How to Write an SEZ Law That Does Not Age Badly
Precision is not durability. Most SEZ laws confuse the two, and their investors pay for it a decade later.
By Yaschin Mohabir · 31 August 2026 · 9 min read
When India's Special Economic Zones Act passed in 2005, it was celebrated as the instrument that would finally realise the country's manufacturing potential. By 2011, over 600 zones had been notified. By 2020, 57 had been formally de-notified, and hundreds more sat partially empty, their developers paralysed by tax treatment changes that required parliamentary amendment to reverse.1 The law was not badly drafted. It was drafted for an economy that no longer existed.
When India's Special Economic Zones Act passed in 2005, it was celebrated as the instrument that would finally realise the country's manufacturing potential. By 2011, over 600 zones had been notified. By 2020, 57 had been formally de-notified, and hundreds more sat partially empty, their developers paralysed by tax treatment changes that required parliamentary amendment to reverse.1 The law was not badly drafted. It was drafted for an economy that no longer existed.
The real problem is not bad drafting. It is the wrong question.
Every SEZ law I have read starts from the same question: what should this zone enable? The drafters list the sectors, the incentives, the permitted activities, the regulatory carve-outs. They produce a precise document. Precision feels like rigour. It is not. It is risk transferred forward in time to the investors and developers who will be governed by language written before the problems they face existed. The right question is not what the zone should enable. It is who has the authority to decide what the zone enables, and within what guardrails. That is a governance question, not a drafting question. Most SEZ legislation never asks it. The result is a legal architecture that confuses specificity with durability, and the confusion is expensive. A law that names permitted industries cannot accommodate an industry that did not exist when it was written. A law that specifies incentive percentages cannot respond to a competitor jurisdiction that changed its rates last quarter. A law that requires parliamentary amendment to alter the permitted activities list has handed a competitive disadvantage to its own investors, because parliaments move in years and markets move in months. The...
For developers, investors, and policymakers, the implications are different but the diagnosis is the same.
For zone developers, the implication is uncomfortable. A zone whose operating rules are locked in primary legislation is a zone whose competitive position is fragile. If you are a developer negotiating a 30-year concession, the most important question you should ask is not about the incentive package. It is whether the authority you are dealing with can actually modify the rules that govern your tenants, or whether every material change requires a parliamentary cycle. Most developers do not ask this question. They should ask it before signing anything, because the answer determines whether the zone can respond to competitive pressure from other jurisdictions over the life of the concession. For investors, the risk is subtler. A precise law looks like certainty. It is certainty about the past. An investor who reads a detailed permitted-activities list and concludes that the legal framework is reliable has made a category error: specificity is not stability. The question to ask is whether the zone authority has delegated power to adapt, and whether that delegation has meaningful guardrails. Without guardrails, delegation becomes discretion. Discretion without accountability is a dif...
The design sequence that produces a law capable of surviving the economy it does not yet know about.
If I were advising a government drafting an SEZ law today, I would sequence the design as follows. First, separate the enabling layer from the operating layer in primary legislation. The enabling layer sets the constitutional authority, the zone boundary principles, the governance structure, and the non-negotiable investor protections, including international arbitration rights, asset protection, and repatriation guarantees. None of this changes with market conditions, so it belongs in the statute. The operating layer, permitted activities, incentive schedules, sector classifications, and technology definitions, belongs in secondary legislation delegated to a competent zone authority. Second, build the delegation with meaningful guardrails. Wide delegation without accountability is not flexibility. It is discretion, and discretion without accountability is a governance risk, not a governance solution. The guardrails should specify the categories of decision the authority can make unilaterally, the categories that require ministerial approval, and the categories that require public consultation. The guardrails are the mechanism that makes delegation trustworthy to investors. Thir...
The SEZ law governing your zone was written at a specific moment. Pull it out and find the section that defines permitted activities.
Ask yourself whether that definition can be changed without returning to parliament, and how long that process takes. If the answer makes you uncomfortable, the problem is not your drafters. It is that you built a permanent structure out of temporary assumptions. The question is whether you are willing to admit that before your investors figure it out themselves. Investors doing serious due diligence on a zone will eventually find the section of the law that locks the operating rules in primary legislation. When they do, they will ask the zone authority how long a material change takes. If the honest answer is two to four years, some of them will walk away. Not because the zone is bad, but because they cannot accept a governance structure that cannot respond to competitive pressure on a market timescale. The legislative design question is one I treat as foundational rather than technical when working on zone strategy. The temptation in any new zone programme is to produce a comprehensive, detailed law that demonstrates legislative seriousness. The political incentive is to show that the government has thought through every scenario. But the comprehensive law is the fragile law. T...