Reuben Abraham, CEO and Senior Fellow at IDFC Institute, outlines why India drew the wrong lessons for Special Economic Zones from the China story.
"India’s experiments with special economic zones (SEZs) were mostly a failure because they drew the wrong lessons from Chinese SEZs, and focused more on giveaways (taxes, real estate, etc.) than a fundamental reset of bad rules."
In this context, he applies the Paul Romer suggested two-part test for genuine reform:
"The first, geographic, tests whether the suggested reform needs to be contained in a geography or can grow to the rest of the country. If it can grow, it’s genuine reform. If not, it’s a concession. The second, temporal, tests if the reform needs to be time-limited. For instance, do tax incentives need to be limited to 10 years or can they be granted in perpetuity? If they need to be limited, it’s obviously a concession, not a reform."
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This article was republished on Stratfor here.