Manufacturers eyeing domestic market to operate in SEZs

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October 23, 2020 4:00 AM

In a bid to integrate export ecosystem with the wider domestic economy, the government may allow manufacturers who make goods for domestic supplies to operate within the special economic zones (SEZs), official sources said.

By September 2018, the IT zones had generated more than 14.6 lakh jobs, significantly more than what they had proposed, and contributed 54% of the total SEZ exports.GLP compliance certification in India is voluntary in nature.

* The units for DTA supplies to be housed in SEZs won’t be entitled to SEZ tax concessions
*To promote the integration of export ecosystem with the domestic economy
*To allow higher utilisation of SEZ land; half of it currently vacant

In a bid to integrate export ecosystem with the wider domestic economy, the government may allow manufacturers who make goods for domestic supplies to operate within the special economic zones (SEZs), official sources said. The recommendation was proposed from Baba Kalyani-committee and was agreed upon during an inter-ministerial meeting chaired by Pradeep Kumar Sinha, the principal advisor to the Prime Minister recently.

While the committee that submitted its report in November 2018 had suggested that SEZs housing manufacturing units be completely revamped, the commerce ministry has been in favour of tweaking the existing regime instead of an overhaul. On the other hand, the revenue department of the finance ministry has argued for scrapping the tax incentives that merchandise exporters enjoy in SEZs. The department thought the performance of these zones has been less than satisfactory.

“Commerce ministry is the nodal agency for administering SEZs so its opposition for complete dismantling of SEZs is understandable. With a nudge from the principal advisor, the stakeholders from both the ministries (finance and commerce) have agreed to allow non-export manufacturing units also to operate from the zones,” an official present in the meeting said.

He added that only about half of SEZ land is currently being used and allowing domestic suppliers will improve efficiency. However, these companies would physically function inside SEZs but will not be entitled to the various tax concessions accorded to export-oriented units as they will continue to be governed by relevant laws, he said. The report on SEZ had concluded that the relevant policy had been leveraged well by companies in the services sector to garner a greater share of world markets, companies in the manufacturing sector had been unable to replicate a similar export-led growth success.

It recommended that SEZs for services can be allowed to operate largely as it was but those for manufacturing firms needed drastic changes, including delinking of manufacturing ecosystem from exports for providing incentives and allowing a seamless interface with the domestic economy, which is likely to promote exports in the long run. So far, the government has said that it has implemented some recommendation from the report including sharing of duty exempted assets and infrastructure between units to be allowed against specific approval, formalisation of the de-notification process for enclaves and delinking its present mandatory usage for SEZs purpose only.

The other implemented recommendations are allowing manufacturing-enabling services companies, the broad-banding definition of services and allowing multiple services to come together, flexibility to enter into a long term lease agreement with stakeholders in zones in line with the state policies, and the application for constructing minimum built-up area by developer or co-developer beyond a period of ten years from the date of notification of the SEZ on merits of each case.

The Baba Kalyani led committee was constituted by the commerce ministry to study the existing SEZ policy. The objectives of the committee were to evaluate the SEZ policy and make it WTO compatible, suggest measures for maximising utilisation of vacant land in SEZs, suggest changes in the SEZ policy based on international experience and merge the SEZ policy with other government schemes like coastal economic zones, Delhi-Mumbai industrial corridor, national industrial manufacturing zones and food and textile parks.

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