The government has begun work to replace the Special Economic Zones (SEZ) Act with a new legislation that will cover industrial enclaves and revive these zones as engines of growth.

The ministries of commerce and industry and finance are thrashing out the details for SEZs to be able to sell goods in the domestic market at low duties, and let the units accept payment in Indian currency, as the present net foreign exchange (NFE) requirement for SEZ units doesn’t let them pay in rupees. “The NFE requirement is part of the rules and not the Act. Consultations are also going on to figure out ways to cover states’ industrial parks,” said an official.

In her Budget speech on Tuesday, finance minister Nirmala Sitharaman said the SEZ Act will be replaced with a new legislation that would enable the states to become partners in “development of enterprise and service hubs”.

“This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports,” she said.

A new Act comes after the government adopted a sunset clause, suggesting that only units that started production on or before June 30, 2020 would be granted a phased income-tax holiday for 15 years.

SEZ exports fell to $102.3 billion in FY21 from $112.3 billion in FY20.

As per the official, talks are also on to put to use the vacant land in SEZs and extend ICEGATE–the ecommerce platform of customs that offers e-filing facilities–to SEZs which, at present, have a separate portal, called SEZ Online.

“Alongside, we will also undertake reforms in customs administration of SEZs and it shall, henceforth, be fully IT driven and function on the customs national portal with a focus on higher facilitation and with only risk-based checks,” Sitharaman said.

This reform will be implemented by September 30 and aims to ease doing business by SEZ units.

The commerce and industry ministry had pushed for a new Act for SEZs to make them engines of growth as well as compliant with the global trade norms.

A committee, led by Bharat Forge chairman Baba Kalyani, had in 2019 suggested that SEZs should be converted into employment and economic enclaves (3Es) with flexibility in the dual-usage norms for non-processing areas in SEZs, extension of sunset clause, simplification of processes, tax benefits to services sector, and extension of SME schemes to these zones.

“The replacement of SEZ Act with a new legislation to meet the requirement of a dynamic sector of international trade and transparent and risk based customs administration of SEZ will make SEZ an engine of economic growth and employment creation besides exports,” said A Sakthivel, President, Federation of Indian Export Organizations.