Budget 2022-23: Shift focus from exports towards employment, says industry on new SEZ legislation

The government will replace the Special Economic Zones (SEZ) Act with a new legislation that will enable states to become partners in “development of enterprise and service hubs,” Finance Minister Nirmala Sitharaman said on Tuesday, while presenting the Union Budget 2022-23. “This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports,” she said in her Budget speech.

The changes are expected to factor in the Baba Kalyani panel report, which was constituted by the Ministry of Commerce and Industry to study the existing SEZ policy. The recommendations, submitted in November 2018, had suggested moving away from exports to a more integrated hub for employment and economic activities, supported by quality infrastructure and ease of doing business. “If India is on the path to become a $5-trillion economy by 2025, then the present environment of manufacturing competitiveness and services have to undergo a basic paradigm shift,” a PIB release had stated in 2020.

Some of the other highlights of the report were formulation of separate rules and procedures for manufacturing and service SEZs, enabling framework for ease of doing business, procedural relaxations for developers and tenants to improve operational and exit issues.


Hailing the announcements in the Budget on Tuesday as a welcome move, industry experts said these moves were long awaited.
“The announcement regarding replacing the SEZ Act with a new legislation to allow a Centre-state partnership is a welcome one,” said Mahesh Jaising, Partner, Deloitte India. “This amendment is likely to have taken into account the recommendation of the Baba Kalyani panel report, which recommended transformation of SEZs into employment and economic enclaves (3 Es). The changes expected are around change approval requirements as well as operational guidelines for SEZ/SEZ units and to shift the focus from exports towards employment.”

Jaising said he hopes the legislation would address the new normal of work from home (WFH), need for easing denotification of SEZ spaces and providing flexibility to make domestic supplies (i.e., services or manufactured goods) easily without treating the same to be an import for customs purposes.

Besides the announcement of a new legislation, Sitharaman also stated that reforms would be undertaken in the customs administration of SEZs. “It shall henceforth be fully IT-driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. This will ease doing business by SEZ units considerably. This reform shall be implemented by September 30, 2022,” the minister added.

Taking a view of the announcements, industry experts said such an announcement was a step in the right direction.

Ajay Sahai, DG & CEO, Federation of Indian Organisations (FIEO), said SEZ does not have to be restricted to exports. “They are looking to change the SEZ regulation to make it more relevant to current developments. We don’t need to always subject SEZs to export obligations. Global conditions are changing. One has to be fair to domestic industries also. It is a pragmatic and positive move,” he said.

Sahai, however, pointed out that announcements on R&D support were missing in the Budget. “Our R&D spending is lowest compared to our competitors. Such support could have come in very handy,” he added.

Exports have had a good run in FY22 with the target of $400 billion falling within reach in the financial year. The country’s exports in December alone showed encouraging numbers — at $37.81 billion — on the back of sectors such as engineering, textiles, organic and inorganic chemicals and gems and jewellery. The Economic Survey released on Monday also acknowledged the role of exports in building momentum in the economy. “During 2021-22 (April-December), merchandise exports recorded a growth of 49.7% to $301.4 billion compared with the corresponding period of last year, and 26.5% over 2019-20 (April-December), exceeding the pre-pandemic levels,” the survey noted.

The Budget announcements were expected to give a further boost to export promotion, while also enabling ease of doing business in SEZ units.