Generating jobs-the Chinese model

Author: 
Subrata Majumder

The endgame of five year planning begins with Three Year Action Agenda (TYAG) from 2017-18, a short term economic programme. This has been drawn from the perspective of 7 year economic strategy under the umbrella of 15 year vision. The newly appointed NITI Aayog – a powerful think tank of India, replacing Planning Commission –pitched for a pragmatic approach with short term policy to reshape the country’s growth amidst the global uncertainty.
One of the main parameters of TYAG is the setting up of Coastal Employment Zone (CEZs) – a first time challenge to generate more employment in the country’s coastal areas, linking to global economic growth on the Chinese model. Presumably, the reason for giving thrust on employment growth in the coastal areas was that, hitherto coastal areas were neglected because of their peripheral nature to play role in the economy. A large part of the coastal employment in the country is anchored by traditional industries like fisheries and cottage industries.
China had shown to the world the importance of coastal area in the economy, by developing export base industries at coastal areas. These consequently unleashed greater opportunities for employment. China followed Japan to pin for export base economic growth. But it laid focus on coastal base growth unlike Japan, given the cost benefit arising from logistic for transportation of goods. 
The NITI Aayog proposed CEZs initially at two places - one in the west and the other in the east. In addition to Make in India initiative, which is an indirect approach to generate more employment, TYAG is a direct approach to generate employment, replicating Chinese Shenzhen model - the first SEZ in China in 1980. However, while export and foreign investment were priorities of Chinese SEZ, the main aim of CEZs is to generate more employment at the coastal areas through soaring exports.
India’s new perspective towards the vitals of CEZs to generate more employment was spawned after China lost the advantage of low cost production and foreign investors dislocated their production network to low cost countries, such as in Bangladesh and Vietnam. Today, Bangladesh is one of the global hubs for readymade garments production.
NITI Aayog recommended certain incentives to foster CEZs. It proposed incentives on the threshold of employment. It proposed five year corporate tax holiday to firms employing 10,000 workers within three years of tax holiday. Alternatively, zero-rate GST for three years for creating 10,000 jobs and six years for creating 20,000 jobs.
But, the challenges to develop CEZs on the line of Chinese model are arduous, owing to different political situations and the infrastructure in both countries. In addition, the global economic situations have changed widely from 1980 when Shenzhen was set up and now.
The two main parameters, which are required to develop CEZs, are the physical structure of the zones and labour reforms in the zones. Both need to be investment friendly environment for their success. Unlike the general SEZs in the country, CEZs will be larger in sizes, proposed by NITI Aayog, with the scope for land convertibility and appropriate labour reforms. But, it will be an uphill task due to lack of political leverages. This is because land acquisition and labour reforms will be stymied by pending land reform bill and amendment in labour regulations. Both require approval of both houses of Parliament. Currently, the ruling government BJP is in minority in Rajya Sabha.
Given the thorny roads ahead due to lack of political unanimity and huge works required to develop appropriate infrastructure, how can TYAG ensure the development of CEZs within the three year period of action programme? Further, currently the world economy is at loggerhead between protectionism and globalization. Protectionism will mar the scope of exports, which is already in poor health due to recession in developed nations. And, after US President Donald Trump’s assertion on protectionism, globalization will be led by China through OBOR (One Belt One Road). India is reluctant to participate in it so far.
The two initial ideal locations for CEZs will be Gujarat in the west and West Bengal in the East. Gujarat has more liberal and friendly economic environment. Gujarat Special Economic Zone and Special Investment Region (SIRs) have liberal labour laws. They should introduce liberal land acquisition rules.
In case of West Bengal, even though the state is eclipsed by lackluster business friendly environment, it has an edge over Gujarat in terms of its geographical locations. Its market potential swells by its proximity to four foreign countries. It is flanked by Bangladesh, contiguous to Myanmar and Nepal and Bhutan. They provide enough opportunities for border trade with these countries. With cost advantages, spearheaded by low wages and cheap logistic due to more scope for trade on land route, West Bengal provides ample opportunities to augment export to these neighbouring countries. The total annualized trade with Bangladesh, Nepal and Bhutan is US $ 8.0 billion. A larger part of the official trade is through border trade and West Bengal is the main entry route for the border trade. Besides, huge volume of unofficial trade flows through West Bengal borders.
Labour intensive industries like garment and low-capital base industry like mobile phone can be ideal to be developed in West Bengal CEZ. It provides start-up platform for re-building of industrialization. Low wage is the catalyzing factor for the growth of garment industry. Automation has little scope in garment industry.
SAFTA (South Asia Free Trade Area) ushers added advantage, besides border trade scope from West Bengal. It can emerge as a prospective gateway for India to expand trade with Bangladesh, Nepal, Bhutan and Myanmar. (IPA)

Tuesday, 16 May, 2017