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 Outdated Legislation: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

Drivers of Growth in India’s Aviation Sector

India is rapidly emerging as one of the largest aviation markets in the world. Several key factors are fueling the growth of the country’s civil aviation sector:

1. Higher Household Income
   • Rising incomes are leading to increased business and leisure travel. Professionals are opting for air travel for work, and more individuals can afford to travel for leisure.
   • Fact: The aviation sector is benefiting from growing household income, contributing significantly to the rise in passenger traffic.
2. Entry of Low-Cost Carriers
   • Low-cost airlines have revolutionized air travel by making it affordable for the common man, further driving domestic traffic growth.
   • Fact: The expansion of budget airlines has made air travel more accessible across various segments of the population.
3. Increased Foreign Direct Investment (FDI)
   • The government has allowed up to 100% FDI in non-scheduled air transport services, seaplanes, and helicopter services, leading to infrastructure development and further growth.
   • Fact: 100% FDI is allowed through the automatic route in key aviation sectors, promoting development.
4. Increased Tourism
   • A rise in inbound tourism has contributed to the growth of air travel. In 2021, 87.5% of foreign tourists arrived in India by air.
   • Fact: 87.5% of the 1.52 million foreign tourists in 2021 entered India via air.
5. Development of Modern Airports
   • Airports are being upgraded with new technologies, focusing on speed, capacity, and sustainability, which boosts the aviation industry.
   • Fact: The development of modern airports is a key driver of growth, incorporating advanced technologies.

Challenges Faced by India’s Aviation Sector

Despite strong growth drivers, the Indian aviation sector faces several challenges:

1. High Fuel Costs
   • Fuel costs, particularly Jet Fuel, make up 20-30% of operational costs. In 2022, the cost of Aviation Turbine Fuel (ATF) rose by over 70%, one of the steepest increases in recent years.
   • Fact: High ATF prices in India, due to taxes and levies, make fuel costs among the highest in the world.
2. Infrastructure Bottlenecks
   • Many airports are outdated and located in hard-to-reach areas. Expanding runways is costly, time-consuming, and complicated due to land acquisition issues.
   • Fact: India faces challenges with aging airport infrastructure and limited space for expansion.
3. Regulatory and Compliance Issues
   • Multiple government agencies overseeing the sector create delays and increase compliance costs.
   • Fact: The involvement of several regulatory bodies complicates the sector and causes delays.
4. Shortage of Skilled Workforce
   • The aviation sector faces a lack of skilled labor due to the high cost of training and the need for updated facilities and equipment.
   • Fact: There is a shortage of qualified personnel, exacerbated by expensive and outdated training infrastructure.
5. Security and Efficiency Challenges
   • The need for stringent security measures, while essential, can add to travel time and costs.
   • Fact: Security measures are essential but contribute to delays and increased costs in the aviation sector.
   • Source: Provided content.

Conclusion

India’s civil aviation sector has the potential to become the world’s largest, driven by rising incomes, increased tourism, the expansion of low-cost carriers, and modern airport development. However, challenges like high fuel costs, inadequate infrastructure, regulatory complexities, workforce shortages, and security measures need to be addressed to fully realize this potential.