Easing SEZ Rules: Potential Boost for India's Semiconductor Aspirations?
The Indian government has made significant strides in promoting high-tech manufacturing and fostering growth in the semiconductor and electronics component ecosystem by easing the regulatory framework within Special Economic Zones (SEZs).
The key amendments to the Special Economic Zones (SEZ) Rules, 2006, specifically tailored for the semiconductor sector, aim to supercharge this critical industry. Established in 2005, the SEZ Act was designed to promote export-driven growth, and these recent changes are set to accelerate this objective.
One of the most notable changes is the reduction in the minimum contiguous land area for SEZs dedicated to semiconductor or electronics component manufacturing. The requirement has been slashed from 50 hectares to just 10 hectares (Rule 5), thereby lowering the entry barrier for firms and encouraging more investments in this capital-intensive sector.
Another significant amendment is the relaxation of land encumbrance conditions (Rule 7). This allows the SEZ Board of Approval to approve land that is mortgaged or leased to Central or State governments or authorized agencies, speeding up the often-delayed land acquisition process due to legal or financial claims.
Furthermore, an amendment to Rule 53 allows goods received or supplied on a free-of-cost basis to be counted in Net Foreign Exchange (NFE) calculations, using customs valuation rules. This change reflects a more realistic measure of trade performance beneficial for SEZ units with complex supply chains.
Perhaps the most groundbreaking change is to Rule 18, which now permits semiconductor and electronics component manufacturing units in SEZs to sell products domestically after paying applicable duties. Traditionally, SEZs were export-only zones, restricting domestic sales. This amendment enhances flexibility, commercial viability, and reduces reliance on global markets by allowing SEZ units to serve the Indian domestic market as well — acting as a buffer against global trade uncertainties and supply chain disruptions.
These amendments collectively aim to spur investment, accelerate the growth of the semiconductor ecosystem, and generate high-skilled jobs in India. By lowering land requirements and easing land acquisition complexities, the government makes it easier for companies to set up manufacturing facilities. Allowing domestic sales provides a strategic advantage by broadening market opportunities for SEZ units, thus increasing their commercial flexibility and reducing vulnerability to global market fluctuations.
As a result, these amendments position India to strengthen its semiconductor manufacturing ecosystem, attract pioneering investments, and boost domestic value addition — crucial for emerging as a key player in global technology supply chains. Notable companies like Micron Semiconductor Technology India have already secured approvals to set up significant semiconductor SEZs in states like Gujarat, illustrating early positive responses to the reformed SEZ framework.
It is important to note that DTA sales still attract duties, ensuring units prioritize global markets, while the domestic supply option offers a safety net amid trade volatility. SEZs offer incentives such as duty-free imports, zero-rated supplies under the IGST Act, 2017, and exemptions from certain taxes. In contrast, DTA units face higher costs and inefficiencies due to taxes, duties, and procedural delays compared to SEZs.
As the domestic integration deepens, the government must preserve the export-oriented character of SEZs. The latest amendments to the SEZ Rules also include changes that allow IT/ITES SEZs to repurpose vacant areas within the Non-Processing Area (NPA) for alternate uses like co-working or domestic leasing. EOUs face a ₹1 crore investment threshold, unlike SEZs.
Semiconductors are crucial for modern technology, including smartphones, laptops, cars, medical devices, AI systems, artificial intelligence, 5G, and the Internet of Things (IoT). SEZs are legally considered foreign land for trade, customs duties, and tariffs.
The SEZ scheme aims to boost exports, attract investment, create jobs, develop infrastructure, and safeguard India's sovereignty. The "encumbrance-free" land condition has been relaxed in the latest amendments, allowing clear ownership to be established even with minor legal or financial claims.
In conclusion, the recent amendments to the SEZ Rules have created a more conducive environment for the growth of the semiconductor sector in India, attracting investments, boosting exports, and generating high-skilled jobs. The government's commitment to easing regulations and fostering a business-friendly environment is evident in these changes, which position India as a key player in the global technology landscape.
- The relaxation of land encumbrance conditions in SEZs, as mentioned in Rule 7, might attract sports facilities or technology parks within these zones, integrating sporting activities and recreational spaces with high-tech manufacturing.
- Technology advancements in weather forecasting could significantly benefit from the the reduced minimum contiguous land area for SEZs dedicated to semiconductor or electronics component manufacturing, as more firms may be able to invest in developing high-precision meteorological equipment and systems.
