The government has given the go-ahead to the first of several mega coastal economic zones mooted by former Niti Aayog vice chairman Arvind Panagariya, at the Jawaharlal Nehru Port in Maharashtra. The Shenzen Economic Zone and its cousins are testimony to the efficacy of industrial clusters in fostering growth and exports. But India also has to learn from the failed experiment with special economic zones. Enclave-specific administrative procedures and special labour laws fall foul of both India’s political economy and the law. There really is no alternative to the hard grind of reforming laws and simplifying procedure across the board, to make the entire country one thriving economic zone. The goods and services tax is a significant step towards this goal.

Special economic zones failed to take off on any large scale as they did not suit the political economy. Resources were misdirected and revenues lost, considering that large companies set up shop in SEZs mainly to milch tax breaks. Any sign of exploitation of cheap labour would turn consumers against products in rich countries. The WTO may also frown upon some tax concessions and subsidies. So, the adoption of taxation and legal regimes that are different from the rest of the country is wholly avoidable.

Instead, the government must remove policy constraints to attract large firms to employment-intensive sectors such as textiles. An antiquated hank-yarn obligation, irrational labour laws and high-cost manmade fibres and blends are things India’s textile and garment industry can do without. States should suitably reform labour and land laws. The focus should be to strengthen economy-wide competencies, build robust infrastructure, and ensure functional and speedy administration across states.