Focusing on the industrial area local authority (IALA), a governance regime widely applied in the south Indian states of Andhra Pradesh and Telangana, this paper examines pathways to illiberal governance within ostensibly liberal democratic contexts. The history of the IALA exemplifies the modes by which the movement towards representative government at the local level in India was subverted at its very origins by the insertion of exceptions into the legislation that purported to establish and empower urban government. Applied to demarcated territories, both established industrial areas and spaces dedicated to globalized information technology and financial services, the IALA instrument devolves the powers and functions of the municipality to an agency controlled by the state government. The career of the IALA thus demonstrates how neoliberal agendas are enacted in enclave settings through the interplay of discursive logics of participatory governance and strategies of entrepreneurial governance in practice. Using Hyderabad as an empirical case, the paper argues that special purpose enclaves, subject to regimes of exceptional urban governance, represent vectors both of neoliberalism and neo-illiberalism in avowedly liberal democratic contexts in the Global South.