16th June 2025 (10 Topics)

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SEZ Rule Relaxation

Context

The Government of India has recently relaxed Special Economic Zones (SEZ) rules to attract investment in domestic semiconductor and electronics manufacturing, a sector crucial for reducing import dependence and securing supply chains. This move complements the existing Semicon India Programme launched in 2022 with a financial outlay of ?76,000 crore.

Semiconductors: Strategic Importance

Definition: Semiconductors are materials with conductivity between conductors and insulators; they are the core components of integrated circuits (ICs) or microchips.
Applications: Found in smartphones, computers, automobiles, defence systems, AI infrastructure, IoT devices, etc.
Strategic Resource: Post-COVID-19, countries realized the vulnerability of global supply chains, especially with China producing ~35% of the world’s chips (2021).
National Security Link: Disruption in chip supplies can impact defence, critical infrastructure, and strategic autonomy.

Relaxation in SEZ Rules

Previous Restriction: SEZ units had to export at least 51% of their output, and domestic tariff area (DTA) sales were taxed heavily.
Recent Change: Government has eased DTA access for SEZ-manufactured goods, allowing more flexible domestic sales without significant penalties or procedural bottlenecks.
Implication: This is expected to facilitate semiconductor fabs and electronics units to sell in India's growing domestic market — a key concern of potential investors.

Semicon India Programme (2022)

Launched by: Ministry of Electronics and Information Technology (MeitY)
Outlay: ?76,000 crore
Components:
- Design Linked Incentive (DLI) Scheme
- Modified Programme for Semiconductors and Display Fab Ecosystem
- Incentives for compound semiconductors and ATMP/OSAT units
Objective: To develop a self-reliant semiconductor ecosystem including design, manufacturing, packaging, and research.

Global Context

Countries like the S. (CHIPS and Science Act) and EU (European Chips Act) have also adopted similar subsidy-based approaches to build domestic semiconductor capabilities and reduce dependence on China and Taiwan.

Special Economic Zones (SEZs):

Definition & Purpose

SEZ: Designated duty-free zones within a country with liberal business and trade laws.
Aim: To boost exports, attract investments, generate employment, and improve infrastructure.

Evolution of SEZs in India

1965: Asia’s first Export Processing Zone (EPZ) at Kandla, Gujarat.
2000: SEZs introduced under Foreign Trade Policy (FTP).
2005: SEZ Act enacted.
2006: SEZ Act & SEZ Rules came into force.
Structured on the lines of China’s SEZ model

SEZ Governance Structure

Board of Approval (BoA): Apex body headed by Secretary, Department of Commerce.
Development Commissioners: Appointed for administrative oversight at zone level.

Status

379 SEZs notified; 265 operational.
~64% SEZs located in:
- Tamil Nadu
- Telangana
- Karnataka
- Andhra Pradesh
- Maharashtra

Key Objectives of SEZ Act

Promote economic activity and exports.
Attract foreign and domestic investment.
Generate employment.
Develop world-class infrastructure.

Major Incentives and Facilities

Duty-free import/procurement for SEZ units.
Tax exemptions:
- Income Tax (for initial years)
- Minimum Alternate Tax (MAT) (phased out in some cases)
External Commercial Borrowings (ECBs) up to $500 million/year without maturity restriction.
Single-window clearance for all central/state-level approvals.

Reform Initiatives

Baba Kalyani Committee (2018):
- Suggested WTO-compatible SEZ policy reform.
- Recommended integration with global best practices, infrastructure optimisation, and employment-linked incentives.

India’s Gender Parity Paradox

Society Miscellaneous

Aviation Accountability Crisis

Polity & Governance Governance

India’s Fellowship Gap

International Relations Miscellaneous

Rajasthan’s Cash Plus Initiative

Polity & Governance Government Schemes

India-Cyprus Strategic Alignment

International Relations Bilateral relations

Border Defence Reboot

Internal Security Miscellaneous

Strait of Hormuz

Geography Locations in News

Flue Gas Desulphurisation (FGD)

Ecology and Environment Environmental Pollution

Genetic Link to Long COVID

Science & Technology Biotechnology

GS Analyst: Daily Current Affairs