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Business Standard
2 days ago
- Business
- Business Standard
Govt eases SEZ rules to promote chips, electronics component manufacturing
The government has unveiled a series of policy relaxations aimed at boosting high-tech manufacturing, including semiconductors and electronic components in special economic zones (SEZs). According to a gazette notification issued by the Ministry of Commerce and Industry, the minimum land requirement for setting up such SEZ units has been reduced from 50 hectares to 10 hectares. The relaxed norms will apply to sectors including semiconductors, display module sub-assemblies, various other module sub-assemblies, printed circuit boards, lithium-ion battery cells, mobile and IT hardware components, hearables, and wearables. These changes, under the Special Economic Zones (Amendment) Rules, 2025, came into effect on June 3, 2025. 'We want to promote the manufacturing of semiconductors and electronic components. These are mostly single-unit SEZs where the 50-hectare rule may have been an issue. That's why we have reduced the size to 10 hectares,' said a commerce department official, requesting anonymity. 'Semiconductors require significant investment and take time to turn profitable. That's why we have also provided concessions in Net Foreign Exchange (NFE) calculations. We expect major investments and substantial job creation.' Under the revised guidelines, for units providing semiconductor manufacturing services, the value of goods received or exported on a free-of-cost (FOC) basis must now be included in NFE calculations, aligning SEZ norms with Customs valuation practices. SEZ units are required to be net foreign exchange earners over a five-year period -- a key condition for accessing various benefits under the SEZ Act, such as duty-free imports of inputs and capital goods. Launched in 2021 as part of the broader production-linked incentive (PLI) scheme, the India Semiconductor Mission (ISM) aims to develop a robust semiconductor and display ecosystem and position India as a global hub for electronics manufacturing and design. The government is currently working on the next phase of the ISM rollout. Asked why semiconductor firms would prefer SEZs over domestic tariff areas (DTAs), the official said: 'SEZs offer Customs and integrated GST (IGST) benefits. So it is always beneficial to have units in SEZs than in DTAs because semiconductor manufacturing requires a lot of capital goods to set up a plant.' Kunal Chaudhary, a partner at EY, said the SEZ Amendment Rules, 2005, align India's policy framework with the strategic objectives of high-tech manufacturing sectors. 'These amendments provide greater flexibility in land usage and establish a clear methodology for NFE computation -- key steps to drive export growth,' he said. Manufacturing service providers based in SEZs will now be permitted to source capital goods, raw materials, components, and consumables from the domestic market, in addition to imports. The government has also expanded the options for the movement of finished goods: SEZ units can now supply to DTAs upon payment of applicable duties or transfer goods to a free trade and warehousing zone (FTWZ), even if located in a different SEZ, based on instructions from the overseas entity. 'The concession applies only to NFE calculation. Often there is a parent company abroad, and the SEZ unit provides manufacturing services for it. This move encourages them to not only export but also serve the domestic market. That way, India benefits from foreign exchange earnings,' the official explained. Vivek Jalan, partner at Tax Connect Advisory Services, said the amended rules provide SEZ units with greater flexibility to retain tax advantages. 'Earlier, finished goods could only be exported or moved to a Customs-bonded warehouse maintained by the overseas entity. Now, these goods can be supplied to the DTA with duty payment or transferred to a FTWZ unit run by the overseas entity, whether in the same or a different SEZ,' he noted. In addition, the minimum land requirement for multi-product SEZs in several states and Union Territories --Nagaland, Manipur, Mizoram, Arunachal Pradesh, Tripura, Meghalaya, Sikkim, Uttarakhand, Himachal Pradesh, Goa, Andaman & Nicobar, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, Ladakh, and Puducherry -- has been lowered from 20 hectares to 4 hectares.
Time of India
23-04-2025
- Business
- Time of India
Donald Trump's tariffs: Why it could be a key manufacturing moment for India
While the coming months will shape the future of global trade dynamics, the temporary suspension of US reciprocal tariffs provides India a unique window. (AI image) By Kunal Chaudhary The U.S. has announced a 90-day temporary pause on the imposition of the higher reciprocal tariffs on its trading partners. In a notable policy shift, the announcement came just hours after higher reciprocal tariffs had taken effect. While the temporary pause signals a potential softening of the tariff approach amid ongoing negotiations, the universal 10% base tariff on all imports will remain in place during this period. At the same time, the U.S increased tariffs on goods from China to 125%, citing China's "lack of respect" after the country retaliated by announcing an 84% on U.S. imports. The U.S. reciprocal tariffs on China are set to cause major disruptions to global supply chains, forcing American companies to explore alternative suppliers. This creates a significant opportunity for India to step up as a key trading partner, especially as trade conflicts with China continue. As global businesses look to further diversify their supply chains away from China, India has the chance to strategically position itself as a viable alternative, capitalizing on this shift to boost exports, attract investments, and enhance its manufacturing capabilities. Electronics is one of the key sectors for India to gain with India's exports valued at nearly USD 14 Bn. Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Don't Pay Full Price for 2025's Top Games! Shop Now Undo Electronics play a critical role in global trade, with countries like China dominating the exports landscape (i.e., with a market share of >30%). Though India's export market share is in low single digits and steadily growing, the US's 125% tariff on Chinese electronics imports, including smartphones, laptops, and other electronic devices, makes Indian manufactured products more competitive in the American market. Global brands such as Apple, which already use India as a key export hub, would likely increase production in the country to avoid higher costs associated with Chinese imports. This could lead to a surge in Indian exports of finished electronic devices and even components like batteries, circuit boards, and displays. The additional demand for non-Chinese suppliers, also presents a unique opportunity for Indian Electronics manufacturers to expand and scale up operations and capture a larger share of the global market. India's strategic initiatives such as the Production-Linked Incentive (PLI) schemes for smartphones, IT hardware, telecom products, and the newly introduced PLI for electronics component manufacturing, can collectively enhance India's competitiveness by lowering cost barriers for exports. As a strategic move, the Trump administration continued the exclusion of semiconductors from reciprocal tariffs, acknowledging their irreplaceable role. Semiconductors being crucial for national security and technological advancement, disrupting their supply could have led to significant implications. The U.S. is actively promoting domestic semiconductor manufacturing through the U.S. CHIPS Act, which allocates $52 Bn for local semiconductor production. With significant investments already being made in new facilities and technologies by large chip makers of world like Intel & TSMC, exempting reciprocal tariffs supports this domestic growth strategy. Further, the current global semiconductor supply chain is deeply entrenched and complex, with maximum production already taking place in Taiwan & South Korea, disrupting this network would be challenging and relocating the existing capacity would take decades and investment of very large scale. It is expected that the current pause offers a window for diplomatic engagement for initiating negotiations for trade agreements with the U.S. The pause in reciprocal tariffs aligns with India's broader efforts to enhance US-India trade relations as both nations actively work towards a Bilateral Trade Agreement (BTA) aimed at doubling bilateral trade to $500 billion by 2030. To maintain a strong position in global trade and further strengthen its role as an alternative global manufacturing hub, India can look to deepen economic cooperation with the US, forging strategic partnerships and collaborations with U.S. that promote mutual benefits, minimize reciprocal tariff and drive sustained long-term export growth. While the coming months will shape the future of global trade dynamics, the temporary suspension of US reciprocal tariffs provides India a unique window to enhance its bilateral relations. By addressing existing challenges, improving market access to the US, and leveraging strategic initiatives like "Make in India," India can position itself as a reliable global supplier and accelerate its economic growth trajectory. (Kunal Chaudhary is Tax Partner, EY India. Vaibhav Anand, Director-Tax, EY India, also contributed to the article.) Stay informed with the latest business news, updates on bank holidays and public holidays . 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