Budget move to help SEZs boost jobs and import substitution

Commerce Secretary Rajesh Agrawal said the Budget proposal to allow SEZ units to sell goods in the domestic market at concessional duty will promote import substitution and job creation. Details will be rolled out in two to three months

New Delhi: The Budget’s proposed conditional relaxation to allow special economic zone (SEZ) units to sell goods in the domestic market will help promote import substitution and create new jobs, Commerce Secretary Rajesh Agrawal said.

He said the details of the announcements will be rolled out in the next two to three months.

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The government on Sunday announced a one-time measure to allow SEZ units to sell their goods in the domestic market at concessional import duty rates, subject to certain quantitative restrictions.

It was a long-pending demand of these zones as they were not able to sell their excess production due to global uncertainties and high import duties in India on labour-intensive sectors.

The Secretary said the proposal will help people buy goods from SEZs rather than importing from third countries.

“It will help in import substitution and better job creation. It will also provide a level playing field to DTA (domestic tariff area) firms (vis-a-vis SEZs),” Agrawal told PTI.

About seven to eight sectors, including leather, textiles, and engineering goods, will get a major boost from this proposal. These sectors have a high import duty in India.

At present, goods coming from units in SEZs in the DTA or domestic market attract high import duties.

In her Budget speech, Finance Minister Nirmala Sitharaman said that to address concerns arising about utilisation of capacities by manufacturing units in the SEZs due to global trade disruptions, “I propose, as a special one-time measure, to facilitate sales by eligible manufacturing units in SEZs to the DTA at concessional rates of duty”.

The quantity of such sales will be limited to a prescribed proportion of their exports. Necessary regulatory changes will be undertaken to operationalise these measures while ensuring a level playing field for units working outside these zones.

Agrawal explained that to give a level playing field to DTA industries, there will be a limit imposed on SEZ units to sell in the domestic market.

He noted that labour-intensive goods, which are coming from countries such as Vietnam and Bangladesh at concessional import duties into India, can now be imported from SEZ units.

Vietnam is part of the 10-nation ASEAN grouping, with which India has a free trade agreement in goods. Bangladesh, being a least developed country, enjoys duty-free access in India.

“This has been an old pending demand. SEZs are foreign territories as they are mainly designed for export-led production. They can have duty-free import of raw material, but the production has to be exported. If it has to sell in DTA, it has to pay import duty on that product,” Agrawal explained.

Because of the duty, they are not able to sell in areas where import duties are high.

So, there has been a demand that capacities which have been created in SEZs are serving the global supply chains and if there is a requirement in India, “why can’t they serve it here”, he added.

The move is also important as when the SEZ law was formulated in 2005, Indian trade policy was different, and now the situation has changed due to global developments.

“Now, we have done multiple FTAs (free trade agreements),” he said, adding that goods are already entering India at concessional rates of duty through these pacts.

He added that the concessional duty in every sector will be calculated and notified. The limit which can be sold in DTA will also be finalised.

“They cannot sell all of their production. They will be able to sell a portion only in DTA. So, what will be that part? We will calculate that and keep a limit on that,” he added.

The move will also help SEZ units to deal with the steep 50 per cent tariffs in the US for Indian goods. Goods like textiles and leather are getting impacted due to that.

The total exports from these zones rose 7.37 per cent to USD 172.27 billion in 2024-25.

There are 276 operational SEZs, with 6,279 units, in the country.