New SEZ Norms to Boost Indian Exporters
The Indian government is taking significant steps to help exporters by revising the regulations governing Special Economic Zones (SEZs). A government panel, which includes officials from the Commerce and Industry Ministry and NITI Aayog, is focused on creating new norms aimed at boosting manufacturing and enabling exporters to access the domestic market. This move comes in response to increasing US tariffs that have impacted many exporters relying heavily on that market.
Many SEZ units have expressed concerns about their viability amidst these tariff pressures, leading some to seek de-notification from SEZ status. Despite facing losses, some exporters have tried to maintain their foothold in the US market. The existing SEZ framework provides various tax benefits, including duty-free imports, but the domestic sales from these zones account for only 2% of total production.
In light of the US tariffs, exporters are advocating for a ‘reverse job work’ policy. This would allow SEZ units to perform jobs for the domestic market, thus optimizing resource use during off-peak export seasons. The demand for this policy aims to enhance the operational efficiency of SEZ units which often struggle to utilize their labor and equipment fully due to the seasonal nature of export demands.
The gems and jewellery sector, which accounts for a significant portion of SEZ exports, is particularly vocal about these reforms. With around 65% of India’s studded jewellery exports coming from SEZ units, the sector is at risk as the US is its largest market. The Gem and Jewellery Export Promotion Council (GJEPC) has proposed measures such as allowing reverse job work and extending export obligations to alleviate financial stress and maintain employment.
Experts are concerned about the negative trade balance in SEZs, especially as imports of raw materials rise while traditional exports stagnate. The productivity challenges faced by SEZ units existed even before the US tariffs were imposed, with many gems and jewellery units exiting these zones in recent years.
Moreover, low investments in research and development and limited skill training programs have compounded the challenges faced by SEZs. The lack of foreign direct investment (FDI) is also troubling, as FDI is critical for acquiring technology and enhancing brand value. Addressing these issues is essential for ensuring the long-term sustainability and competitiveness of Indian SEZs in the global market.
