The Commerce & Industry Ministry is in hectic discussions with the Finance Ministry to get its nod for a new package for special economic zones (SEZs) with sops such as relaxation in the net foreign exchange (NFE) positive obligation and flexibilities for sale of goods and services in the domestic market . Efforts are on to get at least some proposals in the package approved as part of the Union Budget for 2022-23, sources have said.

“In the recent round of discussions between the Department of Revenue and the Commerce Department, progress was made on a number of proposals for easing SEZ operations. While there has been an agreement on many aspects, some differences need to be ironed out. At least some of the flexibilities under discussion could be announced in the Union Budget,” an official tracking the matter told BusinessLine.

Relaxations and incentives for SEZs are important for the zones to stay attractive for investors and units despite the exhaustion of income tax sops, the official added.

Consensus on NFE criteria

There is broadly an agreement within the government that the NFE positive parameter, wherein a SEZ unit has to earn more in foreign exchange through exports than the forex it spends in expenditure on inputs and travel related expense needs to go, the official said. The NFE positive criteria made it compulsory for a SEZ unit to have an overseas business or foreign client. With the WTO ruling that the SEZ scheme was not compliant with multilateral trade norms as it gave incentives for exports, the Commerce Ministry’s proposal that the NFE criteria (which makes exports mandatory) be replaced with other conditions, such as minimum employment or R&D, is being seriously considered.

Competition to MSMEs

The Finance Ministry, however, may need some more convincing on the Commerce Ministry’s other demand of allowing SEZ units to make DTA (domestic market) sales on payment of duty equivalent to duty forgone on the raw material used and not pay customs duties, the official said. While SEZs say that the measure would encourage them to produce more and value add, the Finance Ministry is apprehensive that it may increase competition for the MSME sector in the domestic market. “The Commerce Ministry is making efforts to sort out the issue before the Budget so that the package could include this provision as well,” the official said. A third proposal being considered is allowing SEZ units to get payment in rupees for supply of services to DTA. “SEZs have argued that when two units in the country are transacting with each other there was no point in promoting the currency of another country. This requirement also puts the burden of buying foreign exchange on DTAs,” the official said.

Other proposals

Other proposals on the table include allowing domestic units to come up in the unutilised area of SEZs and co-exist with SEZ units with proper monitoring. The suggestion of allowing SEZ units to do job work for DTA units for better capacity utilisation is also under consideration of the Finance Ministry, the source said.

There are a total of 375 notified SEZs in the country of which 268 are operational with 5,604 approved units.

In the April-December period, overall goods exports rose 49.66 per cent to $301.38 billion, while goods exports from SEZs increased 60 per cent to $36.4 billion, as per figures shared by the EPCES. Services exports from SEZ increased 17 per cent in the period to $51 billion.

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