logo |

News

    Home   >     Industry    >     Main body

    India Needs to Copy China Better

    Abstract:To revive the economy, the government should focus first on getting a few special economic zones right.

      Reuben Abraham is CEO and senior fellow at the IDFC Institute.

      India has too many SEZs that are too small.

      If India only reforms when under pressure, then now should be a moment for big changes: Gross domestic product contracted nearly 24% in the second quarter, more than any other large economy; tens of millions have lost jobs in the formal and informal sectors; and the country is adding over 85,000 confirmed coronavirus cases each day. There‘s an obvious place for the government to start, too: fixing India’s failed special economic zones.

      China, of course, pioneered the idea of testing politically difficult economic and legal reforms in a few such areas before rolling them out more widely. The experiment proved wildly successful. Shenzhen, one of the mainlands first SEZs, grew from a population of 310,000 and a GDP of $160 million in 1981 to a population of 12.5 million, a GDP of $388 billion and per capita income in excess of $30,000 by 2019 — surely the fastest-ever increase in human prosperity.

      The model is even more appealing in a messy democracy such as India, where vested interests and a risk-averse bureaucracy have stymied previous attempts at radical economic reforms. Not surprisingly, the country is home to 238 such zones.

      The results have been underwhelming, however, for several reasons. For one thing, there are simply too many SEZs. Indian state capacity is already limited. Asking the government to provide even a basic suite of services in so many places is futile. (India is running into similar problems in trying to develop a multitude of “smart cities.”) Chinas experiment began with just four such zones in Shenzhen, Shantou, Xiamen and Zhuhai. India should do the same.

      Moreover, whereas the Shenzhen agglomeration alone sprawls across 2,000 square kilometers, all of India‘s SEZs put together occupy less than 500 square kilometers. Larger zones benefit from several spillover effects: They attract clusters of businesses, encourage knowledge transfers from foreign to domestic companies, and spread employment, infrastructure and development to neighboring regions. India’s zones are too small to do the same.

      More from

      Endowments' Hedge Fund Bet Has Time on Its Side

      SMIC Joins the Big Bath of China Security Threats

      Modi's Vodafone Loss Gives India a Stark Choice

      No One‘s Too Big to Fail in China’s Property Market

      Most important, the supposed “reforms” India has implemented in its SEZs have been anything but. They‘ve largely centered around concessions to favored businesses — tax sops and cheap real estate — rather than a fundamental reset of India’s convoluted and restrictive rules for doing business. If low taxes were all that mattered for attracting investment, any poor country could entice global manufacturers by slashing taxes. Clearly, good governance and strong rule of law matter a great deal more to such businesses.

      The government, which is reportedly mulling a $23 billion package of incentives to attract global manufacturers to India, wisely sees an opportunity. The pandemic has exposed the fragility of critical global supply chains. No country wants to concentrate risks in any one jurisdiction, especially given rising trade and geopolitical tensions between China and the West.

      To lure manufacturers away from the mainland, though, India is going to have to convince them that theyll be able to operate just as easily and efficiently as they can in China. A few big zones should be located either near deepwater ports or around large airports. They can be greenfield or brownfield sites, depending on whether the focus is on manufacturing or services. The latter could exploit underutilized public lands, such as the eastern waterfront of Mumbai. Of course, they all need to offer reliable water and power, affordable housing, and excellent transport connectivity.

      Above all, these zones must provide the kind of governance and clarity thats in short supply across the rest of India. Local administrators must be empowered to make radical changes to labor laws, for instance. Fast-track courts to resolve disputes are critical, as is eliminating most restrictions on foreign investment. The point is not just to make production cheaper, but also to create a fundamentally different atmosphere for doing business than companies would find elsewhere on the subcontinent.

      {777}

      Of course, success will create its own political headaches, as a few regions get richer than others. But compared to the alternative — a future in which India never embeds itself fully into global supply chains and can‘t create the millions of salaried jobs its young and growing population demands — that’s a problem the government should welcome.

      {777}

        This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

        To contact the author of this story:

        Reuben Abraham at reuben.abraham@idfcinstitute.org

        To contact the editor responsible for this story:

        Nisid Hajari at nhajari@bloomberg.net

    Latest News

    United Arab Emirates Dirham

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand

    United States Dollar

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand
    Current Rate  :
    --
    Amount
    United Arab Emirates Dirham
    Available
    -- United States Dollar
    Risk Warning

    The Database of WikiFX comes from the official regulatory authorities , such as the FCA, ASIC, etc. The published content is also based on fairness, objectivity and fact. WikiFX doesn't ask for PR fees, advertising fees, ranking fees, data cleaning fees and other illogical fees. WikiFX will do its utmost to maintain the consistency and synchronization of database with authoritative data sources such as regulatory authorities, but does not guarantee the data to be up to date consistently.

    Given the complexity of forex industry, some brokers are issued legal licenses by cheating regulation institutes. If the data published by WikiFX are not in accordance with the fact, please click "Complaints "and "Correction" to inform us. We will check immediately and release the results.

    Foreign exchange, precious metals and over-the-counter (OTC) contracts are leveraged products, which have high risks and may lead to losses of your investment principal. Please invest rationally.

    Special Note, the content of the Wikifx site is for information purposes only and should not be construed as investment advice. The Forex broker is chosen by the client. The client understands and takes into account all risks arising with Forex trading is not relevant with WikiFX, the client should bear full responsibility for their consequences.