India needs to copy China better if it wants to be the next manufacturing powerhouse
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 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.
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.”) China's experiment began with just four such zones in Shenzhen, Shantou, Xiamen and Zhuhai. India should do the same.