SEZ Policy and Issue

• The concept of DESH was floated in last year’s budget The DESH Bill hasn’t seen the light of the day yet Reports suggest that the DESH Bill may be scrapped and the SEZ Act tweaked instead Ministerial wrangle over rules and regulations regarding these economic clusters The delay in giving a renewed push to economic zones can prove costly in the long run There seems to be a gap between the central government’s policy intent and execution. While the Commerce Minister Piyush Goyal is exploring ways to relax certain restrictions for Special Economic Zone (SEZ) units to promote growth. There is a proposal to allow SEZ units to sell products in the domestic market without import duties. This proposal aims to align SEZ practices with those of India’s Free Trade Agreement (FTA) partner countries.
• WTO Compliance Considerations: Benefits of input duty remission schemes for exports to SEZs are subject to ensuring adherence to World Trade Organization (WTO) regulations. Emphasized the cautious examination needed to avoid potential violations of WTO rules.
• SEZs and Export Dynamics: SEZs are majorly engaged in exporting petroleum products and software, which are currently not covered under the Remission of Duties or Taxes on Export Products (RoDTEP) Scheme. The proposed liberalization for SEZs aims to bring them in line with industry practices in India’s FTA partner countries.
• Industry-Government Collaboration:Minister Goyal highlighted the collaborative approach between the government and the industry to elevate the national initiative for ease of doing business to the next level.Continuous feedback from businesses through the National Single Window System is encouraged to identify gaps and suggest measures for improvement.
• Special Economic Zones (SEZs):SEZs are delineated ‘enclaves’ with unique regulations and trade practices compared to the rest of the country, providing special privileges to the units operating within them.They serve as efficient zones to address infrastructural and business environment issues in a shorter timeframe.Special Economic Zones Act was passed in 2005. However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).
• Objectives of the SEZ Act:Creation of additional economic activity.Promotion of goods and services export.Generation of employment.Facilitation of domestic and foreign investments.Development of infrastructure facilities.
• Facilities and Incentives for SEZs:Duty-free import/domestic procurement of goods for SEZ unit development and operation.100% Income tax exemption for the initial 5 years, 50% for the subsequent 5 years, and 50% of the ploughed back export profit for the following 5 years.Exemption from Minimum Alternate Tax (MAT).Exemption from Central Sales Tax, Service Tax, and State sales tax (subsumed into GST, supplies to SEZs are zero-rated under IGST Act, 2017).Single window clearance for central and state-level approvals.
• Concerns with Present SEZs:India’s SEZs have not been as successful as those in several other countries, such as China, Korea, Malaysia, and Singapore.Many SEZs in India were established to avoid taxes rather than for export purposes.Weak linkages with the rest of the economy have limited the performance of most manufacturing SEZs in India.Ineffective coordination between the central SEZ Act and state-level legislation has undermined the effectiveness of the single window system.Inadequate policy design, implementation, and monitoring have hindered India’s industrialization efforts through SEZs.

?Revamp of SEZ Policy to Meet Export Challenges:

• Review the recommendations of the Baba Kalyani committee on the SEZ policy of India.
• Discussions focused on addressing global challenges faced by Indian exporters and facilitating the ease of doing business in the current global market scenario.
• Completed Recommendations:Review of specific exclusions proposed in NFE computation in light of the Make in India initiative.Sharing of duty-exempted assets/infrastructure between units allowed with specific approval.Formalization of the de-notification process for enclaves and delinking its present mandatory usage for SEZs purpose only.
• Other Implemented Recommendations:Support to servicification of manufacturing zone.Allowing manufacturing enabling services companies.Flexibility to enter into a long-term lease agreement with stakeholders in Zones in line with the State policies.
• Additional Changes and Initiatives for SEZs: Delegation of powers to Development Commissioner for shifting of SEZ unit from one zone to another.Supplies of services in DTA against foreign exchange or Indian Rupees to be counted towards NFE.
• Setting up cafeteria, gymnasium, creche, and other similar facilities/amenities.
• Objectives of the Committee: Evaluation of the SEZ policy and making it WTO compatible. Suggesting measures for maximizing utilization of vacant land in SEZs. Merging the SEZ policy with other Government schemes like coastal economic zones and national industrial manufacturing zones.
• India’s target of becoming a USD 5 trillion economy by 2025 necessitates a paradigm shift in manufacturing competitiveness and services, requiring policy evaluation and compliance with WTO regulations.