Rethinking India's Special Economic Zones

Last Updated Aug 9, 2009 9:28 AM EDT

Called Special Economic Zones, India has created several "pockets of posterity" that attract investment with lower taxes, tariff restrictions, high-quality infrastructure and other bonuses for businesses who locate there.

Other developing countries including China are following suit. The U.S. has used them for decades, although they are usually created by local or regional governments.

But in India, SDZs are creating a backlash. Although they have increased foreign domestic investment in the country, farmers and other landowners are fighting back against government efforts to secure property for business interests.

"Considering how thorny the issue has become, the question must be asked: Does India really need them?," opine Harvard Business School professors Laura Alfaro and Lakshmi Iyer, writing in the Christian Science Monitor. "India's growth process has been largely bottom-up: Entrepreneurs have succeeded despite government bureaucracy -- not because of it. The best policy for the government may be to provide the benefits of SEZs -- low tariffs, reasonable taxes, good infrastructure, little red tape -- to all firms in all parts of the country."

Do you agree? Is India's experience part of the greater topic on the role government should play in supporting individual businesses or industries?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.