India needs a nationwide strategy, not patchwork SEZs

India has made several attempts to retrofit the SEZ model in order to salvage its utility.

If India harbours ambitions of becoming a credible global industrial power—beyond rhetoric and beyond assembly-line subcontracting—then it must dispense with the logic of exceptionalism. The idea that we can achieve competitiveness through carved-out enclaves like Special Economic Zones (SEZs) is structurally incoherent in the current trade era.

These zones were a product of post-liberalisation anxieties. SEZs were, in fact, relatively new wine in the old bottle of Export Processing Zones (EPZs) that originated in the 1980s, at the peak of the Licence Raj. They appeared as a tactical solution—an attempt to fast-track exports and bypass red tape. But their very existence signalled a quiet admission: that India’s governance architecture was not investment-worthy in its totality, and only exceptions could deliver competitiveness. Imagine a mall owner certifying only one specific outlet in their food court as hygienic.

Two decades on, that logic has turned on itself. GST has flattened tax structures. While red tape still exists in various forms, India now boasts digital public infrastructure that is globally regarded. New-age policies like PLI (Production-Linked Incentive schemes), DESH (Development of Enterprise and Service Hubs), and PM MITRA are pitched as bold pivots.

In recent years, India has made several attempts to retrofit the SEZ model in order to salvage its utility. Land requirements have been eased, particularly for high-tech sectors like semiconductors and electronics. Operational norms have been relaxed, including permitting encumbered land, counting free-of-cost inputs towards net foreign exchange obligations, and allowing floor-wise de-notification of commercial space.

Budget proposals have sought to repackage the SEZ Act into newer frameworks like DESH, aiming to rebrand and revive the idea with broader applicability and modernised rules. These tweaks reflect a clear intent to modernise—but they also reveal a reluctance to let go. A reluctance to move on from ring-fenced zones tasked with doing the heavy lifting of industrial growth.

No amount of bureaucratic fine-tuning can fix a model designed for a different era. What SEZs once promised—streamlined governance, export facilitation, investor confidence—must now be delivered at scale across the entire economy. India cannot afford to keep expending political, legislative, and administrative capital on a format that has lost both momentum and meaning. China, often cited as the original SEZ success story, did not remain zonal. It diffused its regulatory efficiency, infrastructure capacity, and institutional clarity across the country. India, by contrast, risks portraying itself as an archipelago of investor islands amid a sea of procedural uncertainty.

Worse still, SEZs have underperformed. Nearly half remain inactive. Vast tracts of land acquired in their name have been de-notified or lie underutilised. The promise of industrial clustering has yielded only a few pockets, mostly dominated by IT and services—the very sectors that need the least physical incentivisation. Manufacturing, logistics, electronics, and export-led industrial depth have not flourished in these zones as hoped.

The larger concern, however, is strategic. India cannot afford to let its industrial policy remain trapped in a logic of ‘zones versus the rest’. It must reimagine itself not as a land offering industrial havens, but as an economy whose baseline is industrially sound. Infrastructure, logistics, regulatory consistency, and land-use clarity must be national defaults, not zonal privileges. The very word “special” in SEZ today implies the rest of the country is not.

This is why India needs to rediscover the value of long-horizon thinking. What we need is not another batch of special policies, but a 50-year industrial vision—one that sets out how India intends to become the backbone of global manufacturing, value creation, and technological production. Such a vision must be living, continuously recalibrated to global shifts, tech disruptions, and geopolitical realignments. Without that long view, India risks allowing its industrial future to be shaped by electoral compulsions, budget speeches, and the tonal variations of different leadership personalities.

At the heart of this reimagination lies India’s federal character. Industrial transformation cannot—and must not—be centrally dictated or politically concentrated. A globally competitive India must emerge as the aggregate of competitive Indian states. Each state must develop its own strategy, sectoral depth, and value proposition to attract global capital and anchor industrial ecosystems.

But that federal flexibility must come with fairness. The central government cannot afford even the faintest perception of partisan preferentialism—where industrial projects, infrastructure investments, or economic corridors disproportionately favour states aligned with the ruling party at the Centre. That undermines investor confidence in India as a rule-based economy. No global boardroom wants to navigate a landscape where opportunity is contingent on political alignment. What they seek is consistency, predictability, and neutrality in how federal and state incentives work together—not at cross-purposes or as instruments of electoral advantage. And no combination of tax exemptions or fiscal waivers can substitute for the absence of these fundamentals.

India’s emergence as the industrial anchor of the 21st century will not rest on the generosity of its incentives or the acreage of its special zones. Nations that shape the future do so through systems, not schemes. India must now choose whether it will govern its industrial destiny with ambition and discipline—or remain a fragmented participant in a century it once aspired to define. It must retire its reliance on economic fragments.

To build global scale, India must first think at scale.