Policy Relaxations for SEZs and Hi-tech Manufacturing
Recent policy relaxations aim to boost the manufacturing of hi-tech items such as semiconductors and electronic components in special economic zones (SEZs). This initiative represents a renewed effort to promote exports of manufactured products.
Key Policy Changes
- Reduced minimum land requirement for SEZs from 50 hectares to 10 hectares.
- Concessions in net foreign exchange calculations.
- Allowed sourcing of capital, raw materials, and components from domestic markets rather than just imports.
- Eased stipulations on the movement of finished goods.
These changes support the Indian Semiconductor Mission, aiming to establish India as a global hub for electronics manufacturing and design.
Challenges and Current Status
India has 276 operational SEZs with an investment of around ₹7 trillion but has only generated employment for about 3 million people, much lower than the 5.4 million in the IT and IT-enabled services sectors. In China, SEZs account for 60% of exports, while in India, they account for just about a fifth.
- SEZs in India are primarily driven by IT and IT-related services, contributing to 60% of SEZ exports.
- Land acquisition remains a significant hurdle due to shrinking minimum land size requirements.
Policy Discrepancies and Solutions
Poor coordination between government departments has delayed the application of incentives. The Development of Enterprise and Service Hubs (DESH) Bill in 2022 aimed to encourage both global and domestic production but has been shelved.
- SEZs are often located near developed areas due to poor connectivity and infrastructure in rural regions.
- To transform SEZs beyond mere real estate ventures, an enabling ecosystem with transport, internet, infrastructure, housing, security, schools, and hospitals is needed.
Rather than frequent policy shifts, addressing longstanding structural problems in the investment environment would be more effective for India’s SEZ policy.
