Why Andhra Pradesh’s New Economic Zones Are Not Another SEZ Experiment

India’s long and uneven experience with spatial industrial policy has made policymakers deeply sceptical of zoning as a development tool. Special Economic Zones (SEZs), rolled out under the 2005 law, were meant to catalyse export-led growth, attract foreign investment and rebalance regional disparities. What they largely produced instead were fenced-off enclaves — pockets of activity with weak local linkages, underutilised land and credibility problems once tax incentives were rolled back.

Against this backdrop, “Andhra Pradesh’s decision to reorganise itself into three large Economic Development Zones — North Coastal (Visakhapatnam), Central Coastal (Amaravati) and Rayalaseema (Tirupati) — marks a clear departure. The critical question is not whether this looks like SEZs. It does not. The real issue is whether it addresses the deeper structural reasons why zones failed in India in the first place.”

Why India’s SEZ model struggled from the start

The problems with Indian SEZs can be grouped into three broad categories: economic design failure, institutional failure, and political-economy failure.

Economically, SEZs were fragile because they were conceived as “incentive-driven enclaves rather than productivity-driven ecosystems”. Their competitiveness rested heavily on tax holidays, duty-free imports and regulatory exemptions. Once WTO disciplines tightened and domestic policy introduced sunset clauses, the value proposition collapsed. Firms exited, investments stalled, and large tracts of land lay idle.

Just as crucially, SEZs were “too small”. Most Indian SEZs spanned only a few hundred or thousand hectares — closer to industrial estates than growth engines. Successful international zones, by contrast, operate at a city or metropolitan scale, allowing labour markets, supplier networks, housing, logistics and services to co-evolve. The success of “Shenzhen” was not driven by tax breaks alone, but by its functioning as an integrated urban–industrial system linked to ports, global markets and dense domestic supply chains.

How scale changes the economic logic of zoning

Andhra Pradesh’s zoning framework implicitly recognises this scale problem. These are not fenced-off estates but “sub-state economic regions”, each with a distinct production logic: port-led industry in the North Coastal Zone, agro-processing and logistics in the Central Coastal Zone, and renewables, minerals and horticulture in Rayalaseema.

This matters because agglomeration economies — labour pooling, knowledge spillovers and supplier specialisation — only emerge beyond a certain spatial and economic threshold. By thinking in terms of regions rather than parcels of land, the model seeks to move zoning away from fiscal arbitrage and toward structural competitiveness.

The institutional coordination gap that crippled SEZs

The second major failure of Indian SEZs was institutional. Despite promises of “single-window clearance”, developers faced fragmented authority across central ministries, state departments and local agencies. Approvals were sequential, not parallel; accountability was diffused. By the mid-2010s, less than 40% of notified SEZ land was actually utilised, with utilisation declining over time.

Land governance worsened matters. Rigid contiguity rules and minimum-area requirements made little sense for services-oriented zones, while exit and repurposing remained cumbersome. Vacant land became speculative ballast rather than productive capital.

What Andhra Pradesh is trying to fix institutionally

The proposed architecture directly targets these coordination failures. Each zone will have a “dedicated CEO with delegated administrative and financial powers”, supported by zonal committees of regional ministers and legislators. A Chief Minister–chaired state steering committee provides vertical integration.

The intent is to “collapse fragmented authority into a single decision locus per zone” — something SEZs conspicuously lacked. If implemented credibly, this could reduce transaction costs, speed up project timelines and make land a flexible input rather than a sunk political asset.

Equally significant is policy credibility. SEZs suffered from repeated rule changes — from tax withdrawals to shifting interpretations of domestic tariff-area sales. Andhra Pradesh’s collaboration with “NITI Aayog” and the Government of “Singapore” on zone-specific vision plans functions as a non-fiscal commitment device, signalling longer-term policy stability.

The political economy problem zones could not escape

Perhaps the deepest failure of Indian SEZs was political-economic. Zones became vehicles for land monetisation rather than industrial upgrading. Developers internalised land rents, while infrastructure costs and adjustment burdens were socialised. Once land was acquired and incentives captured, there was little pressure to generate spillovers into surrounding regions.

This is why empirical studies consistently find weak or non-existent SEZ spillovers in India, in sharp contrast to East Asian cases where local governments were rewarded for growth outcomes and penalised for under-performance.

Why Andhra Pradesh’s model alters incentives

The new zoning approach reshapes incentives in two important ways. First, zones are embedded within the state’s ordinary political geography rather than carved out as exceptional jurisdictions. Under-performance cannot be hidden behind a legal fence.

Second, outcomes become politically attributable to identifiable authorities — zonal CEOs, regional ministers and ultimately the Chief Minister. This raises the reputational and political cost of failure. Rent-seeking risks do not disappear, but extracting rents without delivering growth becomes electorally and administratively visible.

A governance experiment with national implications

India’s failure to replicate Shenzhen is not due to lack of ambition or capital. It stems from attempting to copy the instrument — zones — without replicating the underlying governance logic: scale, administrative authority, credible commitment and performance-linked accountability.

Andhra Pradesh’s experiment is not a Shenzhen replica. It cannot reproduce China’s cadre-promotion system or unitary state capacity. What it does test is whether India can approximate functional equivalents of those mechanisms within a democratic, federal framework.

If it works, it may show that zoning can succeed without fiscal exceptionalism. If it fails, it will reinforce the view that India’s binding constraints lie deeper — in land markets, bureaucratic incentives and political risk tolerance. Either way, this is a rare attempt to use zoning not as a tax instrument, but as a governance experiment — and that alone makes it worth watching.