SEZ sops perverse incentives: IMF economist

New Delhi, Sept 1: Senior economist in the International Monetary Fund(IMF) Raghuram Rajan has described the tax holidays in the Special Economic Zones, being pushed by certain interest groups, as ''perverse economic incentives'' which would only enrich the bureaucrats implementing these sops.

''If you create perverse economic incentives and then rely on bureaucrats to stand in the way of businesses exploiting those incentives, the outcome will be little more investment than would otherwise have happened and a lot less revenue, but much richer bureaucrats'', Economic Counsellor and Director of the IMF's Research Department said.

In his article in the Finance and Development publication of IMF, Mr Rajan said while the move to build SEZs with internationally competitive infrastructure was laudable, the tax holidays, being supported by some segments of the government would not only make the government forego revenue, it can ill affoed to lose, they would also offer they also offer firms an incentive to shift existing production to the new zones at substantial cost to society.

''Of course, the government says that only new investment will benefit, but who is to judge what new investment is? The poorly paid tax inspector? And will firms not also shift all investment that would have taken place outside the zones to the new zones, thus depriving the government of revenues?'' Mr Rajan asked.

UNI