Couple of points .... 1) The TN govt DID NOT provide land at no cost. The land was Free Hold instead of leased. The author does not seem to understand the difference. (Refer http://books.google.com/books?id=Au3R0DblY7wC&pg=PA56&lpg=PA56&dq=ford+mahindra+tamil+nadu+exemption&source=web&ots=p1RzEZNoXT&sig=9T-FNqYOxcpPM6neQ6eLNZp5DKI&hl=en#PPA57,M1 Page 56-57)
2) What the author fails to see is the anciliary industries. For example , in case of Ford, the parts suppliers of TN lobbied to get the Ford factory. The ancialiary industries offer much more job then the main industry. We have seen this happening in Western and South India and lately in WB. 3) The author says that the Govt offers Tailor Made incentives which are secret. I am not sure how the "secret" info on TN-Ford negotiation became public. However, everywhere including US, Govt offeres incentive to investors. The same report which I referred to says about US (Page 60). It also says that in US the negotiations are often done in a clandestine manner. 4) The author says "If, on the other hand, the state had higher tax revenues, it could itself create jobs, for example in the rural economy." However, what the author fails to see (but even a layman can understand) is that the potential of earning tax depends on number of industries and jobs. So, if the govt raise the tax to (say) 30% and there are 0 industries Govt will not have money even for basic development not to talk of creating jobs. On the other hand, by getting new industries, they are getting corporate tax, and tax from anciliary industries. Further, the subsidized electricity for Ford was only for 4 years and after that the govt makes money out of that too .... at industrial rate. 5) The original article which started this discussion (NY Times article) praised Chinese model. However, the Berne Declaration site (from which http://www.evb.ch/en/p25010663.html has been picked up) also cites article on Chinese model (by same author). It says " The "Chinese economic miracle" is based on the exploitation of rural migrant workers." (http://www.evb.ch/en/p25010664.html). Does that mean ALL developing countries are going the wrong way? I have seen some assam netters going ga-ga on Chinese model while belittling all of Indian developments. What is their view on this? Does anyone have access to the McKinsey report which the author refers to ? **************************************************************** This is a story related to the issues involved in the NY Times article about the Good Life in Gurgaon. And it touches on some of the points raised by Uttam, and how it impacts the PUBLIC GOOD. http://www.evb.ch/en/p25010663.html Note: A report by the McKinsey Global Institute came to the conclusion that the investment decision of corporations usually was not dependent upon these benefits. Especially in booming markets like India, corporations want to be present in any case, but are nonetheless happy to take advantage of the benefits that are offered to them. India's elites are not completely innocent: The success of having attracted a prestigious foreign corporation to one's own state is a great way to show off. It is India's poor who pay the price. cm *************************************************************************************************************** Who Pays the Price for India's "Corporate Welfare"? (28.01.06) Two reasons are given for India's economic attractiveness: well-educated, inexpensive high-tech workers and a booming internal market. But there is a third, more important motive that attracts investors: the abundance of incentives and sweetners offered by the Indian government to foreign corporations. "Incredibly India: The Biggest Democracy for Global Investors": With this slogan, omnipresent in Davos, India takes a jab at China and at the same time makes clear: India is rolling out the red carpet for foreign investors. The enticements include tax breaks, tariff relief and inexpensive building sites already outfitted with the necessary infrastructure. Exemptions are also made to the applicable environmental and labor legislation. Since the individual Indian states are competing for investments, firms can combine individual and state benefits. And for large projects there are not only the standard incentives, but also tailor-made contracts and incentive packets, whose details remain secret. The most extensive enticements are granted in the special economic zones, which are under the direct authority of the central government's Trade and Industry Ministry. Eleven such regions already exist, and a further 42 have been approved. The Trade Minister manages these zones himself; his colleagues in the Departments of Environment and Finance have no say. Former finance minister Jaswant Singh has complained, in vain, about the loss of tax authority over these zones. Exemptions Without Rules Labor laws find only a rudimentary application in the special economic zones. All firms are treated as public utilities, which means that workers may not strike. A toy factory has the same status as state-operated water and electricity utilities. Normal working hours and overtime as well as wages do not need to be made public, and there are no regular inspections for compliance with safety and health standards. In addition, no contributions need to be paid into the state's social insurance koffers during the first five years of operation. There are also numerous exemptions regarding environment protection, the most important being that a corporation need not carry out public hearings as required by the 1986 Environment Protection Act. As a result, the results of an environmental impact assessment need not be made public. Corporations in the special economic zones are not encouraged to conserve; they can use unlimited water and energy, although these resources are chronically in short supply. Last but not least, corporations in special economic zones profit from comprehensive tax breaks. All corporate taxes are waived for the first five years, and in the following five years a corporation must only pay 50 percent of the normal tax rate. This arrangement applies for a further five years for reinvested profits. In concrete terms, these tax breaks permit a firm in a special economic zone to double its profits in the first three years compared to a firm outside the zones. The incentives for technology firms are even greater; these firms receive the benefits of a special economic zone, no matter where they are located. This applies not only for highly-skilled technology activities like software development, but also for simple call centers and data processors. A Workplace for 420,000 Dollars An example: Ford started a joint venture with the Indian firm Mahindra in 1999. The Indian states of Maharashtra and Tamil Nadu competed with each other to bring the factory to their state. The contract was eventually awarded to Tamil Nadu. The benefits for Ford included the exemption of sales tax on all locally-produced autos for the first 14 years. The state also offered land at no cost and subsidized electricity for four years. Then came a guaranteed water supply and the promise to build a purification plant. By an estimated production of 50,000 autos during the 14-year tax-free period, the additional profit for Ford (and the loss of tax revenues for the state) comes to a hefty US $378 million. The factory creates about 900 workplaces, which means that each of these positions costs the the state of Tamil Nadu US $420,000. This example shows that the combined measures from India's "Corporate Welfare" program create only a few jobs, at an absurd price. If, on the other hand, the state had higher tax revenues, it could itself create jobs, for example in the rural economy. Seventy percent of the Indian population earns its livelihood in agriculture, and eighty-one percent of those live in poverty (with less than US $2 per day). Instead of building streets and public utilities for the wealthiest transnational corporations, slums could be redeveloped and basic services could be assured for the poorest. A report by the McKinsey Global Institute came to the conclusion that the investment decision of corporations usually was not dependent upon these benefits. Especially in booming markets like India, corporations want to be present in any case, but are nonetheless happy to take advantage of the benefits that are offered to them. India's elites are not completely innocent: The success of having attracted a prestigious foreign corporation to one's own state is a great way to show off. It is India's poor who pay the price. Koni Kuhn, Andreas Missbach +41 (0)79 478 91 94 Sources: * Indian Attraction, Profitable multinationals as subsidy junkies - A study of incentives for foreign investment in India, FinnWatch, November 2005. www.finnwatch.org McKinsey Global Institute www.mckinsey.com/mgi/ _______________________________________________ assam mailing list assam@assamnet.org http://assamnet.org/mailman/listinfo/assam_assamnet.org
