Model Answer

Introduction

Special Economic Zones (SEZs) are designated areas where business and trade rules differ from the rest of the country, offering special privileges to businesses operating there. Despite their potential to drive economic growth, SEZs in India have faced several challenges leading to slow growth and underutilization. The Development of Enterprise and Service Hubs (DESH) Bill, 2022 has been proposed to address these challenges and revamp SEZ legislation in line with global standards.

Key Reasons Behind Decline in SEZ Growth and Underutilization:

1. Inadequate Infrastructure and Services:
   • Many SEZs lack essential infrastructure such as proper roads, power supply, water resources, and efficient transportation.
   • Without proper facilities, businesses are reluctant to set up operations, leading to underutilization of these zones.
2. Land Acquisition and Rehabilitation Issues:
   • Acquiring land for SEZs has often faced protests, legal disputes, and delays, making the process difficult and time-consuming.
   • More than 1 lakh acres of land within existing SEZs remain unutilized due to land acquisition challenges.
3. Complex Regulatory Procedures:
   • The bureaucratic processes involved in setting up and operating in SEZs are cumbersome, often leading to delays in obtaining necessary permits and clearances.
   • These challenges discourage potential investors who seek a smoother business environment.
4. Global Economic Factors:
   • Economic downturns and fluctuations in global markets have reduced demand for goods produced in SEZs, leading to their underutilization.
   • Out of 272 operational SEZs, only a few have active units, accounting for less than 20% of India’s total exports.
5. Lack of Connectivity to Domestic Markets:
   • Some SEZs are located in remote areas with poor connectivity to domestic markets, limiting their access to consumers and hindering industrial growth.
6. Labour and Skill Challenges:
   • SEZs have faced difficulties attracting skilled workers due to factors such as location, poor working conditions, and competition from other sectors.
   • Despite 272 operational SEZs, they provide employment to only 28 lakh people, indicating underutilization.
7. Sunset Tax and Policy Changes:
   • The introduction of minimum alternate tax (MAT) and the sunset clause, which limited tax exemptions, has diminished the appeal of SEZs.
8. Outdated Legislation:
   • The SEZ Act, which was framed over 17 years ago, is no longer aligned with current economic and global trade conditions.

How the Development of Enterprise and Service Hubs (DESH) Bill, 2022 Addresses These Issues:

1. Paradigm Shift in Focus:
   • The DESH Bill aims to shift the focus from export-centric zones to hubs that promote domestic investments and economic activity.
   • It integrates multiple economic zone models, including SEZs, coastal economic zones, and textile parks, creating a more cohesive framework.
2. Single Window Portal:
   • The DESH Bill introduces a single online portal for time-bound approvals, streamlining the process for establishing and operating hubs, reducing bureaucratic hurdles.
3. Boost to Economic Activity:
   • The bill allows SEZs to sell in domestic markets more easily, transforming them into service hubs, and removing the strict export obligations of the past.
   • This transformation will foster increased economic activity and job creation.
4. State Engagement and Integration:
   • The DESH Bill empowers states to integrate industrial parks with SEZs, fostering greater collaboration and development across the country.
5. Tax Incentives for Developers:
   • Tax benefits for companies and developers will be provided, similar to SEZs, but without the export obligations, encouraging more businesses to invest in these hubs.
6. Transformation of Infrastructure:
   • Ports, airports, depots, and land stations will be transformed into Development Hubs, which will have both processing and non-processing zones, boosting their overall utility.

Model Answer

Introduction

India’s maritime sector plays a crucial role in its economy, with over 95% of trade by volume and 65% by value depending on sea transport. Recent reforms in India’s port sector have boosted its global recognition and operational efficiency. The World Bank’s 2023 Logistics Performance Index (LPI) report highlights India’s impressive progress, with the country moving from 44th to 22nd in the “International Shipments” category since 2014.

Key Reforms in India’s Port Sector

1. Sagarmala Initiative (2015)

• The Sagarmala Initiative was launched to harness India’s extensive coastline and waterways for port-led industrialization.
• Focus Areas:
  • Enhancing port infrastructure and logistics efficiency.
  • Promoting coastal and inland shipping.
  • Optimizing cargo-handling capacity and reducing logistics costs.
• Impact: Sagarmala is transforming ports into hubs of industrial and economic growth, making India more competitive globally.

2. Port Modernization and Expansion

• Substantial investments have been made to modernize and expand existing ports and develop new ones.
• Upgraded Facilities:
  • Ports have been equipped with deeper drafts and better cargo-handling capabilities.
  • For example, the capacity at 12 major Indian ports has grown from 871 million metric tonnes (MMT) in 2015 to 1,617 MMT in 2023.
• These improvements allow ports to handle larger vessels and a wider range of cargo types, contributing to better trade facilitation.

3. Private Sector Participation

• The government has promoted Public-Private Partnerships (PPPs) to enhance efficiency and innovation in port operations.
• Benefits: This has attracted significant investments, improving port infrastructure and management.

4. Liner Shipping Reforms (2016)

• The Liner Shipping Reforms aim to make Indian ports more competitive.
• Achievements:
  • Lower shipping costs.
  • Enhanced turnaround times, with India’s average turnaround time (TRT) of 0.9 days, among the best globally.

5. Green Port Guidelines

• The Harit Sagar Green Port guidelines promote sustainable practices in ports, focusing on environmentally safe operations, which helps in reducing the ecological footprint.

Legislative Changes Supporting Port Reforms

1. Major Port Authorities Act, 2021

• This act grants greater autonomy to major ports, empowering them to operate more efficiently and independently.

2. Marine Aids to Navigation Act, 2021

• Ensures better safety and efficiency in vessel traffic management, aligning with global standards.

3. Indian Vessels Act, 2021

• Standardizes regulations for inland waterways across the country, improving uniformity and operational efficiency.

4. Ease of Doing Business

• The National Logistics Portal (Marine) provides a single-window digital platform for various stakeholders, streamlining the processes involved in cargo services, regulatory compliance, and financial services.
• The Sagar Setu app further enhances the ease of goods movement in ports.

5. Foreign Direct Investment (FDI)

• The government allows 100% FDI in port projects under the automatic route, along with a 10-year tax holiday for port developers, which promotes private investment in port infrastructure.

Future Directions

1. Integrated Connectivity

• There is a need to strengthen the integration of ports with railways, roadways, and inland waterways for seamless cargo movement between ports and hinterlands.

2. Digital Transformation

• Adopting advanced technologies like blockchain, Internet of Things (IoT), and artificial intelligence will streamline port operations, including cargo tracking and documentation processes.

3. Investment Promotion

• The government plans to attract more investments through PPP models and investor-friendly policies.

4. Regional Connectivity

• Promoting transshipment and coastal shipping will enhance India’s regional trade, especially in the Indian Ocean.

5. Safety and Security

• Ensuring strict safety measures and compliance with international standards is essential to prevent accidents and environmental hazards at ports.

Model Answer

Despite a significant increase in capital expenditure, the operating ratio of Indian Railways (IR) has not shown improvement due to several interrelated factors:

1. Cross-Subsidization of Passenger Services: A major issue is the substantial loss incurred from passenger services, which amounted to ₹68,269 crore in 2021-22. This loss effectively nullifies the profits generated from freight traffic, leading to a deteriorating operating ratio .
2. Rising Debt Levels: The Indian Railways has been increasingly reliant on Gross Budgetary Support (GBS) and Extra Budgetary Resources (EBS) to fund its operations. Currently, approximately 17% of its revenue receipts are allocated to servicing debt, which has escalated due to a lack of surplus funds .
3. Declining Modal Share: The modal share of Indian Railways in freight transport has significantly decreased, dropping to around 27% from over 80% at the time of independence. This decline is attributed to stiff competition from road transport, particularly in coal transport, where rail’s share fell from 70% to 60% between 2011 and 2020 .
4. Fluctuating Net Tonne Kilometres (NTKM): The NTKM, a key performance indicator for freight efficiency, has shown inconsistent growth. Over the seven years ending in 2021-22, NTKM grew at an annual rate of only 3.5%, which is considerably lower than the growth rate of road transport .
5. Decreasing Earnings: In FY 2021-22, Indian Railways reported a loss of approximately ₹15,000 crore. This decline in net revenue has been exacerbated by rising staff costs following the 7th Pay Commission, the adverse impacts of the COVID-19 pandemic, and various social service obligations .

The Parliamentary Standing Committee has recommended that the Ministry of Railways implement measures to enhance operational efficiency, improve capacity, and increase non-fare revenues to address these challenges effectively.