India needs to make reforms to turn into a manufacturing powerhouse
Amid the ongoing pandemic crisis, GDP contracted nearly 24% in the second quarter, thousands of jobs have been affected and the crisis is not over yet. This is the right time to make reforms and changes as the situation needs to be rectified fast. The government can start with fixing India’s failed special economic zones, if it really wants to become the next manufacturing power house.
As per reports, China started 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 mainland’s 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.
Presently, India has 238 such zones, however, the response has not be good enough 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. China’s program began with four such zones in Shenzhen, Shantou, Xiamen and Zhuhai. India should follow the same strategy.
Shenzhen zone is spread across 2,000 square kilometers, all of India’s SEZs put together occupy less than 500 square kilometers. Apparently, India’s zones are too small to do the same. Larger zones attract clusters of businesses, encourage knowledge transfers from foreign to domestic companies, and spread employment, infrastructure and development to neighboring regions.