Commerce Ministry Proposes Measures to Revitalize SEZs and Enhance Domestic Market Transactions

The commerce ministry is actively seeking feedback from various departments on proposed measures to revitalize special economic zones (SEZs) and enhance business transactions between SEZs and the domestic market, a senior official announced on Monday. The ministry has proposed allowing products manufactured in SEZs to be sold in the domestic market upon payment of duty foregone on inputs, aiming to promote value addition.

“The primary challenge in SEZs is achieving economies of scale. Strengthening the connection between SEZs and the domestic tariff area (DTA) or domestic market is crucial. There are also complications when the DTA sells to SEZs,” the official stated. “We have suggested a duty foregone basis for sales. Additionally, there are issues regarding job work. For instance, if an IT firm needs to acquire some work from the domestic market, they require permission. We have submitted a draft cabinet note,” the official added.

Currently, SEZ units can sell their products in the DTA by paying duties on the finished goods. To facilitate the proposed changes, the commerce ministry has recommended amendments to the SEZ law. The government is considering various measures, such as creating a flexible framework for SEZ products to be sold in the domestic market and streamlining approval processes for SEZ units. The objective is to revive SEZs and facilitate business transactions between SEZs and the DTA.

SEZs are designated areas treated as foreign territories for trade and customs duties, with restrictions on duty-free sales outside these zones in the domestic market. Last year, Commerce and Industry Minister Piyush Goyal indicated the government’s intention to ease certain restrictions on SEZ units to promote the sector’s growth.

The Global Trade Research Initiative (GTRI) think tank suggested in a report that the government allow SEZ products to be sold in the domestic market on a duty foregone on inputs basis, as it would promote value addition. GTRI Co-Founder noted that the government already permits DTA sales on a duty foregone on inputs basis for firms under the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) scheme.

Exports from SEZs increased by over 4 percent to USD 163.7 billion in fiscal 2024, despite a 3 percent decline in the country’s overall exports. Commerce ministry data shows exports from SEZs were USD 157.24 billion in 2022-23 and USD 133 billion in 2021-22. SEZs are significant export hubs, contributing over one-third of the country’s total outbound shipments last fiscal year. The government has approved 423 SEZs, with 280 operational as of March 31 this year. A total of 5,711 units were approved in these zones by December 31, 2023. Major export destinations include the UAE, the US, the UK, Australia, and Singapore.