‘Proposal to replace old SEZ law both timely and important’

This proposal is both timely and important for it would also allow the central government to have a closer look at the SEZ Act, which has not functioned to its potential

special economic zones, sez law, new sez law, budget 2022, union budget 2022, budget news,
Previous Budgets had proposed several initiatives to dovetail trade policy with the manufacturing policy.

Finance Minister Nirmala Sitharaman’s Budget proposals have come at a time when there are three important takeaways on the trade front. The first is that India’s trade is looking extremely buoyant with its share exceeding 50% of the country’s GDP, the first time this has happened after a decade. Equally important is the fact that India’s exports have been providing the much-needed impetus for the Indian economy, especially when the domestic demand is yet to recover fully. And, finally, exports are poised to breach the psychological high mark of $400 billion for the first time during FY22.

The FM has backed the buoyancy in the export sector through a number of important proposals. The first is the proposal to replace the Special Economic Zones (SEZ) Act enacted in 2005 with a piece of new legislation, which will enable the states to become partners in ‘Development of Enterprise and Service Hubs’. The proposal is to cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.

This proposal is both timely and important for it would also allow the central government to have a closer look at the SEZ Act, which has not functioned to its potential. As compared to the countries in the East Asian region, where SEZs have been very successful in enlarging the presence of these countries in the global markets, India’s SEZs have not performed as well. Although the SEZ Act was met with considerable enthusiasm, there was a degree of waning of interest in the SEZs which resulted in the denotification of 108 units between 2008 and 2020. Currently, of the 425 notified SEZs, 268 are operational. The new legislation could help in addressing the pain-points faced by India’s SEZs to improve their performance.

Previous Budgets had proposed several initiatives to dovetail trade policy with the manufacturing policy. This process was bolstered after the adoption of the production linked incentive (PLI) scheme aimed at strengthening India’s manufacturing capabilities in a targeted manner. The next steps in this direction have been taken in the Budget proposals for 2022-23 by removing exemptions on items that are being produced or have the potential of being manufactured in India. Accordingly, concessional rates in capital goods and project imports would be phased out gradually and a moderate tariff of 7.5% would be applied. In addition, the government would provide concessional duties on raw material that go into manufacturing of intermediate products which, in view of the government, would help in realising the objective of ‘Make in India’ and ‘Atmanirbhar Bharat’.

The surge in exports seen in 2021 was aided by strong performance by the electronics industry. With a view to augmenting domestic production, the finance minister has proposed duty concessions to parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items. In a same vein, customs duty on cut and polished diamonds and gemstones has been reduced to 5% to give a boost to the gems and jewellery sector, whose exports have recovered very well after the steep decline in 2020-21.

While the proposals in the Budget for 2022-23 are important, the government also needs to put in place a system through which India’s tariff structure is regularly monitored so that any anomaly can be rectified in real time.

(The author is a Professor at CESP, JNU. Views are personal.)

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