SEZs may be Able to Sell Goods in Domestic Market

The Budget 2022-23 may pave the way for a new Act to govern the country’s special economic zones (SEZ) as the government aims to make them engines of growth as well as compliant with the global trade norms.

Officials said that a new Act or a revamp of the current SEZ Act is needed after India lost a dispute to the US at the World Trade Organization on these zones violating the global agreement on subsidies and countervailing measures.

The commerce and industry ministry has pushed for a new Act for SEZs to be able to sell goods in the domestic market at low duties, easier exit for loss-making units and units to be able to accept payment in India currency.

“We are taking all issues holistically SEZ Act may be revamped or a new Act might be   put in place because SEZs go against WTO rules,” said an official.

While work has begun to ease the process of denotifying empty spaces of above 100 million sq. ft. builtup area, worth Rs30,000 crore, in the 250-plus SEZs in the country, the ministry is looking at ways for partial derecognition of existing SEZs so that areas that have no more demand can be used for industrial or other purposes.

The government may also do away with a clause related to foreign exchange for SEZ units and replace it with a criterion based on investment in R&D, innovation and employment generation.

The commerce department has proposed to replace the positive net foreign exchange (NFE), a primary requirement for SEZ units, with a new eligibility criterion.

SEZ exports fell to $102.3 billion in FY21 from $112.3 billion in FY20.

A relook at the Act comes after the government adopted a sunset clause and said that only those units that started production on or before June 30, 2020, would be granted a phased income tax holiday for 15 years.

“The finance ministry is keen to push their Manufacture and Other Operations in Warehouse scheme, and its overlaps with the SEZ Act are also being looked at, said another official.

A committee led by Bharat Forge chairman Baba Kalyani had in 2019 suggested SEZs to be converted into employment and economic enclaves with efficient transport infrastructure and uninterrupted water and power. It favoured swift resolution of disputes through arbitration, flexibility in dual- usage norms for non-processing areas in SEZs, extension of sunset clause, simplification of processes, tax benefits to services sector, and extension of MSME schemes to these zones.

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