SEZ import relief to fast track chip projects

The Centre’s decision to exempt all permissible imports by Special Economic Zone (SEZ) units and developers from Quality Control Orders (QCOs) and mandatory Bureau of Indian Standards (BIS) requirements is expected to significantly accelerate semiconductor manufacturing projects being set up under the India Semiconductor Mission (ISM), analysts told ET.

A notification was issued by the Directorate General of Foreign Trade (DGFT) on June 1, amending the Foreign Trade Policy to expand QCO exemptions for SEZ imports.

Previously, exemptions were limited to inputs required for export production. Under the revised rules, SEZ units and developers can import all permissible goods, including raw materials, components, consumables, spares and capital equipment, for authorised operations without having to comply with QCO requirements at the import stage.


However, any goods cleared from the SEZ into the Domestic Tariff Area (DTA) will need to comply with applicable QCOs and BIS requirements at the time of sale in the Indian market.

Analysts said the amendment addresses a longstanding concern for semiconductor manufacturers, whose facilities depend heavily on imported machinery, specialty chemicals and materials sourced from a limited pool of global suppliers.

"The exemption of applicability of QCOs on imports by SEZs will significantly benefit semiconductor manufacturing in India as many of the approved projects are being set up in SEZs," said Kathir Thandavarayan, partner at Deloitte India.

India's first chip fabrication plant has been approved as an SEZ developed by Tata Semiconductor Manufacturing Private Ltd. (TSMPL). Micron Technology’s semiconductor assembly, testing, marking, and packaging (ATMP) facility is also operating in a notified SEZ. Proposals from Kaynes Semicon and CG Semi have also received approvals to set up assembly and packaging operations in SEZs.

"The exemption will ease compliance requirements for import of capital equipment and accelerate the commissioning of facilities. Similarly, input materials and components required for qualification processes could be imported without procedural delays, enabling earlier commercial production," Thandavarayan explained.

The notification aligns the Foreign Trade Policy with provisions under the SEZ Act and SEZ Rules while bringing greater clarity on the applicability of QCOs. For semiconductor companies, the change means imports can move into SEZ facilities without BIS-related hurdles, while compliance obligations arise only when finished products enter the domestic market.

Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA) and Semiconductor Equipment and Materials International (SEMI) India, said the notification is a major positive for upcoming ISM-approved projects, particularly those located in semiconductor-focused SEZ clusters in Gujarat.

"The notification effectively ensures that imports required by semiconductor facilities can enter SEZ-based units without BIS/QCO hurdles, improving project execution timelines and reducing compliance risks," Chandak said.

According to him, the expanded exemption covers semiconductor equipment, wafers, specialty gases, chemicals, substrates, packaging materials, consumables, spares and capital equipment used in authorised SEZ operations.

The industry has long argued that many semiconductor manufacturing tools and materials are sourced from global suppliers whose products may not carry BIS certification, despite complying with international standards. The resulting uncertainty often created delays during procurement and facility commissioning.

Chandak said the revised framework would improve ease of doing business for fabrication plants, and ATMP and outsourced semiconductor assembly and test (OSAT) facilities while aligning India's SEZ regime with global semiconductor supply-chain practices.

Analysts said the impact extends beyond individual projects and could help create a broader semiconductor ecosystem inside SEZs.

"The revised rule brings much broader freedom to build a full semiconductor ecosystem inside SEZs, including fabs, OSAT facilities, electronics manufacturing services, tooling infrastructure and supporting services," said Ashwath Rao, senior analyst for semiconductor research at Counterpoint Research.

Semiconductor manufacturing remains one of the world's most import-dependent industries, particularly in emerging ecosystems. Rao estimates upstream import dependence at 90-95% for most new semiconductor hubs.

Under the earlier regime, ambiguity around QCO applicability sometimes affected imports of capital equipment and industrial inputs. The revised notification explicitly covers these categories, enabling smoother imports of lithography systems, wafer fabrication tools, packaging equipment, specialty chemicals and high-purity gases.

"The revised rule will enable SEZs to become a global manufacturing sandbox," Rao said, adding that lower compliance friction would be especially beneficial for OSAT facilities and suppliers handling time-sensitive materials with limited shelf life.

Companies can now import equipment and materials into SEZ facilities, manufacture chips for global markets and comply with BIS or QCO requirements only when products are sold domestically.

The shift, they said, removes a major administrative hurdle at a time when India is racing to establish a globally competitive semiconductor manufacturing ecosystem.