At the maiden stakeholder consultation for Special Economic Zone (SEZ) reforms on Tuesday, developers and operational units strongly urged the government to allow supplies to the domestic market to be settled in Indian Rupees (INR) rather than forcing foreign exchange realization.
Faced with muted global demand, the industry argued that current regulations leave SEZs running well below their true capacity. The inter-ministerial committee, which was established in February, is using these consultations to build a blueprint for a comprehensive “SEZ 2.0” policy adapted to modern global trade realities.
1. The Case for Rupee Payments
Currently, SEZ units providing services to the domestic market are legally required to receive payment in foreign currency. Industry representatives highlighted this as a significant roadblock for high-value technical sectors, including:
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Aerospace and Defence
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Maintenance, Repair, and Overhaul (MRO)
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Advanced Engineering Services
Because of the foreign exchange mandate, many Indian companies choose to source these specialized services from overseas instead of utilizing domestic SEZs. Allowing rupee payments would immediately unlock local business opportunities.
2. Equalizing the Duty Structure
To level the playing field with domestic manufacturers outside the zones, the industry proposed a major shift in how duties are calculated when selling into the Domestic Tariff Area (DTA):
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Current Rule: SEZ units must pay customs duties on the entire finished product when selling into the domestic market.
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Proposed “Duty Foregone” Reform: Industry wants to pay duties only on the imported raw materials/inputs contained within the final product. This matches the existing operational frameworks of Export Oriented Units (EOUs) and the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) scheme.
3. Boosting Operational Flexibility
Beyond financial and duty overhauls, stakeholders recommended easing restrictions on daily operations to maximize infrastructure utilization:
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Domestic Job Work: Allowing SEZ units to execute manufacturing or processing work for domestic companies without requiring a direct export linkage.
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Warehousing Reforms: Streamlining regulations within Free Trade Warehousing Zones (FTWZs) to enhance the ease of doing business and turn India into a more efficient logistics hub.
