SEZ 2.0 Policy Reforms

The committee formed to study the harmonisation of export promotion schemes is engaging stakeholders to develop a comprehensive SEZ 2.0 policy. A key consideration is shifting the policy and regulatory responsibilities for Special Economic Zones (SEZs) from the SEZ Division of the Department of Commerce to the Directorate General of Foreign Trade (DGFT).

Mandate and Issues for Discussion

• Review of the existing framework and recent reforms
• Enhancing export competitiveness and global alignment
• Evaluating investment and employment outcomes
• Identifying operational bottlenecks and fiscal implications
• Discussing duty on Domestic Tariff Area (DTA) clearances on a duty-foregone basis
• Facilitating job work by SEZ units for DTA units without insisting on export of job-worked goods
• Allowing payment in Indian rupees by DTA units for services from SEZs
• Changes in SEZ laws and harmonisation of export promotion schemes

Current Challenges with SEZs

The SEZ Division has lagged behind developments in Customs, GST, and foreign trade law, affecting business decisions, cash flows, and compliance.

• Delayed amendments in SEZ laws following the introduction of GST in July 2017
• Outdated treatment of Export Oriented Units (EOUs) as bonded warehouses
• Inconsistent duty payment provisions for goods returned to DTAs
• Compulsory foreign currency payment requirements for SEZ service providers
• Lack of drawback for suppliers of imported duty-paid goods to SEZs due to restrictive definitions

SEZ Scheme Impact and Data

The SEZ scheme introduced in 2006 aimed at addressing regulatory hurdles and providing tax concessions, but the expected impact, especially in manufacturing, is partly unmet.

• 368 notified SEZs with investments totaling ₹7.86 trillion
• Employment of over 3.173 million people
• Exports exceeding ₹11.70 trillion during 2025-26 up to December 2025
• Revenue costs: ₹28,866 crore from Section 10AA income-tax impact and ₹46,689 crore customs-side revenue loss for 2024-25

Recommendations for Institutional Change

For a meaningful SEZ 2.0, substantial institutional redesign is necessary. SEZs operate in a complex regulatory environment involving FTP, Customs, GST, Fema, and FTAs. The DGFT is better positioned to handle SEZ reforms within India’s foreign trade policy. Customs, GST, and RBI-related issues require consultation with respective authorities, but an institution knowledgeable about exports and trade facilitation should anchor the SEZ scheme.