Home / Politics / Policy /  Why special economic zones have failed in India

Mumbai: In India, special economic zones (SEZs) were set up to provide a hassle-free environment for exports and to replicate China’s success in using SEZs to boost manufacturing and employment. But the policy has backfired. Far from turning India into a powerhouse of manufacturing exports, the control-free industrial enclaves have become centres of corruption and scams. This begs the question—why has the same policy generated such disparate results for China and India?

As per a new research paper by Meir Alkon of Princeton University, the answer lies in the failure of local Indian politicians to select SEZ sites that offer maximum development potential. Site selection for SEZs has been guided by self-serving agendas rather than considerations of growth and development. Local politicians often influence bureaucrats at state-owned industrial development corporations to secure land for personal gains. As such, sites for SEZs are selected based on real estate speculation rather than the economic potential of a region.

If not for profit through land deals, local politicians also use site selection of SEZs to target specific ethnic and caste groups to create vote banks. State governments in India, Alkon argues, suffer from an ‘incumbency disadvantage’, where they hold office for shorter durations, which discourages them from pursuing long-term development of their region. In contrast, China’s local leaders, who may be as corrupt as their Indian counterparts, have a greater incentive to develop more productive SEZs. Promotions of local leaders in China are often based on parameters such as GDP (gross domestic product) growth in their jurisdictions, which means they are more motivated to pursue local development.

Also read | Do SEZs induce developmental spillovers? Evidence from India’s states

As things stand, many of India’s SEZ’s now lie vacant, hurting not just economic growth but also equity. As real estate businesses have thrived under the guise of SEZs, rich fertile lands have been diverted away from farmers without any real development.

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