Changes expected in SEZ Act in Budget to help COVID-hit units

Hinting at a Budget announcement on SEZ norms, commerce secretary B.V.R. Subrahmanyam recently said: “If there is a unit in an SEZ facing the domestic market, it will behave like a domestic tariff area entity. If it is facing the international market, it will behave like an SEZ unit. It will still be one unit. That’s going to be a breakthrough once we get it through the next session of Parliament.”

The decision of the government to relax SEZ norms stems from the fact that a number of them operate at sub-par levels and have suspended operations despite proliferation of such entities at a rapid pace.

The Parliament had passed the SEZ Act in 2005 with the aim of attracting foreign direct investment (FDI) and creating a competitive and hassle-free environment for companies engaged in exports of goods and services. Since then, the government has given formal approval under the SEZ Act, 2005, to 426 SEZs and in-principle clearance to 33 SEZs, Moneycontrol reported quoting the commerce department.

However, as of September 30, only 268 units were operational across the country, employing 2.36 million people.

According to Financial Express, the policy has leveraged those in the services sector, while companies in the manufacturing segment have languished.

Meanwhile, the commerce and finance ministries have often disagreed on the tax incentives to SEZ units. In 2018, an expert committee led by Bharat Forge chairman Baba Kalyani recommended significant changes in the SEZ policy, calling for separate rules and procedures for manufacturing and service SEZs.

While the commerce ministry rewrites the legislation, the finance ministry is likely to announce the simplification of SEZs in the budget, showing better collaboration between the two wings.

Hit by the COVID-19 pandemic, companies operating in such conclaves have called for assistance. Outbound shipments of manufactured products and trading services from SEZs in India have registered a 21 percent drop to Rs 2.46 lakh crore in FY21 from the year-ago period at a time when the country’s overall merchandise exports fell 3 percent to Rs 21.54 lakh crore, Financial Express reported quoting data from the Export Promotion Council.

The changes in the norms will help Covid-hit SEZs to better utilise their idle capacities. The commerce ministry is also working out the modalities to allow companies to be partially de-recognised so that their areas can be used for other purposes.

"If any SEZ wishes to be de-recognised, even that could be allowed,” the ET report quoted a source as saying. The changes could allow SEZs to offer additional commercial and residential holdings within their premises, the source said.

The new norms would also be in line with the recommendations of the Baba-Kalyani led expert committee which said changes are required to revitalise these zones to realise India’s $1-trillion merchandise-export target by 2027-28.