Special Economic Zones in India: Are These Enclaves Efficient?

Abstract

The contemporary debate on the SEZ policy has been quite fierce but the focus has been mostly on the issues pertaining to the establishment, sanctioning procedures, land grabbing and protests against the SEZ policy. In the melee, the major issue of economic utility (if any) of SEZs is forgotten or not bothered about. It is known that the laudable objectives of the SEZ policy promise to improve the efficiency in trade and an increase in the production of tradable goods in order to attract foreign exchange. It is necessary to question if this objective has been achieved in respect of implementation. In this paper, along with an analysis of the issue of efficiency of SEZs within the framework of stochastic production frontier technique, we have tried to address the questions raised above. Although the efficiency scores of these enclaves have improved over the years, specifically with the introduction of the SEZ policy (2000-01), it is far below the threshold level as identified in the literature, thus, indicating a larger scope for improvement in efficiency of the existing enclaves. Of the seven conventional SEZs, Santacruz SEZ farer relatively better than others operating on the same production frontier in terms of performance. Besides, one also can observe the emerging contradiction between better export earning zones and efficient zones, which might as well prove a challenge to the policymakers. On the determinants side, besides policy intervention large geographical area accompanied by clustering of units is found to have impacted positively the efficiency scores of these enclaves.

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