India has an ambitious plan of commissioning large number of small Special Economic Zones (SEZs), relying essentially on the Chinese model. But the SEZs in China are very big, strategically located and fairly successful in attracting substantial FDI inflows. To follow this success path, Indian model needs a re-examination.

Special Economic Zones (SEZs), the world over, aim at highly focused economic development by relaxing tariff and labor laws, offering tax incentives and providing the needed infrastructure. The question is, can Indian SEZs accomplish their goals when they are so tiny in size in the range of 6 hectares to 100 hectares, with the Proviso that only 25 to 50% of its area should be for development as processing area? Can these tiny units really attract significant Foreign Direct Investments (FDIs) and gain economies of scale and scope?

China, which states that it has embraced what it calls "socialistic market economy", had a head start with regard to SEZs, having initiated action way back in 1980. China's objectives in this regard are well-defined: SEZs have to attract not only substantial FDIs, but also expertise and superior technology. This is in sync with the wider objective of China to transform the nation into one, whose economy is export driven, by enhancing its global capabilities in manufacturing and processing, using inexpensive labor.

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