Daman and Diu

Daman and Diu spent over four centuries as Portuguese colonies — Diu from 1535, Daman from 1559, both longer than most modern nations have existed. When India annexed them in a 36-hour military operation on 19 December 1961, the territories inherited colonial tax structures that locked into place as competitive advantages under the new sovereign framework. Daman's lower alcohol taxes turned a 70-square-kilometre enclave surrounded by Gujarat — India's only fully dry state — into a liquor destination. People cross the border specifically to buy what they cannot buy at home. This is exploitative competition in its textbook form: Daman does not create demand for alcohol — it captures demand that Gujarat's prohibition manufactures. One territory's moral policy becomes another territory's revenue model, and the competitive advantage persists only as long as the neighbour's restriction does. The tax regime itself is path-dependent: each year of liquor revenue makes reform politically harder, because the businesses, jobs, and government budgets that depend on it grow more entrenched.

The alcohol economy is the visible part. The structural story is manufacturing. Daman district hosts 39 industrial estates with over 3,200 registered units, producing 28% of India's total plastics output and 80% of its texturising yarn. Pharmaceutical and chemical companies cluster here to exploit backward-area tax incentives: sales tax exemptions lasting up to 15 years, income tax holidays, and subsidised fixed assets. The territory's per capita income has historically run roughly five times the national average, driven by capital-intensive production spread across a small population. This is niche construction through regulation — a government engineering the conditions that attract specific industries, the way a beaver builds a dam to create the habitat it needs.

The two territories are not contiguous. Daman sits on the mainland coast; Diu is an island roughly 650 kilometres south by road. They share an administration but not a supply chain, a labour market, or an economic logic. Daman manufactures; Diu fishes and hosts tourists at Portuguese-era forts. Even the fishing economy concentrates: the port at Vanakbara handles roughly 70% of Diu's total catch. Vanakbara functions as a keystone species within Diu's economy — a single node whose removal would collapse the downstream chain of fish markets, ice suppliers, boat repair yards, and transport operators that depend on it. A cyclone or harbour silting event would not merely reduce output; it would cascade through every linked livelihood on the island.

In 2020, the Indian government merged Daman and Diu with the neighbouring territory of Dadra and Nagar Haveli, acknowledging that two territories sharing administrators but maintaining separate bureaucracies had produced duplication, inefficiency, and waste. The merger is a concession to scale — even with manufacturing revenue five times the national per capita average, the territory could not sustain the administrative overhead of independent governance. Colonial boundaries persisted for six decades after sovereignty because path-dependence is cheaper to maintain than to dismantle, until the cost of redundancy finally exceeded the cost of reorganisation.