To sustain its impressive growth rates, the Government of India is looking for new sources of growth. Last year, the Cabinet approved an ambitious new National Manufacturing Policy (NMP). The policy, which is awaiting ratification, aims to create 100 million jobs and to increase the share of manufacturing in GDP from 16 percent to 25 percent within a decade. At the center of the policy are National Investment and Manufacturing Zones (NIMZs), large industrial townships that offer special incentives and infrastructure to attract businesses.
This is not the first time the Indian government has turned to zones to deliver on its economic goals. India’s Special Economic Zones (SEZ) Act of 2005 was launched amid hopes that it would help boost exports, FDI, and job creation. However, the SEZ Act met with mixed results and widespread controversy.
Today, we are kicking off a 2-part blog series that explores the possibilities—and potential pitfalls—of industrial zones. In this installment, we answer: Why did the SEZ Act fall short? On Thursday, we will assess the prospects of the proposed NIMZs.
Reviewing the Results
When the SEZ Act of 2005 was announced, there was an outpouring of interest from developers. Yet, as seen in the chart, by 2010 only twenty percent of all approved SEZs had become operational. Targets for jobs were not met. What happened? No single factor explains it in full, but several, from a lack of connecting infrastructure to the political economy of land, came together to prevent the Act’s original goals being met.