also been made to analyse the worth of these benefits. Section – II Performance Analysis of EPZs & SEZs 17 Introduction What is a successful SEZ? Is it the one that contributes to the host economy, one that generates prof it for its own owners/managers? SEZs are extensions of EPZs and taking this into consideration, an attempt has been made to analyze the success of both EPZs and SEZs in India. It has been just five years since the introduction of the SEZ policy in India. Some economists believe that it’s too early to comment upon its potential or chances of its failure. A significant change has been made in the rules and regulations but by and large the objectives of SEZs and EPZs are similar. Taking this into account this section has been devoted to explain the experience India had with EPZ policy in terms of export performance, employment generation, FDI inflow and infrastructure development. SEZs have been viewed as a tool to attract FDI and boost the export sector, which will 8 further create employment. It might be argued that policies like SEZ which has been introduced very recently can not be categorized as a good or a bad policy by looking at the performance analysis of five years but it definitely gives an insight into its potential success or failure. 2. 1 Share in Total Exports: Aggregate Analysis Exports from SEZs grew by 16. 4% from 2000-01 to 2004-05. In the same period, total exports in India grew by 12. 1%. This clearly indicates that despite getting special treatment, performance of SEZs in India is not satisfactory. Even, the share of exports from SEZs in the total exports of the country has only increased from 4. 2% in 2000-01 to 5. 1% in 2004-05. It’s quite apparent from the diagram that Domestic Tariff Area is also more or less witnessing the same rate of growth. Exports from SEZ touched the figure of 18,309 crore in 2004-2005 which is just a mere 5% of the total exports from India. Figure: 2. 1. 1 Trend in export performance of SEZs Exports from SEZs (Rs. in Crores) 20000 Rs (in Crores) 15000 10000 (4) 5000 0 2000-01 2001-02 2002-03 2003-04 2004-05 Year 11) (8) (4) (8) Source: Export Promotion Council, Ministry of Commerce & Industry, Government of India Note: figures in parenthesis shows the No. of functional SEZs 19 Figure: 2. 1. 2 Contribution of SEZs in country’s total Export SEZ’s contribution in country’s total export Contribution in percentage 6. 00% 5. 00% 4. 00% 3. 00% 2. 00% 1. 00% 0. 00% 4. 20% 4. 40% 4. 70% 5. 10% 3. 90% 2000-01 2001-02 2002-03 2003-04 2004-05 Year Source: CII report, 2005 Study shows that initially EPZs also witnessed high growth but gradually it started declining. In the early seventies, the growth rate of EPZs touched 77% but gradually it started coming down (Agrawal, 2004) and declined to 7% in 1999-00. Figure 2. 1. 3 indicates that the SEZs are failing to induce dynamism in the overall export performance of the economy. As the figure shows, despite a high growth of overall exports, SEZ contribution has remained constant over the years despite various other benefits. However, this may be counter argued by saying that apart from exports government has other objectives like employment generation and attracting FDI but our analysis shows that SEZ scheme is also failing like EPZs in attracting FDI. Figure: 2. 1. 3 Growth Trend of SEZ and Country Export 20 2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 1990 1992 1994 1996 1998 2000 2002 Rs. in Crores SEZs export Country export Source: sezindia. nic. in, Ministry of Commerce & Industry. Government of India 2. 2 FDI inflow and Employment India had a very slow expansion in the initial phases of EPZ policy. Expansion in the zones started picking up in the 1980s in terms of employment but total investment remained abysmally low till the late 1980s8. In the 1990s, investment also started increasing. Growth rates in employment slowed down considerably in the late 1990s but in terms of investment EPZs in India continue to be dominated by domestic investment. This was despite its edge in terms of labour costs, availability of trained manpower and a stable macroeconomic environment. The share of FDI in total investment increased slowly from 12% in 1989 to slightly over 18% in 2000 ( Agrawal, 2004). During 2000-03, however, FDI inflows increased faster. Table 2. 2. 1 below shows the share of FDI in EPZ/SEZ investment. In 2000, all the EPZs were converted into SEZs, and with new rules and incentives it was expected that FDI will pour in but a more detailed study of Noida SEZ shows a mere 0. 4% growth in FDI investment in six years while in Chennai it just went up by 2. 3%. Despite this, new SEZs are becoming the most sought after destinations for foreign investors, however the chances of decline in FDI in SEZs can’t be ruled out as once the tax benefit period gets over and there would not be much incentives for investors to invest in SEZs. 21 TABLE: 2. 2. Share of FDI in total EPZ/SEZ investment (%) Zone Kandla Santacruz Noida Chennai Cochin Falta Vizag 1997 1. 3 8. 4 12. 3 28. 4 9. 6 3. 1 2003 4. 9 9. 2 12. 7 30. 7 13. 7 4 38. 8 Source: Ministry of Commerce & Industry. Government of India Unlike other countries, in India SEZs are being developed largely by private sectors and to avail the tax and other benefits private players are rushing in but it would be interesting to see if Govt doesnà ¢â‚¬â„¢t extend the benefits again once the period gets over , will they be still interested in investing and building infrastructure. Employment creation is one of the important goals which Indian government wants to achieve through SEZs but previous experiences with EPZ and other free trade zones doesn’t give us any rosy picture. EPZ had a share of near about 1% in organized employment (Agrawal, 2004) and till now all eight functional SEZs has created 1 lac employment and it is being expected that in next five years it will cross the figure of 5 lac. Table 2. 2. 2 shows the employment generated by different zones and the amount of Government and private investment in these zones. Table: 2. 2. 2 Zone wise employment and Investment upto 31. 3. 2005 Private No of Zone units Employment as on 31. 03. 2005 Govt investment upto 31. 03. 2005 investment upto 31. 03. 2005 KSEZ SEEPZ NSEZ MSEZ CSEZ 123 176 151 105 74 9821 42150 19857 16107 4712 26. 93 57. 39 78. 04 74. 83 87. 53 134 279. 49 650 223. 96 92. 79 22 FSEZ VSEZ Surat Manikan chan 83 28 62 5 2 2 2753 2500 2250 300 50 150 82. 83 39. 3 32. 46 263. 85 311. 58 5 . 07 4 1 3 Jaipur Indore Source: Export Promotion Council, Ministry of Commerce & Industry. Government of India SEZ or any other free trade zone should not be viewed as a tool to generate employment. Studies show that even small countries like Philippines has created 1. 1 million jobs through these economic zones (KPMG Report, 2004) but despite being the first country to have EPZ in Asia, India failed to achieve a high employment rate. Dysfunctional policies, regulations, lack of single window clearance facilities, poor attitude of the officials, centralized governance, stringent labour laws, poor physical and financial infrastructure, all accounted for an undesirable investment climate and thus EPZ failed to create employment. SEZ should have witnessed much higher growth in exports and employment but it is not happening either. If SEZ policy is really an example of decentralized governance, is it capable to strengthen our physical and financial infrastructure and if single window clearance facilities are no longer a dream, all these issues and concerns have been emphasized in the last section. Generally, it is argued that the SEZ concept is attractive because it is much easier to resolve the problems of infrastructure and governance on a limited geographical area than it is to resolve them countrywide. On the contrary, the performance over the last five years of these privileged enclaves indicates the failure of this scheme. The zones cannot be insulated from the broader institutional and economic context of the country and be treated as an economy within the economy. Zones are a part of the economy and require overall improvement in the investment climate to ensure success in the long run. They should not, therefore, be viewed as an alternative to the overall development model. This is perhaps the reason why SEZs failed to fulfill the role of engines of economic growth in most countries on a sustainable basis. 23 Section – III A comparative study of Chinese SEZ policy 24 3. SEZs in China The development of Special Economic Zones is one of the highlights of remarkable Chinese economic achievements. The Development of Chinese Special Economic Zones dates back to 1980’s. It is different from Indian practice: SEZ in China is classified in two levels by their scales. SEZ is the whole city even whole province opened to special financial, investment and trade policy, while Economic and Technologi cal Development Zones (ETDZ) is a relatively small piece of land earmarked in coastal and other open cities for industry and trade development. As early as 1980, under the opening-up and reform policy, the Chinese Government set up the first group of Special Economic Zones in Shen Zhen, Zhu Hai, Shan Tou and Xia Men, 25 all of which are located in costal areas of Southeast China, followed by other 10 costal cities, Hai Nan Province and Pu Dong area in Shanghai as the second group. To further open to the outside world and to spread successful experiences of SEZs, at the beginning of 1984, the government decided to establish ETDZs along coastal line on the basis of successful experiences of and favorable policies granted to the SEZs in the previous period. Consequently, China’s first group of 14 National Economic and Technological Development Zones (NETDZ) were established from 1984 to 1988 successively. The distinguishing features of Chinese SEZs are their large size, investment friendly customs regime, flexible labour laws, liberal policy for DTA access, attractive package of incentives and delegation of powers in favour of provinces and local authorities for managing the zones. 3. Comparing Chinese SEZ policy with India In spite of the fact that India was a pioneer in creating one of the worlds’s first export processing zones at Kandla in 1965, EPZs have never had much impact on India’s export performance. Tariff exemption schemes have tended to be excessively complex and encourage a ‘licence raj’ mentality at the operational level. Both economies are large emerging markets that had rather similar profiles in 1978. Today, China ranks number one as the world’s preferred foreign investment dest ination. Closer examination of the FDI statistics suggests that India’s performance has been abysmal in comparison to China. India lags behind for a number of reasons. These include a high tariff regime, poor infrastructure (power, ports, roads and railways), and a regulatory system that is too often not business-friendly and inflexible labour laws. In this section a comparison has been done between Chinese and Indian SEZ policy on different parameters like tax incentives, labor laws, FDI inflow, employment and export performance. First, consider the size of the proposed SEZs. Chinese SEZs are like townships. India has not gone that far, but according to the SEZ guidelines, the area of an SEZ should be 1000 hectares. It is being argued that large sized SEZs can perform better as they will have a larger scale of economy but on contrary to that the best performing SEZ in Mumbai has an 26 area of 93 acres only. It is being considered that one of the china’s success factors was large size of SEZs. For instance, entire Hai Nan Island has been declared as SEZ with an area of 34,000 Sq. km. Table 3. 2. 1 below shows the size of all five existing SEZs in china. Table: 3. 2. 1 Size of Chinese SEZs SEZ 1) Shenzhen 2) Zhuhai 3) Xiamen 4) Hainan 5) Shantou Area (Sq. KM) 327 121 131 34000 234 Source: Kumar, 2003 There is no doubt that SEZs have an edge over rest of the economy in terms of investment friendly environment and it’s quite obvious that if we have an investment friendly environment in a larger area, economy would do well. Rather than applying the theory of having larger scale of economy we should focus on an overall hassle free environment for export and this can be done only by extending the SEZ policy to whole country where every small and big export oriented manufacturers will have the access to business friendly environment. One counter argument to this proposal might be that SEZ policy in India is being implemented on a pilot basis, and government can extend this policy to whole country if SEZ works as a tool to bring economic reform. But unfortunately SEZ policy nowhere talks about extending the same hassle free system to rest of the country. It means that carrying out businesses in hassle free environment would still be a dream for rest of the country, so infrastructure else where in the country would not improve. The performance of SEZ also depends on the inner infrastructure and how can we think of a great performance from SEZs when rest of the economy still suffers from the same unfriendly environment. 27 SEZ’s were established by the China to encourage foreign investment, bringing jobs, technical knowledge, and future tax revenues in return for significant tax concessions at start-up of the operations and over a number of years. The biggest benefit to the investor is significant tax concessions early in the project. Tax concessions offered to a manufacturing startup in Chinese SEZ are: †¢ †¢ †¢ †¢ †¢ No tax during start-up years before making a profit The first year that any company makes a profit starts the â€Å"Tax Clock† and is year one The first and second year after the tax clock starts, there is no tax. For years three and four, there is 1/2 of the normal tax rate. In the fifth year, the company pays the full normal tax rate In terms of tax benefits we are ahead of china. In SEZ policy tax benefits has been increased in comparison to EPZ but the failure of EPZs indicates that tax benefits can’t alone boost the FDI and export performance. Table 3. . 2 below compares the performance of these two countries. Table 3. 2. 2: Comparison of SEZ performance China Share of SEZs in total export Employmnet(Direct) generated through SEZs FDI inflow through SEZs India 5% 0. 1 million US $ 2 billion 23% 2 million US $ 60 billion Source: KPMG report, ministry of commerce and industry (GoI) The contribution of Chinese SEZs to the country exports is in the range of 15-23%. Acc ording to available statistics, the share of SEZ exports to country exports in 1997 was 23% (i. e. approximately US $ 42 billion). Overall, all the zones put together have played an important role in the overall growth of the Chinese economy. These zones taken together employ more than two million people directly and approximately 16 million overall (both direct and indirect). Cumulatively, 20% of the total foreign direct investments 28 into China have made its way into SEZs (i. e. approximately US $ 60 billion till date). Performance of SEZs in these two countries should not be compared just on the basis of export and other figures because size wise Chinese SEZs are much larger than Indian SEZs. But even in performance (export, employment) per Sq. KM China witnessed higher rate of growth and it was possible because of their liberal framework of SEZ policy. As regards labour laws, it is difficult to imagine that a communist country like China has relaxed these laws by allowing a hire and fire policy for the SEZs. This single measure went a long way in attracting foreign investment to these zones. After investors gained confidence in the productivity of Chinese workforce, the hire and fire policy was substituted by the contract system. There is ample justification for adopting in India a flexible labour policy in India, not just for these exporting enclaves but also for rest of the country. Rigid and outdated labour laws hinder the economic development and it sets the rationale for having a labour reform. According to section 5B of the labour code any registered firm, that is employing more than 100 people, is required to seek permission from the state government to retrench its workforce. The country budget of March 2002 promised a change in the legislation to raise the level to 300 but due to coalition government it never happened. The result is that formal-sector firms (those that are registered and that pay their taxes) loath to take on new employment, and the vast majority of India’s employment is informal, in small, tax-evading, inefficient enterprises. The policy in India on these critical issues is lukewarm. It just mentions that the laws of the land will apply and that the zones can be declared as public utilities under the Industrial Disputes Act. Merely declaring SEZs as public utilities will, however, not serve much purpose as seen in the EPZ experience. The radical difference in the attitude of the Indian and Chinese governments on this matter is reflected n the recently published investors guide for Special Economic Zones in India. It states ‘the labour laws of the land will apply to all units inside the Zone. However, the respective State Governments may declare units within the SEZ as public utilities and may delegate powers of the Labour Commissioner to the Development Commissioner o f 29 the SEZ’ (Ministry of Commerce and Industry, 2002, p. 15). In China, the right to hire and fire has been enshrined in SEZ regulations since 1982. Moreover, in India there are strict regulations stipulating that contract labour is only allowed work of a temporary nature. By contrast, the World Bank survey (2002b), estimates that in Guangzhou firms employ more than 20 per cent of the labour force as non-permanent workers. Of course many Indian employers find ways round the regulations through outsourcing and less formal means but the current system undoubtedly reduces flexibility. China made the provincial and local authorities act as partners and stakeholders by delegating them powers for approving foreign investment. The SEZ authorities in China can approve investment proposals up to $30 million. This has been a significant feature of the Chinese policy and a key contributor to the success of SEZs. The Indian policy only enables the State governments to set up SEZs, but does not empower them to approve investment proposals. These powers have been vested with the development commissioners concerned who represent the Central Government. This will result in centralization of work in their offices. Government boasts of decentralizing the whole process and talks about single window clearance but anybody who goes through the SEZ act can figure out how complex and centralized this policy is. Last section of this research paper critically analyzes the ‘so -called’ decentralized nature of the SEZ policy. Another ticklish issue is involvement of local government. Unless the State and local governments are directly made responsible for the management of SEZs and approving investment proposals, their political leadership and bureaucratic set up may not have any incentive to push the initiative forward. But in India all the important decisions are being taken by central government China has gone a step further by delegating powers to the local authorities. The local authority manages Shenzhen SEZ, which has the highest export turnover. 3. 3 Current scenario in China 30 Over the last five years the GDP growth of china has been near about 10% and SEZs is being viewed as an engine for this rapid growth. Higher GDP rate can be considered as one of the major success of SEZ policy but regional disparities as an outcome of this policy has forced China to rethink and restructure this policy. Per capita income in the richest city is over 50 times per capita income in poorest city. Awarding a privileged status to some zones at the cost of others is responsible for this higher disparity. For instance, china had received the cumulative amount of US $ 128. billion of FDI between the year 1979 to 1995 and the coastal areas accounted for over 90% of all the FDI received in this period. It might be argued that there is no harm in developing country in pockets but how we can forget that these areas were developed by tax money paid by everyone. Government had to forego tax revenues as tax concessions were the main attracting features. All the tax revenue lost due to SEZ was/is being recovered through taxes from rest part of the country and resultantly all tax payers end up paying higher tax but the benefits are available for very few of them. I see this as the one of the main causes for high income disparity in China. To combat this problem even China has given emphasis on balanced development and tax benefits accorded to foreign investments in the SEZs has been partially lifted. India’s tax and tariff structures are still anti export. India’s high overall tariff rates, especially tariffs on intermediate products that are used by exporters, impose a heavy indirect tax on export competitiveness. Deregulation of the private sector is perhaps one of the most critical areas in the context of India’s reforms. Since almost 90-plus percent of the workforce is in the informal sector, it is of utmost importance to deregulate the private sector so as to get the unorganized sector workforce in the mainstream. Workers in large firms in the formal sector have a virtual guarantee of continued employment according to the Industrial Disputes Act. For firms of 100 employees or more, reductions in the workforce must be upon the permission of state government, which is almost never granted. Remarkably, loss-making firms are also not allowed to close their operations without government consent. The results of India’s ighly regulated labor markets have been devastating. Formal-sector employment in India is shockingly low, in large part 31 because so much urban employment is carried on outside of formal registration. Out of a total labor force of around 406 million, formal sector employment accounts for only 28. 1 million. Of this, 19. 4 million works in the state sector (state enterprises and publ ic administration), and just 8. 7 million works in private firms with formal employment. Indeed with a more open and deregulated economy (economy is not just SEZs), India may well be in a position to perform as China has done over the last two decades. 32 SECTION- IV CASE STUDY: NOIDA SPECIAL ECONOMIC ZONE 33 4. 1 Introduction Noida EPZ was established in 1984 and attained the status of SEZ in the year 2000. Based on their share in exports, past performance and potential for growth, software and gem & jewellery have been identified as the thrust areas. Spread in 310 acre, NSEZ is just after SEEPZ in terms of export performance. NSEZ’s proximity to Delhi sets it apart from other SEZs. Being close to national capital it has an easy access to skilled manpower, abundant managerial and technical expertise. With 151 units in operation, NSEZ contributed 30% of total exports from SEZ in the year 2004. It employs 19,857 people and per unit employment is 131. In terms of per unit employment SEEPZ and MSEZ are ahead of NSEZ with 239 and 150 employee per unit respectively. Units in NSEZ get the tax benefits according to SEZ act but at the same time they have been exempted from the payment of stamp duty, trade tax and entry tax. Noida has witnessed higher growth in export in comparison to other SEZs. The figure 4. 1. 1 shows the export growth of NSEZ: Figure 4. 1. 1 Export growth trend of NSEZ Export Growth of NSEZ 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Exprort (in million) 15341 10143 10342 7483 8456 9924 Source: NSEZ Authority The total government investment in NSEZ is Rs 78 crore while the private investment is of 650 crores. NSEZ has the highest private investments and the reason for this is better business opportunities due to its proximity to Delhi. Another important factor is incentives given by the state government. Over the years exports in textile and hardware has been 34 declining but gems & jewellery has witnessed a very high growth and in the year 2003-04 the total contribution was 49. 87% in total exports from NSEZ. The table below summarizes the contribution of different sectors in total exports. Table: 4. 1. 1 Contribution of different sectors in exports from NSEZ Sector 19992000 1341 1660 1393 1201 1295 462 127 295 682 8456 Exports (Rs. Million) 2000-01 1388 2697 1786 1014 1928 329 88 269 843 10342 2001-02 1199 885 1906 1184 3015 207 100 287 1141 9924 2002-03 990 739 1787 1374 3437 238 53 229 1296 10143 2003-04 990 930 1980 1640 7650 310 50 230 1560 15341 Textile/Garments Hardware Software ENGG. Goods GEM & Jewellery Chemical & Pharma Leather Products Plastic/Rubber/Synthetic Miscellaneous Total Source: NSEZ Authority 4. 2 The reasons for NSEZ’s success: A) Proximity to Delhi: One of the prime reasons of NSEZ’s success is its proximity to Delhi. Noida has better transport and other infrastructural facilities in comparison to others SEZ. Noida was developed as an industrial area and therefore, the whole environment is business friendly. Noida is just 24 KM away from Delhi and it comes under national capital territory (NCT), so in terms of administration, infrastructure and business opportunities NSEZ has an edge over other SEZs. B) Special benefits given by the U. P. overnment: It has been discussed in previous sections that the tax benefits are the key determinants in attracting investments. To woo the investors U. P. government has exempted SEZ developers and units from some state taxes as well and it has resulted in higher private investments in NSEZ Exemptions from the payment of entry tax, trade tax and stamp duty makes NSEZ the 35 most sought after destina tion for setting up the units. Due to these exemption units in NSEZ export more to reap the benefits given by the state government at the fullest. 36 Section – V Policy Analysis: A Critical Approach 37 Without doing the cost benefit analysis when a government establishes any economic policy which affects all the people in a direct or indirect way, it becomes important to raise some basic questions like whether the benefits of that policy would outweigh their costs, is it good for the country in the long run? SEZ policy has been enacted by parliament but ironically no cost benefit analysis was done before announcing it. As discussed earlier the prime objective of this scheme is to boost the export sector and a package of fiscal and non fiscal incentives are being offered to developers and units to achieve the objectives. One way to assess the rationale for having SEZ policy is to investigate what would have been the performance of the economy in the absence of this policy. Anticipating this would not be an easy task. Export performance of our country has been abysmal and there was a need to take some measures but according to me, preferential treatment should be the last measure and firstly any government should root out all those evils which are hindering the growth of export or for that matter whole economy. Rigid tariff regime highly regulated labour market, centralized governance are some major problems which obstruct the growth of the export sector and this also makes the investment climate unfriendly. Deregulating the labour market and decentralizing the whole process should have been the first priority of the government and making the whole country hassle free for investments and business opportunities would automatically boost the export sector. Establishing SEZs is a very complex task encompassing a wide range of policy, legal and regulatory issues. SEZ policy was praised initially as a well drafted policy but inter ministerial conflicts, heavy economic costs and recent cases of migration from DTA to SEZs actually highlights the blind spots of its designers. 5. 1 Heavy Economic Costs According to SEZ Act 2005, the firms are eligible for getting an extended Income Tax holiday for 15 years. Firms and developers have also been exempted from excise duty and custom duty. A loss of Rs. 39,704 crore of duty under export promotion schemes during 2003-04 (CAG Report, 2004) which accounts for 82% of customs duty collected that year gives an idea of how costly this whole affair is. According to an internal assessment by the 38 Finance Ministry, the Government may have to forego about Rs 90,000 crore in direct and indirect taxes over the next four years on account of SEZs. 5. 2 Corporate Welfare Very recently an article written by M. Bhardwaj appeared in ‘Business Standard’ which alleges that Haryana government acquired over 1700 acres of land from farmers at Rs. 300 crore and offered this land to Reliance for 360 crore in the name of SEZ while it was estimated that land was worth 5,000 crore. This is a perfect example of corporate welfare. It’s true that the value of land goes up drastically when market anticipates the introduction of any such scheme into that particular area but taking away the land from farmers at a much lower rate can’t be justified. According to the SEZ Act any state government can set up SEZ jointly with private sector. This can be called public private participation. Theoretically everything sounds good, so where is the problem. Now if any company has link with top politicians of a state, the possibility of favoured treatment can’t be ruled out. Even in terms of incentives state can also offer a package of tax benefits. Imagine a situation where two firms which produces the same good, are operating from two different states and one of them gets an edge over another just because of preferential treatment by the state. Would you call it a fair competition? SEZ act enables the state government to offer land at a much lower rate and to provide extra incentives and what do we expect that the state governments would not misuse these powers? 5. 3 Migration from DTA to SEZ To avail all the facilities and incentives offered by SEZs, small firms and even big companies are shifting to these privileged enclaves. SEZs have encouraged inward migration. One of the prime objectives of this policy was to attract FDI but the share of FDI in investments in SEZs is very low and due to inward migration very few new manufacturing units have been set up in the SEZs. 5. 4 Real Estate Play 39 State governments are offering land to SEZ developers at concessional rates. For real estate developers SEZ policy has come as an opportunity to grab the scarce land near cities. Ideally SEZs should be established in remote areas but due to lack of infrastructure the concentration of SEZs are near by cities. According to SEZ Act at least 25% of the total acquired area would be processing area and in the remaining area developers can build commercial complexes, malls, hospitals, hotels, educational institutions etc. Minimum area requirement for setting up SEZ is 1000 hectares and according to SEZ guidelines developers get a tax break even on all the buildings on the 750 hectares. On going real estate boom has shifted the focus from export to building residential complexes and commercial malls. Developers can always make huge profit from selling or leasing the buildings and this is where real estate play comes in. Land deals and compensation payments are known to be hot-beds of corruption so no wonder if farmers are being displaced from their place in the name of SEZ without giving adequate compensation. Conclusion Considering the need to boost export sector and attract FDI, government announced this policy but ironically the performance of SEZs in exports highlights the failure. When government should liberalize overall policy, government has decided to focus on one or two areas. The real attraction of SEZs is the tax holiday promised and to grow the business in hassle free environment firms are just shifting to these privileged enclaves. To compete with China a package of fiscal and non fiscal incentives are being given but this has been overlooked that tax benefits in china’s SEZ were available only to foreign investments, not exports. All exemptions and fiscal incentives should go in the process of overall tax and labour reform. Giving preferential treatment to any particular area in the name of exports can’t be justified in the democratic set up. Even if government wants to continue with this policy, only developers should be given the tax benefits if they are developing any SEZ in the remote area. The whole process is still centralized and government should minimize their role. 40 References: 1. Official Website of SEZ. http:// sezindia. nic. in. 2006, accessed on 23 May 2006 2. Ministry of Commerce. 2005. Annual Report2004-05. 3. CII report. 2005. Special Economic Zone: Engines for Growth. Available at http://www. ciionline. org/Northern/regionalfocus/836/images/sez. pdf. Accessed on 23 June 2006. 4. Bhardwaj, M. 2006. No review, RIL mega SEZ signing next week, says Haryana CM. June 13. Business Standard 5. Aggarwal, A. 2004. Export Processing Zones in india : Analysis of the Export Performance. ICRIER Working paper No. 148. 6. Jain, S. 2006. Killing SEZs, making a killing. 22 May. Business Standard 7. Tondon Committee (1982) ‘The Committee on Free trade Zones and 100% Export oriented Units, Apponited by the Ministry of Commerce, Government of India, September 1981. 8. IIPM Editorial. 2006. The Great Indian obsession. 9. The Hindu. 2005. Lok Sabha passes SEZ Bill. 11 May 10. Suchitra, M. 2006. The high cost of easy foreign exchange. 9 March. India Together 41 Annexure-1 (List of all the fiscal and non-fiscal benefits given to SEZ developers and units) i. 00% income tax exemption for a block of five years and an additional 50% tax exemption for two years thereafter ii. 100% FDI in the manufacturing sector permitted through automatic route, barring a few sectors. iii. External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels. iv. Facility to retain 100% foreign exchange rec eipts in Exchange Earners’ Foreign Currency Account. v. 100% FDI permitted to SEZ franchisee in providing basic telephone services in SEZs. vi. vii. No cap on foreign investment for small scale sector reserved items. Exemption from industrial licensing requirements for items reserved for the SSI sector. viii. No import licence requirements 42 ix. Exemption from customs duties on import of capital goods, raw materials, consumables, spares etc x. Exemption from Central Excise duties on procurement of capital goods, raw materials, consumable spares etc. , from the domestic market. xi. xii. xiii. No routine examinations by Customs for export and import cargo. Facility to realize and repatriate export proceeds within 12 months. Profits allowed to be repatriated without any dividend-balancing requirement. xiv. xv. Job work on behalf of domestic exporters for direct export allowed. Subcontracting both domestic and international is permitted; this facility is available to jewellery units as well. xvi. †¢ Exemption from Central Sales Tax and Service Tax †¢ Facilities to set up off-shore banking units in SEZs. †¢ Exemption from duties on import /procurement of goods for the development, operation and maintenance of SEZ. †¢ Income tax exemption for a block of 10 years in 15 years. †¢ Exemption from Service Tax 43 †¢ FDI to develop townships within SEZs with residential, educational, health care and recreational facilities permitted on a case-to-case basis.