The government is in the process of drafting SEZ 2.0 which would meet India’s need for developing large manufacturing zones with high quality world class infrastructure digitally enabled and highly competitive in terms of services it provides, Commerce Secretary BVR Subrahmanyam has said.

“We will recast the SEZ Act to put this system into place. I will not second guess the details of the new legislation but as the Finance Minister said, we will keep the States on board,” he said at a press conference on Wednesday.

States, development partners

SEZs, which had lost much of their sheen following the exhaustion of income tax exemptions for both developers and units, are set for an over-haul, Finance Minister Nirmala Sitharaman had announced in the Budget on Tuesday.

“The Special Economic Zones Act will be replaced with a new legislation that will enable the States to become partners in ‘Development of Enterprise and Service Hubs’. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports,” Sitharaman said.

The new SEZ legislation will be WTO compliant, have single window clearance and provide high class infrastructure, Subrahmanyam said.

SEZs have been seeking a large number of changes in the SEZ rules and Act to improve their viability. The new dispensation for SEZ, being considered by the government, could allow domestic units to come up in the unutilised area of SEZs and co-exist with SEZ units with proper monitoring, a key demand of the industry. The suggestion of permitting SEZ units to do job work for DTA units for better capacity utilisation may also now be implemented.

The Commerce Secretary said most of these proposals would be considered while drafting the legislation.

‘Plug and play infra’

There are also demands for other measures such as relaxation in the net foreign exchange (NFE) positive obligation, flexibilities for sale of goods and services in the domestic market and allowing SEZ units to get payment in rupees for supply of services to domestic tariff area (DTA).

It is important for the government to do away with the NFE obligation and make the SEZ scheme compliant with WTO rules which disallows incentives to be directly linked to exports.

“The SEZ Act is being made more inclusive, involving States. We are going to gradually make SEZs into plug and play infrastructure which can be used for both exports and domestic industry. We will try to bring in the law in next four to six months,” Commerce & Industry Minister Piyush Goyal told BusinessLine.

The plan is to put in place some equalisation levy so that units in the DTA (area outside SEZs) are not at a disadvantage compared to SEZ units who have taken certain advantages in the past, the minister added.

Ease of doing business

The Finance Minister has also sought to facilitate ease of doing business for SEZs by bringing in reforms in customs administration of SEZs.

“ shall henceforth be fully IT driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. This will ease doing business by SEZ units considerably. This reform shall be implemented by September 30, 2022,” she said.

There are a total of 5,604 units that have received a formal approval in a total of 375 notified SEZs in the country, of which 268 are operational.

In the April-December 2021 period, goods exports from SEZs increased 60 per cent to $36.4 billion, according to government figures. This compares well with overall goods exports which increased 49.66 per cent to $301.38 billion. Services exports from SEZs increased 17 per cent in the period to $51 billion.