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Context:
The long-awaited Special Economic Zone (SEZ) Amendment Bill is expected to be introduced in the upcoming Monsoon Session of Parliament, marking a major overhaul of the existing SEZ Act, 2005. The Union Cabinet’s approval is expected shortly before the Bill is tabled.
Why Is the Amendment Needed?
- The current SEZ law, enacted in 2005, has not met expectations in attracting investment in manufacturing.
- The reforms aim to align India’s SEZ framework with global trade realities, improve ease of doing business, and boost local manufacturing and employment.
Key Proposed Changes
1. Duty Forgone on Raw Materials for Domestic Sales
- Current Rule: SEZ units must pay full customs duty on the finished product sold in the Domestic Tariff Area (DTA).
- Proposed Change: Duty to be charged only on raw materials, not on the finished goods.
- Expected Impact: Makes SEZ-to-DTA sales less costly, encouraging domestic linkages and higher capacity utilisation.
2. Introduction of Reverse Job Work
- What It Means: SEZ units can now carry out partial manufacturing for companies in the domestic area.
- Current Restriction: Manufacturing only allowed for exports.
- Expected Impact:
- Helps manage seasonality in exports.
- Reduces idle capacity.
- Improves employment generation and technology sharing.
3. Payment in Indian Currency for SEZ Services
- Current Rule: Services from SEZs must be paid in foreign exchange.
- Proposed Change: Indian Rupee payments to be permitted.
- Expected Impact: Brings parity between services and manufacturing sectors within SEZs, promotes greater domestic service demand.
What Are SEZs?
- SEZs are special enclaves deemed foreign territory for trade and tax purposes, offering incentives to promote exports and foreign investment.
- However, over the years, the model has seen limited success in attracting major manufacturing investments.
