Special economic zones (SEZs) in India need a fundamental reset — from tax-driven export enclaves to strategically vital industrial ecosystems, said V Anantha Nageswaran, Chief Economic Advisor (CEA), on Thursday.
Speaking at the 43rd MEPZ Foundation Day celebrations, the CEA said the original SEZ model, framed around 2005, was built on tax incentives, services-led growth and export arbitrage largely targeting the US and UK markets. “That model has run its course,” he said.
Tax incentives may have drawn firms into SEZs, but long-term success will depend on strategic indispensability. “The exit from tax holidays must become an entry into an innovation moat,” he added.
Despite contributing 15.7 per cent to India’s merchandise exports in FY25, SEZs remain skewed, with over half (50.3 per cent) of exports coming from IT/ITeS. Additionally, 79 per cent of operational SEZs are concentrated in just six States, and the average zone size is about 1 sq km — far smaller than global benchmarks such as Shenzhen, China, which began at 327 sq km. Nearly ₹30,000 crore worth of SEZ space — around 10 crore sq ft — remains vacant, underscoring structural inefficiencies, he explained.
Six imperatives
Nageswaran outlined six imperatives to reposition SEZs.
Among these are a shift away from IT-ITeS dominance to globally contested sectors such as fine chemicals, electronic components, energy-transition materials and precision engineering. “Shallow exports do not buy strategic weight,” he said.
SEZs should also anchor domestic value chains by integrating Indian suppliers and nurturing MSME clusters around them. He also pushed for a focus on scale noting that scale is what transformed Shenzhen into a full-fledged ecosystem.
SEZs must also help diversify exports, he said.
With nearly half of SEZ exports currently flowing to the US and the Netherlands, he flagged concentration risks and urged deeper engagement with ASEAN, Africa, Latin America and the Gulf.
He also stressed on the need to build technology and intellectual property. “Cost advantages erode, but defensible technology compounds,” he said, advocating greater investments in R&D, design, patents and skills within SEZs.
Global trade order
Former CEO of NITI Aayog, also at the event, said the rapidly fragmenting global trade order and the rise of new-generation trade agreements are forcing India to rethink the role of SEZs as engines of export-led growth.
“World trade is no longer moving in one unified direction. It is becoming fragmented, with countries aligning supply chains based on strategic partnerships,” he said.
In his speech Alex Paul Menon, Zonal Development Commissioner, MEPZ SEZ, said MEPZ currently hosts 118 units across sectors such as electronics, computer hardware, and IT/ITES. In 2024–25, it recorded exports of ₹7,367 crore and provided direct employment to over 40,000 people.
MEPZ SEZ’s revenue increased from ₹40 crore in 2023 to over ₹100 crore in recent years, he said.
