Easier forex obligation may knock at SEZ doors

NEW DELHI: The government may relax the positive net foreign exchange (NFE) obligation ��� which mandates that export earnings of units in special economic zones (SEZs) have to be higher than the value of imported inputs ��� for certain categories of SEZs, including gems & jewellery and textiles for the next 6-12 months.

The identified units in SEZs could also be allowed to sell one-fourth of their total production in the domestic market without paying Customs duties, commerce secretary G K Pillai has said.

The SEZ units, however, will have to pay back the duty exemption that they had enjoyed on imported inputs used in the products sold in the domestic market to bring them on par with domestic producers.

The move is aimed at helping the zones survive the global downturn by selling part of their production in the domestic market, which is faring better than the export market. The concessions would be approved only for 6-12 months, the commerce secretary told reporters on Thursday.

Mr Pillai pointed out the economic slowdown had started taking its toll on SEZs, with investments slowing down in the last three months. The export target of Rs 1, 22,000 crore was also unlikely to be met.

���We are expecting exports worth only Rs 1, 00,000 crore this fiscal,��� he said. The employment potential of SEZs still remained high with 60,000-65, 000 additional workforce expected to be employed in the zones by April this year, he said.

About 40,000 of the additional workforce is expected to be in the IT/ITeS zones. The prime minister���s decision to relax section 10AA(7) of the Income-Tax Act to enable all SEZs, especially those in the IT sector, get full income-tax exemption on profits is a step towards encouraging SEZs, Mr Pillai said.

The decision to relax the NFE obligation and allow sale of SEZ goods in the domestic market without paying Customs duties on the product is expected to be taken by the prime minister ��� who is also handling the finance portfolio ��� after consultations with the relevant ministries. The sectors that will get the benefit are yet to be firmed up.

The gems and jewellery sector, where the value of imported inputs is high, is expected to be one of the primary beneficiaries. The textiles sector too could get the relief as it has taken a severe beating in the export market.