{"id":72182,"date":"2025-11-06T11:28:17","date_gmt":"2025-11-06T05:58:17","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=72182"},"modified":"2025-11-06T11:30:06","modified_gmt":"2025-11-06T06:00:06","slug":"reforming-indias-special-economic-zone-sez-policy-amid-us-tariff-pressures","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/reforming-indias-special-economic-zone-sez-policy-amid-us-tariff-pressures\/","title":{"rendered":"Reforming India\u2019s Special Economic Zone (SEZ) Policy Amid US Tariff Pressures"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Special Economic Zone (SEZ) Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>A government panel<\/b><span style=\"font-weight: 400;\"> comprising officials from the Commerce and Industry Ministry, NITI Aayog, and exporters is <\/span><b>formulating new Special Economic Zone (SEZ) norms<\/b><span style=\"font-weight: 400;\"> to revive manufacturing and support exporters adversely affected by steep US tariffs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The move <\/span><b>comes amid rising requests for de-notification of SEZ units <\/b><span style=\"font-weight: 400;\">and demands for a <\/span><b>reverse job work policy<\/b><span style=\"font-weight: 400;\"> to enable better domestic market integration.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>SEZs in India<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Meaning<\/b><span style=\"font-weight: 400;\">: SEZs in India are <\/span><b>geographically delineated, duty-free enclaves <\/b><span style=\"font-weight: 400;\">that are <\/span><b>treated as foreign territory<\/b><span style=\"font-weight: 400;\"> for the purposes of <\/span><b>trade operations, duties, and tariffs<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Objectives<\/b><span style=\"font-weight: 400;\">: They are <\/span><b>industrial areas designed to promote exports<\/b><span style=\"font-weight: 400;\">, attract domestic and foreign investment, generate employment, and develop robust infrastructure by offering a more <\/span><b>stable and business-friendly regulatory environment<\/b><span style=\"font-weight: 400;\"> with a variety of incentives.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>History<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">1965 &#8211; India\u2019s first Export Processing Zone (EPZ) was set up in Kandla, Gujarat.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">2000 &#8211; India introduced <\/span><b>SEZ policy<\/b><span style=\"font-weight: 400;\"> to increase exports and attract <\/span><b>Foreign Direct Investment (FDI)<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">2005 &#8211; The<\/span><b> SEZ Act<\/b><span style=\"font-weight: 400;\"> was passed, formalising SEZ regulation in India.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">2006 &#8211; SEZ rules were notified, leading to rapid growth in SEZ approvals.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Administration: <\/b><span style=\"font-weight: 400;\">SEZs are managed through a three-tier structure &#8211;\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Board of Approval (BoA) for approving SEZ establishments,\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Unit Approval Committee (UAC) at the zone level for unit approvals, and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Development Commissioner (DC) who oversees daily operations.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Operations<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Operational flexibility is provided through aspects like allowing <\/span><b>100% FDI<\/b><span style=\"font-weight: 400;\"> in most sectors via the automatic route and the requirement for units to be a &#8220;<\/span><b>Net Foreign Exchange Earner<\/b><span style=\"font-weight: 400;\">&#8221; over a five-year period.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">India currently has <\/span><b>nearly 276 operational SEZs across different states<\/b><span style=\"font-weight: 400;\">, focusing on a wide array of industries including IT, pharmaceuticals, and engineering.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>SEZs and Their Challenges<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Export performance<\/b><span style=\"font-weight: 400;\">: India\u2019s SEZ exports in FY25 stood at $172 billion from nearly 276 units, with<\/span><b> only 2% of production<\/b><span style=\"font-weight: 400;\"> catering to the domestic market.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Comparative lag<\/b><span style=\"font-weight: 400;\">: Indian SEZs have underperformed compared to <\/span><b>China\u2019s SEZ model<\/b><span style=\"font-weight: 400;\">, which transformed its industrial base through large-scale manufacturing, logistics integration, and export-led growth.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Current crisis<\/b><span style=\"font-weight: 400;\">: Several SEZ units catering primarily to the US market face <\/span><b>reduced competitiveness<\/b><span style=\"font-weight: 400;\"> due to tariff hikes, leading to production losses and job risks.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Key Policy Demand &#8211; Reverse Job Work<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>What is reverse job work?<\/b><span style=\"font-weight: 400;\"> A proposed policy allowing SEZ units to perform production or processing work for the domestic tariff area (DTA) instead of exclusively for exports.<\/span><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Rationale behind the demand:<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Optimal utilisation<\/b><span style=\"font-weight: 400;\">: SEZ units face seasonal export demand, resulting in underused labour and equipment capacity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Efficiency boost<\/b><span style=\"font-weight: 400;\">: Integration with the domestic market could enhance productivity and resource utilisation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Fair competition<\/b><span style=\"font-weight: 400;\">: The challenge lies in ensuring parity in duty exemptions between SEZ and domestic units so that domestic producers are not disadvantaged.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Sectoral Focus &#8211; Gems and Jewellery Industry<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Dominant share<\/b><span style=\"font-weight: 400;\">: Nearly 65% of India\u2019s studded jewellery exports originate from SEZ units.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Tariff impact<\/b><span style=\"font-weight: 400;\">: The US, being the largest destination, has severely affected this sector.<\/span><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Industry demands:<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Allow reverse job work and DTA sales.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Extend export obligation periods.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Grant interest moratorium on packing credit and working capital loans.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Keep factories and artisans engaged and safeguard employment.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Trade imbalance concern<\/b><span style=\"font-weight: 400;\">: Rising imports of raw materials and marginal growth in exports are leading to a negative trade balance within SEZs.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Structural Challenges in SEZs<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Declining unit numbers:<\/b> <i><span style=\"font-weight: 400;\">For example,<\/span><\/i><span style=\"font-weight: 400;\"> before 2019 there were 500 gems and jewellery units, which reduced to around 360 units in 2021-22, reflecting policy uncertainty and reduced fiscal incentives.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Low R&amp;D investment:<\/b><span style=\"font-weight: 400;\"> Only 4 of 14 surveyed SEZ units invested in R&amp;D, revealing <\/span><b>minimal innovation focus<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Skill and technology gaps<\/b><span style=\"font-weight: 400;\">: Lack of modern training, inadequate funds, and poor quality of upskilling programmes.<\/span><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Weak FDI:\u00a0<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">FDI inflows remain low due to &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Absence of investment protection agreements (unlike Vietnam).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Negative perception of Indian SEZs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">Weak brand promotion and marketing efforts.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">FDI is crucial for technology transfer, brand building, and global networking.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Institutional and Policy Response<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Instead of waiting for a comprehensive SEZ Bill, the government is considering f<\/span><b>aster administrative measures.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, the Finance Ministry\u2019s reservations on <\/span><b>potential revenue loss <\/b><span style=\"font-weight: 400;\">have delayed immediate implementation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The ICRIER has recommended <\/span><b>a review of trade balance mechanisms<\/b><span style=\"font-weight: 400;\"> after the <\/span><b>removal of the Net Foreign Exchange (NFE) earnings criteria<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Way Forward<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Adopt reverse job work policy<\/b><span style=\"font-weight: 400;\">: Allow limited DTA access under transparent norms ensuring fairness with domestic manufacturers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Promote R&amp;D and skill development<\/b><span style=\"font-weight: 400;\">: Establish dedicated innovation funds and training centres within SEZs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Enhance FDI attractiveness<\/b><span style=\"font-weight: 400;\">: Introduce investment protection agreements and marketing initiatives to improve SEZ image.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Streamline SEZ governance<\/b><span style=\"font-weight: 400;\">: Simplify compliance and integrate SEZs within the logistics and industrial corridors.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Sectoral support measures<\/b><span style=\"font-weight: 400;\">: Particularly for gems and jewellery, offer credit relief, export extensions, and infrastructure upgrades.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India\u2019s SEZ policy is <\/span><b>at a crossroads<\/b><span style=\"font-weight: 400;\">. While global trade disruptions and US tariffs have exposed<\/span><b> structural weaknesses<\/b><span style=\"font-weight: 400;\">, they also present an <\/span><b>opportunity <\/b><span style=\"font-weight: 400;\">to restructure SEZs for long-term competitiveness.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It is essential to <\/span><b>revitalise SEZs as engines of export-led industrial growth<\/b><span style=\"font-weight: 400;\">, ensuring both resilience and job preservation in key manufacturing sectors.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/indianexpress.com\/article\/business\/economy\/govt-panel-working-on-new-sez-norms-for-exporters-to-access-domestic-market-10348649\/lite\/\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A government panel is formulating new Special Economic Zone (SEZ) norms to revive manufacturing and support exporters adversely affected by steep US tariffs. <\/p>\n","protected":false},"author":19,"featured_media":72188,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,866,22,59],"class_list":{"0":"post-72182","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-mains-articles","9":"tag-special-economic-zones","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/72182","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=72182"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/72182\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/72188"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=72182"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=72182"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=72182"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}