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Last Updated: Monday, 25 September 2006, 12:12 GMT 13:12 UK
Warning over Indian trade zones
Sonia Gandhi, president of the Congress Party
Sonia Gandhi is not the first to question the policy
A senior Indian politician has called for limits on the government's flagship policy of creating special economic zones to boost exports.

Congress Party president Sonia Gandhi said prime farming land should be not be used for industry as it risked "jeopardizing agricultural prospects".

India has approved 150 zones, offering tax relief and other incentives to companies, to try and spur investment.

Critics say it could cost the exchequer $20bn (10.5bn) in lost revenues.

Concerns have also been raised that the zones are not large enough to generate sufficient returns on investment, and that the policy will do little to improve India's underlying competitiveness.

Policy divisions

The Finance Ministry has raised doubts about the financial wisdom of the policy, agreed by Parliament in February, exposing divisions in the government over the issue.

But the initiative, modelled on China's successful approach to economic development, has attracted huge interest among would-be developers.

Farmers must get proper compensation when their land is purchased
Sonia Gandhi, Congress Party president

In addition to the 150 zones which have already been officially approved, more than 100 others have been informally cleared and about 200 others are awaiting scrutiny.

Ms Gandhi, whose Congress Party is a member of the ruling coalition, said India must not abandon its farmers in its desire to industrialise.

"Industry requires land no doubt. But this must not be done without jeopardizing our agricultural prospects," she said.

"Farmers must get proper compensation when their land is purchased."

'Growth engine'

Ms Gandhi remains a highly influential figure in Indian politics and her concerns will be viewed as evidence of widening unease over the policy.

Companies willing to invest in the zones are being offered 15-year tax relief and substantial public investment in the transport system.

Ministers have defended the policy against growing criticism, revealing that 15 zones already up and running have attracted nearly $780m in investment and created 100,000 jobs.

"Every country has its own specific model of special economic zones and we see them as a major engine of growth and job generation," Kamal Nath, India's commerce minister, told the Financial Times.

Indian budget pushes for growth
28 Feb 06 |  Business
India plans special trade zones
10 May 05 |  South Asia

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