By Cherian Thomas
June 6 (Bloomberg) -- When Boston Red Sox co-owner Martin Trust first visited the southern Indian village of Achyutapuram three years ago, a pot-holed road ran through the stretch of bare land dotted with thatched huts.
That didn't deter Trust from investing $12 million in a special economic zone being created there by Brandix Lanka Ltd., which makes lingerie for Victoria's Secret. His bet may now be paying off as workers finish constructing roads, a power plant and helipad, and companies including Quantum Clothing
Group, a U.K. supplier to Marks & Spencer Group Plc, sign up to build factories in the 1,000-acre industrial site.
The change ``is startling,'' said Trust, 73, who is also founder and president of Brandot International Ltd., a Salem, New Hampshire, investment firm with stakes in 18 textile and apparel companies in seven countries including China, Israel and Mexico. ``It's an inviting place for any investor.'' India's economic zones are finally taking root after more than four decades, laying the foundation for Prime Minister Manmohan Singh's plan to increase manufacturing to a quarter of the economy by 2012 from 17 percent now. That's vital for anation that needs to find jobs for the 150 million people who will join its workforce in the next 10 years.
There is ``real momentum'' behind the zones, said Alastair Newton, senior political analyst at Lehman Brothers International in London. ``Governments, both at the central and state level, realize they have the potential to create good, long-term employment.''
Reducing Red Tape
Special economic zones are enclaves with uninterrupted power, water and other infrastructure support for manufacturers. The zones reduce red tape by offering a single window for environmental, tax and other government clearances.
Companies in India's sites, as well as their developers, also get tax breaks for as long as 15 years.
The zones are designed to make India more attractive for investors concerned about putting money into a nation that lacks water for industry and produces 10 percent less electricity than it needs.
The incentives lured Chicago-based Boeing Co., which is building a $100 million aircraft-maintenance unit in the central Indian town of Nagpur, said Dinesh Keskar, a senior vice president at the world's second-largest commercial jet maker.``The economic zone we are investing in has its own power station,'' he said. ``That's important for Boeing because you can't have our shop closed for a day.''
India was one of the first nations to set up a special economic zone, in 1965. It established another seven by the end of the decade before shifting to other strategies to spur exports, including industry-specific tax incentives, said Lalit Behari Singhal, director general of the Export Promotion Council of Export Oriented Units and Special Economic Zones.
Meanwhile neighboring China, under former leader Deng Xiaoping, adopted the strategy in the early 1980s to stimulate manufacturing.
Shenzhen, the most successful Chinese zone, was a small fishing village 20 years ago.
Today, it is home to more than 10 million people and some of China's largest companies, including Huawei Technologies Co., the nation's biggest maker of telephone-network equipment.
The world's fastest-growing major economy now has seven economic zones and another 100 smaller state and high-tech industrial zones, which account for about 12 percent of gross domestic product.
``The most conspicuous difference between growth in China and India is the absence of a manufacturing boom,'' said Mark Williams, Asia economist at Capital Economics Ltd. in London.
Foreign direct investment in India has been less than a quarter of the $400 billion that has poured into China since 2002, keeping Indian manufacturing at half China's level as a proportion of GDP.
To emulate China's success, India's then-commerce minister, Murasoli Maran, announced a policy in April 2000 to set up new zones. The fresh start wasn't without problems. The government was forced to suspend its plan in December 2006 after farmers protested what they considered the cheap prices paid to acquire of their land. Clashes in March 2007 left 14 dead in West Bengal state.
The government restarted the program in April 2007 after prescribing a ceiling on size -- 5,000 hectares (12,355 acres)-- and forbidding state administrations to take land by force.
While farmer resistance continues in some states, including West Bengal, Haryana and Goa, India now has 42 zones,including the original eight, creating an estimated 176,000 jobs in the past two years, the Commerce Ministry says.
Another 229 zones are under construction and an additional 210 proposals await final government approval, according to the ministry, which forecasts the zones will attract $75 billion in investment by 2013 -- almost a third of India's industry.
To convince local villagers that it's serious about creating employment in Achyutapuram, Sri Lanka-based Brandix set up a trial factory close to its zone that currently employs about 1,500 local women. Ladies ``who never had proper clothes are today making thongs for Victoria's Secret,'' said Reshan Wickramasinha, chief executive officer at Brandix India Apparel City Ltd.
Kanak Mahalaxmi, 19, says her life ``has changed dramatically'' since she got a job as a sewing operator a year ago. ``We just finished building a brick house after living in a thatched one all our lives,'' said Mahalaxmi, who earns 2,500 rupees ($59) a month. ``We just bought our first television set as well.''
$1 Billion Investment
Brandix will set up another apparel factory in its zone and rent space to 19 other manufacturers, with investment reaching $1 billion in five years from $50 million currently and employment totaling 60,000, Wickramasinha said. Achyutapuram is the first economic zone Brandot has invested in, Trust said. Its other ventures are textile and apparel factories.
``This is more of a real-estate issue; our success will depend on attracting highly valuable clients and making sure our pricing is highly competitive,'' he said, adding that Brandot has a 26 percent stake in the project. ``If by the end of the tenth year, we are reaching an annual return of 10 percent, then we are doing fine and we can build on that.''
About 260 kilometres (161 miles) north, in the coastal town of Gopalpur, Tata Steel Ltd., India's largest steelmaker, is building a zone that will act as a ``catalyst for growth'' in the state of Orissa, one of the poorest provinces in India,said Bhagabata Patro, an economist at Orissa's Berhampur University.
``The economic zones provide the basis for factories to flourish,'' he said. ``There's no doubt it's an important part of India's strategy to create employment at the monumental scale that the country requires.''