Authors: Semil Shah
April 1, 2008
John F. Kennedy School of Government, Harvard University

The success of special economic zones (SEZs) in China motivated other developing countries to incorporate SEZs into their growth plans. From Indonesia to the Middle East, nations at different stages of development have turned to SEZs to attract foreign capital, boost exports, create jobs, stimulate industry, improve upon existing infrastructure, and many other benefits. These benefits, however, carry costs, and perhaps no country will struggle with that tradeoff more than India. The Government of India (GoI) commissioned the creation of over 400 new SEZs for the Indian economy—according to the plan, India will have more SEZs than the rest of world, combined. While the Chinese experiment with SEZs undoubtedly contributed to its economic growth, copying the Chinese model does not guarantee India similar success. Instead, critics argue, India's SEZ strategy carries significant risk, most notably the public policy challenge to balance macroeconomic benefits against microeconomic disruptions. Therefore, it is of critical importance that the GoI not only position new SEZs to be as successful, but that they anticipate less obvious challenges to zone development in their scenario planning. The problem facing India is not that SEZs are bad; however, managing 500 of them, seizing key property, and explaining the rationale to a democratic electorate whose median voter is rural, poor, and barely educated is a daunting task.

This paper is a Policy Analysis Exercise by a student at the John F. Kennedy School of Government, Harvard University. This research was supported, in part, by the Ash Center for Democratic Governance and Innovation at the Kennedy School.

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