Ring-fencing a challenge: Industrial parks may help attract investment

The government’s industrial parks policy, cleared by the Cabinet this week, is one of the most ambitious efforts to create business-friendly zones since the Special Economic Zones (SEZ) Act of 2005. The Rs 28,600 crore package to set up 12 such enclaves is intended to create what Commerce and Industry Minister Piyush Goyal called a “golden quadrilateral” of industrial parks, invoking Atal Bihari Vajpayee’s successful road-building project. The plan is to work with state governments and the private sector to set up “plug-and-play” integrated smart industrial cities with residential and commercial zones. The target is to attract investment of Rs 1.5 trillion. The contribution from states will come in the form of land and the Centre will provide equity or debt, depending on the case. Some industrial townships will be developed with other countries that have expressed an interest in such arrangements. The overall intention of the government cannot be faulted.

The question mark, however, hangs over its implementation, not least because such ring-fencing, designed to isolate industrial activities from the standard inefficiencies of India’s “doing business” environment, has had limited success in the past. The government data shows there are 4,420 industrial parks in India and 270 SEZs, most of which have not made a noticeable impact on accelerating investment. The SEZ policy had similarly proposed designated areas with initial tax breaks to encourage China-style export enclaves. After an initial interest, enthusiasm abated when the tax breaks ended and facilities fell short of expectations, with SEZs accounting for just a third of Indian exports. The policy intention of attracting investment in manufacturing did not materialise. Instead, almost 60 per cent of SEZ investment was in information-technology (IT) and IT-enabled services.

Then came the Development of Enterprise and Service Hubs (DESH) Bill in 2023, which sought to address the weaknesses of the SEZ law. The status of this Bill is unclear, with reports suggesting it may be scrapped. The latest policy also seeks to address universal obstacles to investment in India. For instance, land acquisition has been a perpetual challenge, so much so that SEZs degenerated into a private sector real estate play. The industrial parks will comprise land already acquired by the government with environmental approvals in place. Second, a special purpose vehicle has been proposed as a single-window system for approval. Third, the location of the parks has been aligned to the industrial corridors alongside the dedicated freight corridors, addressing the key problem of logistics that bedevil Indian industry — five along the Amritsar-Kolkata belt, two on Delhi-Mumbai, and five along southern and central routes.

That said, there are broader issues that need to be addressed if the parks are to match China in impact. One of them is size, so that manufacturers have access to global economies of scale to make them truly competitive. This could be a challenge. The average SEZ in India ranges from 0.25 square km to 14 square km. In contrast, Shenzhen, one of China’s oldest and largest SEZs, sprawls across 316 square km. There is also the critical issue of the availability of dynamic and vibrant social infrastructure alongside these cities of the kind that Gurugram and Bengaluru have developed to accommodate workers in new-age businesses. Even restrictive liquor policies (Kerala) or outright prohibition (Bihar) could impact foreign investment in such parks. The latest policy is certainly an upgraded attempt to push the envelope in attracting investment. Whether it can buck the trend is open to debate.