Union Minister for Finance and Corporate Affairs Nirmala Sitharaman announced that the Special Economic Zones Act will be replaced with a new legislation that will enable the states to become partners in Development of Enterprise and Service Hubs. She added that this would cover all large existing and new industrial enclaves to optimally utilize available infrastructure and enhance competitiveness of exports. SEZs

• Special Economic Zone (SEZ) is a geographic area in which the business and trade laws are different from the rest of the country. 
• The objective of developing SEZs include increasing the balance of trade and attracting newer inward-investments into the country, and creating newer jobs.
• Financial incentives are granted to those setting up SEZs and cover a wider gamut of benefits for investors across taxation, customs, labour regulations, etc.
• The Special Economic Zones Act, 2005, provides the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development in the country.
• Presently, 378 SEZs are notified, out of which 265 are operational.

Features

• A designated duty free enclave to be treated as a territory outside the customs territory of India for the purpose of authorised operations in the SEZ;
• No licence required for import;
• Manufacturing or service activities allowed;
• The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production;
• Domestic sales subject to full customs duty and import policy in force;
• SEZ units will have freedom for subcontracting;
• No routine examination by customs authorities of export/import cargo;
• SEZ Developers /Co-Developers and Units enjoy tax benefits as prescribed in the SEZs Act, 2005.

Objectives

• generation of additional economic activity;
• promotion of exports of goods and services;
• promotion of investment from domestic and foreign sources;
• creation of employment opportunities;
• development of infrastructure facilities.

Measures taken by the government to revamp SEZs

The government has set a target of creating 100 million jobs and achieve a 25% of the GDP from manufacturing sector by 2022.

• The government constituted a committee headed by Mr Baba Kalyani, in 2018 to study the existing SEZs of India and prepare a policy framework to adopt strategic policy measures.
• Recommendations of the Baba Kalyani committee
  • Rename SEZs in India as 3Es- Employment and Economic Enclave
  • Framework shift from export growth to broad-based employment and economic growth
  • Separate rules and procedures for manufacturing and service SEZs
  • Ease of Doing Business (EoDB) in 3Es such as one integrated online portal for new investments
  • Extension of Sunset Clause and retaining tax or duty benefits
  • Unified regulator for IFSC
  • Dispute resolution through arbitration and commercial courts
• Budget 2022-23– The Budget says that the SEZ Act will be replaced by a new legislation that will enable large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.
• It will enable the States to become partners in development of enterprise and service hubs.
• It also says that customs administration in SEZs will be fully IT-driven.
• An infra cluster approach is proposed rather than one based on export subsidies which will be open to WTO challenge.
• The new SEZ legislation will have single window clearance and provide high class infrastructure.
• The new dispensation for SEZ, being considered by the government, could allow domestic units to come up in the unutilised area of SEZs and co-exist with SEZ units with proper monitoring.

The suggestion of permitting SEZ units to do job work for DTA units for better capacity utilisation may also now be implemented.