With delay in the proposed SEZ Amendment Bill, the Commerce Ministry is exploring if domestic companies, at least in critical sectors such as defence and space, can be allowed to make payments in Indian rupee instead of foreign exchange while sourcing services from units in SEZs by introducing some exceptions to existing regulations, sources have said.
“One long-standing demand of the industry has been that domestic companies operating in the DTA (Domestic Tariff Area falling outside the zones) should be allowed to source services from SEZs by paying rupee and not foreign currency. Since it can only happen through an amendment of the SEZ Act 2005 and that doesn’t seem possible immediately, it is being explored if the relaxation can be allowed, at least for a couple of critical sectors, by making some exceptions,” a source tracking the matter told businessline.
Since domestic companies do not have foreign exchange, they have to buy it in case they want to source services from SEZs. “This not only increases their costs, as an extra 3 per cent needs to be paid for conversion, but also certain regulatory aspects make it difficult,” the source said.
Case for flexibility
The Commerce Department is, therefore, trying to identify some sectors that are critical to India’s new-age economy, such as defence and space, to see if flexibility could be allowed through an executive order or some other route, the source added. “The defence industry has been making a strong case for the flexibility. The space industry is also interested as they want to launch rockets,” the source pointed out.
The SEZ Amendment Bill, which is yet to be tabled in Parliament, has provisions for many flexibilities, including payment of rupee currency, but there is no clarity yet on its future.
“All ministries and departments are on board now on the contents of the SEZ Amendment Bill. But it has been pending at the highest level for a go-ahead. After it gets the green signal from the top, it needs Cabinet approval and will then be vetted by the Law Ministry. Subsequently, it can tabled in Parliament,” the source said.
Once the bill is in Parliament, another series of processes would begin. “It is not so easy to carry through a bill in Parliament now (with the government running with coalition partners). It may take at least two years to enact it because any bill like this could go to the standing committee which will give its own ideas. Some of the ideas may be acceptable to the government and then the bill would need to be tabled again with the changes. Then finally the bill will be ready to be passed,” the source said.
The government is working on the SEZ Amendment Bill to introduce changes in the existing SEZ regulations to make it more attractive for investors, now that direct tax sops for SEZ units and developers have lapsed.
DESH Bill
Plans to come up with the DESH (Development of Enterprise and Services Hub) Bill, to replace the SEZ Act 2005, have ben set aside for now as it had proposed a complete rehaul of the SEZ ecosystem, which led to complications at several levels, the official said.
Currently, there are 375 notified SEZs in the country of which 280 are operational, per latest numbers put up on the official website. A total of 5,711 units had been approved for operations in the notified SEZ.
The SEZs attracted investments worth ₹6,92,914 crore up to December 31, 2023. In FY24, the SEZ units accounted for exports worth ₹13,55,220 crore.