Accelerating the Digital Economy through SEZs

By Indranil Dasgupta, CEO, SREI Capital
Accelerating the Digital Economy through SEZs

Digital transformation touches nearly every aspect of our lives today in a profound manner, helping us do things more easily, conveniently, and cost-effectively. The new digital economy that is taking shape around us has transformed our life styles from our social interactions to the way we work, commute, shop, entertain ourselves, and much more.

The pace of technology innovation has never been faster with information becoming widely accessible, and much more democratized. The application of technology to solve nearly every problem we face in our daily lives has given rise to an entrepreneurial revolution that involves not only a large number of people boarding the startup bandwagon, but also great business model innovation. In this scenario, some notable Indian companies have carved a niche for themselves both in the consumer internet space, as well as in the B2B space. However, it is worth noting that too few Indian companies have actually succeeded in making an impact at the global level compared to the overall interest in starting up. Although the reasons for this are varied, there are certain tangible factors that invariably frustrate Indian entrepreneurs, and here I discuss some of those

One factor that holds Indian entrepreneurs back is ease of doing business or rather, the lack of ease in doing business. Another factor is poor physical infrastructure that slows down turnaround times, reduces operational efficiency, and increases cost of doing business. Yet another is the lack of a proper ecosystem with easy access to capital, protection for IPR, and availability of talent.

The government recently launched several initiatives like Startup India, Skill India, Digital India, and Make in India to address these issues. Although each programme has specific objectives pertaining to specific functions, the common thread is that they encourage and support job creation as a means to economic development. Laudable as they are, the trickle down effect of the benefits of these initiatives will take time to manifest at the ground level.

One successful programme that preceded the aforesaid initiatives is the Special Economic Zones (SEZ) programme that came into being in 2005 by an Act of parliament. An SEZ is a demarcated land area that is governed by a separate set of economic and tax laws from other Indian territory, and is deemed to be outside of India for purposes of trade and industry. SEZs are characterized by ease of startup and hassle free operations; world-class infrastructure; efficient delivery of services; and multiple cluster benefits of a thriving ecosystem.

Although SEZs have been the primary driver of export growth since the rules were notified in 2006 clocking over $550 Billion in export turn over, the payback from SEZs extend far beyond their economic contribution. SEZs today stand as a proof of how ease of doing business, good infrastructure, and other critical ingredients that together form an enabling business environment can drive the economy forward. SEZs catering to the IT industry (IT SEZs & Multiproduct SEZs) have been the primary enabler for the success of Indiais IT industry. Marquee IT brands like Patni, Infosys, TCS, Wipro and Cognizant have mostly operated out of IT SEZs, and there is no need to emphasize the contribution of these companies, and the IT industry as a whole, to Indias economy over the last decade.

Today, SEZs are pockets of excellence from which lessons of success can be taken for replication across the country. For private enterprise, SEZs and integrated townships that encompass SEZs remain the best bet for business success to this day. Initiatives like Startup India, Skill India and Make in India are further boosting the appeal of SEZs even as their scope and benefits extend across India. Companies with a domestic market focus, Software-as-a-Service (SaaS) companies, and those that are in the consumer internet space also have great scope for success in SEZs and in domestic tariff zones accompanying SEZs due to fiscal and infrastructure benefits.

Given Indiais demographic of a vast youth population, the importance of job creation cannot be stressed enough. In order to absorb the supply of employable youth into the workforce, about 100 million jobs have to be created over the next six years. Although a critical part of the strategy to create jobs is the encouragement of entrepreneurship, much depends on the success of the entire startup ecosystem.

If the entrepreneurial revolution is to hold significance in creating the kind and number of jobs that the country needs, then entrepreneurs must operate in an environment that gives them the best chance of success. To create more jobs, it is critical that a substantial number of Indian entrepreneurs succeed at the global level. For this they need to have the best platform and ecosystem to support their growth, and they need to operate in environments devoid of the trappings of administrative red tape, all of which continue to be best represented within SEZs and integrated townships. If denied this, Indian entrepreneurs would be competing against their global peers with strategic disadvantages pulling them back, and eventually robbing them of success.