Revitalising SEZs: From islands of exports to catalysts of economic and employment growth
Proposed policy framework for employment and economic enclaves (3Es) in India
The MOCI and Industry, Government of India, constituted a Committee headed by Mr. Baba Kalyani, Chairman and MD, Bharat Forge Ltd, to study the existing SEZ policy of India and prepare a policy framework.
PricewaterhouseCoopers private limited was appointed as a knowledge partner to support the committee.
|Name||Special Economic Zone||Employment and Economic Enclaves|
|Objective||Promot only exports||All categories of investors that enable economic activity or job creation, and domestic demand|
|Enclaves||Manufacturing and service – same set of operational rules and procedure||Manufacturing and service separate set of operational rules and procedure|
|Amendment require||SEZ and State GST act||Amendment in SEZ act, other applicable law like FEMA, IT, GST, Customs, FTP, state law and relevant sectoral law.|
|Incentive||Link with export||Delink from export performance
Shift from incentives based on exports to be based on employment and economic activity creation.
|Focus on||Export||1. Investment committed
2. Job creation
3. Inclusivity – promoting women in jobs
4. Value addition
5. Technology differentiation
6. Trade potentials
7. Priority industry
|Monitoring||UAC – unit approval committee||A project management unit PMU within the MOCI to enable disbursement of incentives|
|Portal||SEZ online.com||Integrated online portal|
|Exit||No exit||Provisional exit should be allowed|
|Employment||As gross SEZ exports and employment increased phenomenally in absolute terms, their growth rate were not encouraging over the last decade. SEZ facing issue of low capacity utilisation||Incentives to be used for creation of manufacturing ecosystem delinked from exports with seamless interface with domestic economy, which in turns promotes export in the long run|
|NFE Computation||NFE = Export minus import||Specified domestic supplies supporting Make in India to be considered in NFE computation
|Sub-contracting for DTA unit||Allowed only for export||Allowed for domestic customers without any restriction|
|Indigenous goods NFE calculation||Wef 19.9.2018 included||Inclusion of indigenous goods in NFE computation should be excluded as there is no foreign exchange outflow on procurement of indigenous goods and same is contrary to the objective of NFE and principles followed for EOUs.|
|Import / local purchase||Duty free / GST free||Two scenario proposed
1. Duty / tax exemption continued
2. No Duty/Tax exemption
|WTO – Subsidy that distorts allocation of resources||Not WTO compatible||Make the SEZ policy WTO compatible|
|Incentive Benefit basis||First five year positive NFE||Incentives and enablement are provided based on –
√ Priority area and/or
To promote investments that create economic activities in terms of
√ Value added activities
√ Job creation
√ Promoting women in job
√ Technology development
√ Product innovation
√ Priority industry/sector
√ Trade potentials
And do not limit it to promoting exports.
|Non fiscal intervention||No non-fiscal intervention.
|Export from the identified priority sectors can be promoted largely through non-fiscal intervention.
Procedural relaxation –
√ DBK process
√ Countering Dollar unavailability
√ Storage facility at port
|Procedure||Controlled by customs officer||Since benefits are to be de-linked with exports and upfront exemption based on exports are to be replaced with enablers linked to employment and investment, the requirement of approval for procurement of goods and service should be dispended with and allowed on self declaration and certification basis with periodic audit.|
Transition of existing SEZs to 3Es framework
Existing SEZ units are currently enjoying fiscal and non-fiscal benefits under SEZ framework.
On transition to new framework per the timeline as may be agreed, the policy framework should have a transitional clause ensuring the following to enable a seamless transition, amongst other things:
1. Status quo on duty or tax benefit already availed including export benefits;
2. No additional condition on existing operation;
3. No penal consequences including recovery proceedings on such transactions;
4. Existing SEZ units to migrate to 3E framework and for establishment of new businesses or expansions of operations in 3Es; and
5. Pending litigations or disputes to be dealt under the old regime.