SPECIAL ECONOMIC ZONES (SEZ)
1. Context
The Government of India has been taking various steps to boost the production of semiconductors and electronics in India, in a bid to reduce our dependence on imports. Some previous measures include the Semicon India programme launched in 2022 with an outlay of ₹76,000 crore. Now, the government has gone a step further and has relaxed key rules related to Special Economic Zones (SEZs) to further encourage the domestic manufacture of semiconductors and electronics.
2. Special Economic Zones (SEZs)
- Special Economic Zones (SEZs) are specifically demarcated geographical areas within a country that are governed by unique economic regulations and business laws, which are different from those applicable in the rest of the country.
- These zones are established with the primary aim of attracting foreign and domestic investment, boosting exports, generating employment, and encouraging industrial growth by providing a more liberal economic environment.
- The concept of SEZs gained momentum globally after their success in countries like China, where regions such as Shenzhen transformed into massive industrial and commercial hubs.
- India adopted the SEZ model in the early 2000s with the enactment of the Special Economic Zones Act, 2005, which provided a comprehensive legal framework for their establishment, operation, and regulation.
- Within an SEZ, companies often enjoy a host of incentives and facilities. These may include tax exemptions on income, customs and excise duties, and relaxed labor and environmental norms. The idea is to reduce bureaucratic hurdles and create an investor-friendly climate that encourages industries, especially those focused on export-oriented production, to flourish.
- Moreover, SEZs are treated as foreign territories for the purpose of trade operations, duties, and tariffs. This means that goods and services entering an SEZ from the rest of the country are treated as exports, and those leaving an SEZ to the domestic tariff area are considered imports. This unique status allows businesses in SEZs to operate with greater flexibility and global competitiveness.
- However, SEZs in India have not been without criticism. While they have succeeded in some areas in boosting exports and creating jobs, concerns have been raised over land acquisition practices, uneven regional development, and the environmental impact of industrialization. Additionally, the promise of large-scale employment and export-led growth has not materialized uniformly across all SEZs.
- In recent years, the Indian government has been looking to revamp and repurpose SEZs to align them with new economic goals, including the Make in India initiative and the promotion of green and digital manufacturing.
- As India aims to become a global manufacturing and logistics hub, SEZs are likely to play a key role, provided regulatory and infrastructural bottlenecks are addressed effectively
3. Significance of the semiconductor industry
- Semiconductors are fundamental to our increasingly digital world, serving as the core components behind technologies like artificial intelligence and machine learning—part of a broader trend of growing automation and electronic integration.
- These minute chips enable the processing of large volumes of data, powering devices such as smartphones, laptops, tablets, smart TVs, voice assistants, vehicles, and virtually all modern electronic equipment.
- In 2021, data from the Semiconductor Industry Association indicated that China produced nearly 35% of the global semiconductor output.
- The disruptions caused by the COVID-19 pandemic exposed the vulnerabilities of heavily centralized supply chains, prompting countries, including India, to recognize the strategic risk of relying on a single nation for critical components.
- As a result, many nations began efforts to strengthen and expand their own domestic semiconductor manufacturing capabilities
4. Steps taken by the Indian government
- On June 9, the Ministry of Commerce and Industry announced that it had recently made several changes to the Special Economic Zones (SEZ) Rules, 2006, aimed at promoting local semiconductor manufacturing.
- One key change involved amending Rule 5, which previously mandated that SEZs dedicated solely to semiconductor or electronic component production must cover a minimum of 50 hectares of contiguous land.
- This requirement has now been eased, reducing the land size threshold to just 10 hectares. This adjustment is expected to lower the entry barrier for companies, enabling smaller investments while still offering access to SEZ incentives like tax breaks, duty-free imports, and infrastructure assistance.
- Another notable revision was made to Rule 7, which earlier required SEZ land to be entirely “encumbrance-free”—meaning it should be free of any legal claims, liens, or disputes and should have a clear and transferable title.
- Given the complexities of India’s land ownership systems and often time-consuming legal procedures, this requirement posed significant delays. The updated rule now gives the Board of Approval the discretion to relax this condition, allowing SEZs to be established more efficiently.
- The third change was to Rule 18, which now permits SEZ units involved in semiconductor and electronic component production to sell within the domestic market upon payment of applicable duties.
- Traditionally, SEZs have focused on exports. This shift not only provides a safeguard against global market volatility but also strengthens domestic supply chains by enabling steady availability of these critical components in the local market
5. Indian National Policy on semiconductors
India’s National Semiconductor Policy, officially known as the Semicon India Programme, was launched in December 2021 with the goal of building a robust semiconductor and display manufacturing ecosystem within the country. It marked a significant step in India’s journey to become self-reliant in chip manufacturing, reduce dependency on global supply chains, and establish itself as a key player in the global electronics value chain
The primary aim of the policy is to:
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Attract global semiconductor manufacturers to set up fabrication (fab) units in India.
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Promote design, fabrication, packaging, and testing of semiconductors.
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Create a skilled workforce for the semiconductor ecosystem.
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Enable India’s transition from being a consumer to a producer of semiconductors.
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Strengthen India’s position in global supply chains and reduce strategic vulnerabilities.
6. Way forward
As these changes have only been implemented recently, it is too early to determine their long-term consequences. Nevertheless, the initial response has been promising, with two new SEZs already receiving approval, amounting to a combined investment of ₹13,100 crore. Micron Semiconductor Technology India plans to set up a semiconductor manufacturing SEZ in Sanand, Gujarat, with an investment of around ₹13,000 crore. Additionally, the Hubballi Durable Goods Cluster, affiliated with the Aequs Group, is set to establish an SEZ for producing electronic components in Dharwad, Karnataka, at an estimated cost of ₹100 crore
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For Prelims: Semicon India Programme, India Semiconductor Mission, Micron investment, India-USA semiconductor cooperation
For Mains: Self-reliance in technology, strategic industries, manufacturing and innovation, supply chain resilience
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Source: The Hindu
