What's New :
16th June 2025 (10 Topics)

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.

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