Well-functioning governance structures are essential for the economic and social development of a region. Poor conceptualisation and implementation of rules and regulations provide sub-optimal growth, wealth creation, and development outcomes, especially in terms of job and livelihood opportunities.
India’s experiments with special economic zones (SEZs) were largely unsuccessful 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. What did Deng Xiaoping recognise about the nature of reforms that rebooted the Chinese operating system (OS) i.e. the rules and economic governance system? Bold reform experiments require two fundamental conditions to succeed: they need to be done at a unit of reasonable size and scale, and the experimental unit must have a manageable political economy.
The demand for sweeping, radical reforms at the national-level often discounts the underlying political economy of the country and the difficulty of getting done what is manifestly obvious. Thus, sub-national reforms offer a politically feasible path. Union territories are one sub-national option, and smart cities the other. IDFC Institute’s Special Governance Zones (SGZ) project aims to identify areas that can undertake reform, and design bespoke rules to attract investment and development opportunities there.