On Tuesday, we looked at the disappointing performance of 2005’s SEZ Act when measured against the Government of India’s stated goals.
But the Indian government has an ambitious new plan to spur industrial growth, create 100 million jobs and increase manufacturing’s share in the GDP from 16 percent to 25 percent within the decade. If ratified, the National Investment and Manufacturing Zones (NIMZs) will offer simplified regulation and better infrastructure to attract businesses. In this second installment of the series on India’s industrial zones, we assess its prospects.
To sustain its impressive growth rates, the Government of India is looking for new sources of growth. Last year, the Cabinet approved an ambitious new National Manufacturing Policy (NMP). The policy, which is awaiting ratification, aims to create 100 million jobs and to increase the share of manufacturing in GDP from 16 percent to 25 percent within a decade. At the center of the policy are National Investment and Manufacturing Zones (NIMZs), large industrial townships that offer special incentives and infrastructure to attract businesses.
This is not the first time the Indian government has turned to zones to deliver on its economic goals. India’s Special Economic Zones (SEZ) Act of 2005 was launched amid hopes that it would help boost exports, FDI, and job creation. However, the SEZ Act met with mixed results and widespread controversy.
Today, we are kicking off a 2-part blog series that explores the possibilities—and potential pitfalls—of industrial zones. In this installment, we answer: Why did the SEZ Act fall short? On Thursday, we will assess the prospects of the proposed NIMZs.
Reviewing the Results
When the SEZ Act of 2005 was announced, there was an outpouring of interest from developers. Yet, as seen in the chart, by 2010 only twenty percent of all approved SEZs had become operational. Targets for jobs were not met. What happened? No single factor explains it in full, but several, from a lack of connecting infrastructure to the political economy of land, came together to prevent the Act’s original goals being met.
Submitted by Robert Whyte on Fri, 2012-05-18 18:32
When investors think about entering new locations their biggest need—and biggest challenge—is often how to access the information they need to help them make decisions. Reliable information—especially in emerging markets—helps to reduce investor perceptions of risk in an unknown location and reduces the transaction costs of establishing in a new market.
Moreover, you would think government investment promotion intermediaries (IPIs) should be keener than ever to make as much effort as possible to attract new investors in light of the cut-throat competition for lower levels of FDI since the crisis. Wouldn’t you? Well, it would seem like they aren’t. The World Bank Group's Global Investment Promotion Best practices 2012 survey (GIPB 2012) found that, worldwide, the responsiveness of IPIs to investor inquiries is shockingly low-with 80% of IPIs not even responding to sector-specific investor inquiries.
Corporate Social Responsibility (CSR) has attracted significant discussion and controversy since the times of Milton Friedman’s famous 1970 NYT article stating that the only social responsibility of firms is to maximize profits. However, the conclusion that CSR automatically is in conflict with profit maximization or strategic firm behavior and therefore should be reduced either to a market failure or some form of altruism turned out to be incorrect. Quite the opposite: my article in the Journal of Economic Literature jointly written with Jay Shimshack not only shows that CSR constitutes an economically important phenomenon that may well be strategic (i.e. profit maximizing), but also argues that, when concisely defined1, CSR can be efficient. In other words, it can be a viable private channel of public goods provision and a formidable complement or even alternative to classic government intervention.
Development institutions such as the World Bank Group stress that the private sector has an important role to play in the development of an economy, however, the supply of environmental, social or other goods (or the curtailment of bads) with public character is believed to be government and rule rather than market-driven. But what happens when governments and rules fail to provide these goods and services? While, it appears that markets and corporate behavior won’t be able to reach a social optimum e.g. when it comes to pollution or renewable energy levels, they often can do better than governments. In the short and middle term, CSR can be welfare optimal. Eventually improved public politics and CSR may even be mutually reinforcing elements in the longer run.
“SRN: Smart Rickshaw Network” by Aadhar Bhalinge – a prolific technology developer from India – is the winner of m2Work, the mobile microwork innovation contest that infoDev and Nokia launched in February. The infoDev team has taken a closer look at his and the other five finalists’ backgrounds, and we found some helpful insights about new sources of innovation, their promise, and their needs.
To put these lessons in context, let’s take a look at the microwork ecosystem before m2Work. Microwork platforms, like Samasource and MobileWorks, were already connecting thousands of people in developing nations with jobs like moderating websites, tagging images and video, and so on. But these platforms were most useful for workers with access to computers with broadband, which are the exception rather than the rule in many regions.
Economists usually enjoy working on economic data and writing up reports. But Sudharshan Canagarajah also likes giving conventional economic thinking a nudge — in this case, on migration.
As the World Bank’s Lead Economist for Tajikistan, Sudharshan noticed that Tajiks were on the move. In response to the country’s various crises, they sought new opportunities, mainly in Russia. They had no support from government, and little attention from donors, but the money they sent home created a huge economic impact.
The most striking thing about mobile money in Kenya is how visible it is: the proliferation of store signage with M-PESA (and, increasingly, other mobile money and banking logos) leaves no one with any doubt that something big is happening in the Kenyan payment space.
It is estimated that four out of five adult Kenyans have access to a mobile money account. This means that most people that any business touches –whether they are consumers, employees, business partners or retail staff— are connected to a real-time electronic payment network. That’s unprecedented in the developing world.
And yet few formal businesses have a dedicated mobile money account to conduct their financial transactions electronically, and among those who have one most do not appear to promote its use by their customers and suppliers particularly aggressively. Cheques remain the preferred payment mode for suppliers, or cash for smaller payments. M-PESA payments might be taken from customers if they insist and M-PESA might be used to pay field staff in exceptional or emergency situations, but then staff’s personal mobile phones are most likely to be used. Few enterprises have any vision about how they can use mobile money to re-engineer how they do operate, taking cash out of their business. The tidal wave of M-PESA is but a mere ripple for most businesses.
Recent debate over the optimal form of regulatory architecture for increasingly integrated and interconnected financial systems has largely focused on redefining the balance between regulators and the universe of financial institutions they regulate. This piece identifies a less “fashionable” – though no less significant – contributor to the global financial crisis, that is, the dysfunctional relationship which often existed between financial regulators and monetary policy authorities. The fact that this dysfunction has not been discussed in depth suggests that its negative consequences are no less likely to re-emerge in the future.
India is swimming in grain these days, thanks to the Green Revolution, bumper crops and food security policies that encourage farmers to grow more. But unfortunately, India’s ability to store and manage its surplus grain hasn’t kept pace with production. The Wall Street Journal reports that state-run warehouses have a capacity of 63 million metric tons, while grain stocks are expected to be 75 million. To make things worse, many existing storage facilities are low-quality structures that aren’t up to the job. This means millions of tons of grain could be lost through exposure, deterioration and pests—bad news in a country of 1.2 billion with widespread hunger and an estimated poverty rate of 32 percent.
This post concludes our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.
The field of financial literacy and capability has many open questions in terms of priorities, what the most effective interventions are and even basic measurement data and evidence of impact. However, one aspect of this topic where there is growing consensus relates to the importance of multi-stakeholder partnerships that leverage both public and private sector actors, as well as civil society.
As in any significant endeavor that attempts to change or reinforce consumer behaviors (encouraging savings, promoting prompt repayment of loans, taking steps to mitigate risk such as diversification of assets or buying insurance) communicating through multiple channels and partners can strengthen the effectiveness of the message. Figure 1 below shows the many types of stakeholders that may be involved in the development of financial literacy and capability programs and policies. These span the gamut from central banks and ministries of finance to commercial banks, microfinance institutions and other providers, schools, religious institutions and media firms.
But the Indian government has an ambitious new plan to spur industrial growth, create 100 million jobs and increase manufacturing’s share in the GDP from 16 percent to 25 percent within the decade. If ratified, the National Investment and Manufacturing Zones (NIMZs) will offer simplified regulation and better infrastructure to attract businesses. In this second installment of the series on India’s industrial zones, we assess its prospects.
Development institutions such as the World Bank Group stress that the private sector has an important role to play in the development of an economy, however, the supply of environmental, social or other goods (or the curtailment of bads) with public character is believed to be government and rule rather than market-driven. But what happens when governments and rules fail to provide these goods and services? While, it appears that markets and corporate behavior won’t be able to reach a social optimum e.g. when it comes to pollution or renewable energy levels, they often can do better than governments. In the short and middle term, CSR can be welfare optimal. Eventually improved public politics and CSR may even be mutually reinforcing elements in the longer run.
The most striking thing about mobile money in Kenya is how visible it is: the proliferation of store signage with 
