By Vardaan Ahluwalia, General Counsel, Premji Invest
India has become boldly ambitious in what it wants to build but remains less so in how to achieve it. Reforms over the past decade have been a pattern of incrementalism at best—not because they lack democratic legitimacy or policy nuance, but because they were limited by politically safe measures that ultimately failed to deliver commensurate results. For every step forward, a chorus of special interests and federal complexities often pulls another step back. The costs are substantial—the stalling of land acquisition reform alone has left land-related disputes holding up investment projects greater than $200 billion. Initiatives such as special economic zones (SEZs) and the production-linked incentive scheme also follow an incrementalist approach by relying on financial incentives to offset structural bottlenecks rather than addressing them.
Effective reform is a public good, one that requires deliberate effort in diverse democracies. As James Madison and BR Ambedkar cautioned, democratic systems are distorted when formally empowered governments are unable to act because of narrow special interests.
This raises the question of whether alternative reform pathways exist that can demonstrate outcomes to help build consensus. One possibility lies in using existing constitutional space more creatively—by reimagining Union Territories (UTs) not as administrative afterthoughts or strategic outposts but as liberalisation sandboxes—controlled reform environments. Drawing on experience from Guangdong’s reform enclaves, Estonia’s e-governance architecture, and Singapore’s financial regulatory design, such frameworks could be tested locally in UTs before being scaled nationally.
The creation of the Island Development Agency and the $9.4-billion Great Nicobar Island Development Project reflects a renewed push by the government to unlock growth in UTs. Yet these initiatives remain sporadic and embedded in the same legal and administrative frameworks that have constrained execution. The real opportunity lies not in incremental adjustments to existing models but in rethinking the governance fabric.
India’s UTs occupy a distinct constitutional position, separate from the Centre-state legislative demarcation that defines Indian federalism. Under Articles 240 and 246, UTs without a legislature fall under the direct legislative and executive authority of the central government—a distinction reaffirmed by the Supreme Court in 2023. This structure helps neutralise the democratic distortions that impede reform—it places law-making squarely within the Union’s constitutional remit while reducing exposure to entrenched special-interest vetoes.
India’s administrative structures function as a hidden tax on growth. Consider dispute resolution—with nearly 50 million pending cases and commercial contract enforcement typically taking around four years, and delays are especially crippling in land markets—where two-thirds of civil cases involve property disputes. These weaknesses directly affect India’s ambitions. Take large-scale AI clusters that will require international talent, digital infrastructure, reliable baseload power, and assured access to land and water. These investments depend on clear titles and liability laws, enforceable contracts, and predictable regulatory approvals. In their absence, even well-capitalised projects struggle to move beyond planning.
When layered onto India’s federal polity, where reform efforts often trigger democratic distortions, these constraints become decisive. A liberalisation sandbox offers the ability to jettison such distortions by offering best-in-class governance and administrative frameworks. For instance, the government could pioneer blockchain-secured land registries, single-window regulatory clearances, fast-track dispute resolution, and state-backed nuclear liability frameworks to launch such projects in UTs. Over time, these territories could build concrete economic capabilities—AI clusters, international financial services, arbitration hubs, tokenisation, and digitally enabled trade—even attracting global talent. Beyond economic gains, their success would create a channel for evidence-based policymaking, encouraging wider adoption and strengthening New Delhi’s hand in trade negotiations by enabling more credible market-access commitments in ring-fenced territories for clearer evaluation.
While constitutionally sound, liberalisation sandboxes would be an exceptional step and must be designed to streamline—not bypass—checks and balances through empowered and accountable governance. Concerns that this could undermine fragile ecologies, vulnerable communities, or simply rebrand SEZs are legitimate. The government could anchor this through a council presided over by the PMO—drawing on international and Indian constitutional experts, economists, environmentalists, regulators, and entrepreneurs—to design best-in-class governance frameworks to compete with international business havens. A well-conceived sandbox approach will embed suitable environmental and social safeguards within the development framework. If achieved, we’d strengthen institutional democracy by evolution rather than weakening it.
With India’s macroeconomic conditions broadly favourable, the opportunity is both immediate and substantial. The Andaman and Nicobar Islands are 10 times the size of Singapore and larger than Hong Kong, while Dadra and Nagar Haveli and Daman and Diu are comparable in scale to Singapore, offering scope for concentrated, high-quality development. Used well, these sandboxes could become living demonstrations of the government vision—global models of sustainable, rules-based urban and economic governance. The challenge is self-imposed and warrants a deliberate constitutional solution in the service of democratic evolution.