Syllabus:

GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.

Context: 

The government recently introduced reforms to Special Economic Zones (SEZ) rules, specifically tailored for the semiconductor and electronics component manufacturing sectors.

More on the News

• A recent amendment to Rule 5 of the SEZ Rules, 2006, significantly reduces the minimum contiguous land area required for Special Economic Zones (SEZs) exclusively focused on manufacturing semiconductors or electronic components. Previously, 50 hectares were needed; now, only 10 hectares are required.
• An amendment to Rule 7 of the SEZ Rules, 2006, now permits the Board of Approval for SEZs to waive the usual requirement for SEZ land to be encumbrance-free if it's already mortgaged or leased to the Central or State Government or their authorized agencies.
• The revised Rule 53 of the SEZ Rules now permits the inclusion of free-of-cost goods (both received and supplied) in Net Foreign Exchange (NFE) calculations with their value determined by applicable customs valuation rules.
• Rule 18 of the SEZ Rules has been amended to allow semiconductor and electronics component manufacturing units within SEZs to sell their products domestically (into the Domestic Tariff Area) after paying the required duties.

Important recent amendments 

Fifth Amendment – Rule 43A (Jan 1, 2025)

• Introduced changes under Rule 43A related to work location and operational continuity

Fourth Amendment – Rule 18 (Jun 20, 2024)

• Clarifies conditions for exporting reconditioned/repaired products and handling non-hazardous metal waste.
• Structures how processed waste may be sold domestically under Hazardous Waste regulations  

Special Economic Zones (SEZ)

• India, an early adopter of the Export Processing Zone (EPZ) model, established Asia's first EPZ in Kandla in 1965. To address issues like complex regulations, poor infrastructure, and an unstable tax system, and to attract more foreign investment, the Special Economic Zones (SEZs) Policy was launched in April 2000.
• This policy aimed to make SEZs a driver of economic growth by providing quality infrastructure and attractive tax incentives from both central and state governments, all with minimal regulations. From November 1, 2000, to February 9, 2006, Indian SEZs operated under the Foreign Trade Policy, with fiscal benefits provided through relevant laws.
• Following widespread discussion and around 800 suggestions on the draft rules, the SEZ Act, 2005, and accompanying SEZ Rules were implemented on February 10, 2006. 
• This framework significantly simplified procedures and introduced single-window clearance for central and state government matters, aiming to increase economic activity and employment through SEZs.

The main objectives of the SEZ Act are:

• generation of additional economic activity
• promotion of exports of goods and services
• promotion of investment from domestic and foreign sources
• creation of employment opportunities
• development of infrastructure facilities

Mains Practise question

Q. There is a clear acknowledgment that Special Economic Zones (SEZs) are a tool of industrial development, manufacturing and exports. Recognising this potential, the whole instrumentality of SEZs require augmentation. Discuss the issue plaguing the success of SEZs with respect to taxation, governing laws and administration. (2015)