India mulls easing barriers between SEZs-local market to allow freer flow of goods & services
The measures are included in ongoing discussions between the Prime Minister’s Office (PMO) and the commerce and revenue ministries on making special economic zones (SEZs) more competitive given global trade uncertainties.
The proposed measures would require a change to the SEZ framework, which regulates flows to and from these regions, which were first established in 2000 as liberalized world-class manufacturing zones to boost exports.
The share of SEZs in total merchandise exports from India is about one-fifth.
The measures being considered include rationalizing customs duties on sales to domestic tariff zones, charging for domestic services in Indian rupees and allowing domestic units to send goods to these zones for outsourcing, people familiar with the matter told ET. “There are some issues faced by SEZs… These issues are being looked into,” a government official told ET.
These are initial discussions to understand what interventions can be made to ensure these zones and the units within them achieve the scale envisioned when they are launched, officials said. SEZs are essentially designated duty-free zones considered outside India’s customs territory, where units do not require an import licence. Domestic sales are subject to full duty and applicable import policy. The aim is to remove some barriers to create a larger market so that manufacturers can plan larger units and achieve economies of scale. This may require amendments to the SEZ Act, 2006, which aims to give focused attention to SEZs by removing their regulations from trade policy. In FY25, the sector exported goods worth Rs 14.57 lakh crore from around 6,300 units in 276 operational SEZs, up 7.4% from the previous year. Another official said the framework must be agile enough to respond to the challenges faced by businesses, especially in an uncertain global environment. “Some measures are being considered,” the second official said.
Size and scope
“This is fundamentally about shifting the focus from a purely export-focused model to one that promotes integrated ‘Development Centres’, balancing both international and domestic sales,” said Pratik Jain, partner at Price Waterhouse & Co LLP.
Jain said India can revitalize these zones by relaxing customs norms, allowing domestic procurement with duty-waiving for SEZs and giving states a greater partnership role, making them real engines of job creation and next-generation manufacturing such as semiconductors and green energy, and ensure they remain relevant in the global supply chain. The industry has previously raised concerns about how manufacturers in SEZs are at a relative disadvantage compared to countries with which India has Free Trade Agreements. “India’s SEZs need a structural reset to restore export competitiveness. It needs to move quickly to integrate SEZs with the local economy while enabling digital permits and reducing transaction costs,” said Ajay Sahai, director general of the Federation of Indian Export Organizations.
