Govt panel working on new SEZ norms for exporters to access domestic market
Table of Contents
Source: The Indian Express
Relevance: GS Paper 3 – Indian Economy | Export Promotion | Industrial Policy | Infrastructure Development
Key Concepts for Prelims and Mains:
For Prelims:
SEZ Act, 2005 and SEZ Rules, 2006, Reverse Job Work Policy, Net Foreign Exchange (NFE) Criterion, ICRIER Report on SEZs, Commerce Ministry | NITI Aayog | Finance Ministry
For Mains:
Reforming India’s SEZ Policy amid Global Trade Pressures, Reverse Job Work and Domestic Market Integration, Role of SEZs in Atmanirbhar Bharat and Employment CreationWhy in News?
A government panel comprising officials from the Ministry of Commerce and Industry, NITI Aayog, and exporters is drafting new Special Economic Zone (SEZ) norms to revive manufacturing and help exporters access the domestic market amid steep US tariffs that have eroded export competitiveness.
Why the Reforms of SEZ?
- Many SEZ units, especially gems & jewellery exporters, depend heavily on the US market.
- Sudden tariff hikes have reduced exports; some units even sought de-notification.
- In FY25, SEZ exports were $172 billion, but domestic sales were only 2%.
- Indian SEZs lag behind China’s model in scale, technology, and local linkages
Key Proposals of New SEZ:
1. Reverse Job Work:
Allow SEZ units to manufacture for domestic firms and sell in the Domestic Tariff Area (DTA) under a transparent duty-neutral mechanism to enhance utilization and domestic linkages.2. Corridor-Based Development:
Integrate SEZs with industrial corridors like DMIC and CBIC to improve connectivity and reduce logistics costs. Develop nearby residential hubs to attract skilled labour.3. Regulatory Reforms:
Enact the SEZ (Amendment) Bill, 2024, to simplify exit norms and adopt Baba Kalyani Committee proposals, including rebranding SEZs as Employment & Economic Enclaves (3Es) with distinct manufacturing and service rules.4. Global Convergence:
Strengthen export infrastructure, customs hubs, and e-commerce zones. Pursue MRAs with UAE, Singapore, and EU SEZs for smoother trade and regulatory alignment.5. Global Best Practices:
Adopt elements from China’s Shenzhen model and UAE’s free zones offering tax benefits and 100% FDI to boost competitiveness.6. Dispute Resolution:
Establish dedicated commercial courts and arbitration centres within SEZs for faster dispute settlement and investor confidenceSectoral Focus – Gems and Jewellery Industry
- Dominant Share: Nearly 65% of India’s studded jewellery exports originate from SEZs.
- Tariff Shock: The US, being the largest export destination, has severely affected demand.
- Industry Demands (via GJEPC):
- Allow reverse job work and DTA sales
- Extend export obligation periods for delayed shipments
- Provide interest moratoriums on working capital loans
- Ensure job security for artisans and factory workers
According to the Gem & Jewellery Export Promotion Council (GJEPC), such measures are crucial to maintain employment and sustain competitiveness.
Sectoral Focus – Gems and Jewellery Industry
Declining Units:
Gems and jewellery SEZ units dropped from 500 (pre-2019) to 360 (2021–22) due to fiscal uncertainty.
Falling Export Share:
Sector’s share in SEZ exports declined to 15.7% in 2020–21, affected by global demand fluctuations and loss of incentives.
Low R&D Investment:
An ICRIER survey found only 4 of 14 SEZ units invested in R&D—reflecting weak innovation.
Skill and Technology Gaps:
Lack of structured training and limited technical funding hinder productivity.
Weak FDI Inflows:
- Absence of investment protection agreements (unlike Vietnam)
- Negative perception of Indian SEZs abroad
- Poor brand promotion and marketing outreach
Low FDI limits technology transfer, innovation, and global networking.
Institutional and Policy Response
- The government aims to introduce reforms through administrative measures rather than waiting for a new SEZ Bill.
- The Finance Ministry, however, has expressed concerns about potential revenue losses if SEZs are allowed wider domestic access.
- ICRIER recommends revisiting trade balance mechanisms and strengthening domestic linkages after the removal of the NFE earnings criterion.
Emerging Trade Concerns
-
Negative Trade Balance:
Rising raw material imports combined with stagnant exports risk turning SEZs into net importers. -
Reduced Competitiveness:
Withdrawal of fiscal benefits, policy uncertainty, and better incentives in competitor nations have undermined India’s SEZ credibility. -
R&D and Skill Deficit:
The absence of modernisation and innovation funding limits sectoral growth.
Conclusion
India’s SEZ policy stands at a decisive juncture. The twin challenges of global tariff shocks and domestic inefficiencies have exposed structural gaps but also opened a window for deep reform.
A well-calibrated approach—combining reverse job work, innovation incentives, and FDI reforms—can transform SEZs into resilient, export-driven engines of growth, supporting both economic resilience and employment generation.
UPSC PYQ:
Q. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following:
- Development of infrastructure facilities
- Promotion of investment from foreign sources
- Promotion of exports of services only
Which of the above are the objectives of this Act?
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Correct Answer: (a) 1 and 2 only
Explanation:
- The SEZ Act, 2005 aims to promote exports of both goods and services, not just services.
- Its primary objectives include:
- Development of infrastructure facilities, and
- Promotion of investment from domestic and foreign sources.
- Hence, statements 1 and 2 are correct, while 3 is incorrect.
CARE MCQ:
Q. Consider the following statements regarding India’s Special Economic Zone (SEZ) policy:
- Asia’s first Export Processing Zone (EPZ) was set up at Kandla in 1965.
- The SEZ Policy was announced in April 2000 to attract foreign investment and boost exports.
- The SEZ Act, 2005 came into force on 10th February 2006 with single-window clearance provisions.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Correct Answer: (c) All three
Explanation:
All statements are correct — India pioneered the EPZ model (Kandla, 1965), launched the SEZ Policy (2000), and operationalised the SEZ Act (2006) to simplify procedures and promote export-led growth.