A debate has started between IMF and Indian government about the effectiveness of Special Economic Zones (SEZ). IMF Chief Economist Raghuram Rajan viewed that the special concession given in SEZ may create a negative impact on the Indian economy:
"Overall, it (tax sops for SEZs) becomes yet another give-away which the government cannot afford," this is what he said. He criticized that Indian government was giving too much concessions to the IT companies in SEZ. I am quoting from a report of the Financial Express:
“Reserve Bank recently said in its annual report that SEZs could aggravate an uneven pattern of development, as they may pull out resources from less developed areas.
According to Finance Ministry's estimates, SEZs could lead to a revenue loss of Rs 1,75,000 crore in direct taxes, customs and excise duties over the next five years, while the Commerce Ministry says the zones will lead to Rs 44,000 crore revenue gain for the government in a year.”
Now, Indian Commerce Minister Kamal Nath has fought back and said, "IMF should get its facts right. They should go to the field and not sit in Washington and criticise,". He viewed that SEZs had enormous contribution in the Indian economy. I am quoting from a report of Business Standard:
“Nath said there was no justification in saying that there would be revenue loss as it was national. "When there is no levy, how can you say it could lead to revenue loss?" he asked.
The government has already approved over 160 SEZs, and the board of approval is scheduled to meet in the third week of this month to clear 225 pending applications.”
Who is right?
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