The Political Economy of Special Economic Zones in India




Seshadri, Triyakshana

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India has experimented with enclave-based growth through export zones at least since 1964. These zones were developed as regions with limited regulation to encourage export growth, which would earn the much-needed foreign exchange to industrialize the economy. In 2000, a new Special Economic Zone (SEZ) policy was formulated and it became the Special Economic Zone (SEZ) Act in 2005. The SEZ Act has attracted a lot of entrepreneurial attention due to the tax incentives offered, and social attention because of the controversial nature of land acquisition for these projects. This doctoral research focuses on the economic incentives created by export zone policies and rules in India. The three research questions this dissertation attempts to answer are the following: Have export zones caused export growth in India? What is the fundamental reason for the lack-lustre performance of Indian zones? What are the primary objectives of the new Special Economic Zone policy and are they being achieved? The first chapter analyzes the effectiveness of zone policies towards promoting exports, using data on exports, both from the zones and outside, and concludes that general trade-reforms rather than zone policies have lead export growth in India. The second chapter analyses the knowledge problem with developing export zones in India and concludes that one of the primary reasons export zones in India failed to perform better was the knowledge problem, inherent in centrally planned economies, that prevented better location of these zones and their success. The third chapter looks at the political economy of developing big area private enclaves, and argues that private sector development of big zones is not possible with existing land acquisition policies in India.



Export Zones, Development, Special economic zones, India