What Happened
- The government has constituted a 17-member advisory committee to design comprehensive reforms for India's Special Economic Zone (SEZ) policy, branding the exercise as "SEZ 2.0."
- The committee will examine the interface between SEZs and existing export promotion programmes, reviewing whether current incentive structures remain competitive globally.
- The reform push comes amid pressure from steep US tariffs on Indian exports that have highlighted the urgency of revamping India's export infrastructure and industrial enclaves.
- The panel is expected to draw on earlier recommendations of the Baba Kalyani Committee (2018) and the stalled Development of Enterprise and Service Hubs (DESH) Bill, 2022.
Static Topic Bridges
Special Economic Zones Act, 2005 — Legislative Framework
The SEZ Act, 2005, passed by Parliament and receiving Presidential assent on June 23, 2005, is the primary law governing SEZs in India. It created a self-contained legal regime offering fiscal incentives — including income tax exemptions, customs duty exemptions, and freedom from most labour and environmental regulations — to units within designated enclaves. The Act is administered by the Ministry of Commerce and Industry through the Board of Approval (BoA) at the apex level and Development Commissioners at the zone level. Units in SEZs must achieve positive Net Foreign Exchange (NFE) earnings calculated cumulatively over five years from commencement of production; there is no fixed minimum export quantum. The Act also mandates that SEZ land be used exclusively for authorised operations, a provision that has fuelled disputes over idle land.
- SEZ Rules came into effect on February 10, 2006
- Board of Approval (BoA) under the Commerce Ministry is the apex decision-making body
- Units must maintain positive NFE over a 5-year rolling period
- Three categories of SEZ: Multi-product, sector-specific, and Free Trade and Warehousing Zones (FTWZ)
- As of FY 2024-25: 276 operational SEZs, 6,279 units, ~32 lakh persons employed, exports worth $172 billion
Connection to this news: The 17-member committee is reviewing this foundational legislation with a view to either amending the Act or replacing it with the DESH Bill framework, which would allow SEZ units to also serve the domestic market — a departure from the pure export-orientation of the 2005 Act.
Baba Kalyani Committee (2018) and DESH Bill
The Baba Kalyani Committee, set up in 2018, was a landmark review of India's SEZ policy that recommended transforming SEZs into "Employment and Economic Enclaves" (3Es) with a dual focus on exports and domestic manufacturing. Its core finding was that the export-only obligation had made SEZs unviable for many sectors after the introduction of GST in 2017 — units exporting from SEZs lost the GST input-tax credit advantage when selling domestically. The DESH (Development of Enterprise and Service Hubs) Bill, 2022 was drafted to operationalise these recommendations: it would replace the SEZ Act, allow domestic sales, introduce a single-window clearance system, and shift the performance metric from NFE positivity to a broader "enterprise performance" criterion.
- Kalyani Committee recommended rebranding SEZs as Employment & Economic Enclaves (3Es)
- DESH Bill, 2022 aims to allow both export and domestic investment from hubs
- Single-window clearance proposed to replace multi-agency approvals
- SEZ exports as share of India's total merchandise exports: ~38% in FY24 (up from 6% in FY06)
- GST introduced in 2017 created a structural disadvantage for SEZ units selling to the domestic market
Connection to this news: The SEZ 2.0 committee is expected to finally operationalise the Kalyani Committee roadmap, with the added urgency of making Indian exports more competitive amid shifting US tariff structures.
Export Promotion and India's Trade Architecture
India's export promotion architecture spans several overlapping instruments: SEZs (for zone-based manufacturing), Export Oriented Units (EOUs), Export Promotion Councils (EPCs), the Production-Linked Incentive (PLI) scheme, and trade agreements (FTAs/CEPAs). The SEZ 2.0 reform is partly about rationalising this landscape — the committee is tasked with examining the relationship between SEZs and existing export support programmes such as the Remission of Duties and Taxes on Exported Products (RoDTEP) and the Export Credit Guarantee Corporation (ECGC). A key question is whether SEZ incentives are additive to or duplicative of PLI benefits available in the same sectors.
- RoDTEP replaced MEIS (Merchandise Exports from India Scheme) in 2021
- PLI scheme covers 14 sectors with cumulative outlay of ~₹1.97 lakh crore
- India's merchandise exports target: $500 billion (achieved $437 billion in FY24)
- Top SEZ export sectors: IT/ITeS services, pharmaceuticals, electronics, gems & jewellery
Connection to this news: The committee's mandate to examine SEZ-export programme overlap could lead to a rationalised single incentive framework, reducing compliance burden and improving competitiveness.
Key Facts & Data
- India has 276 operational SEZs with 6,279 units as of FY 2024-25
- SEZ exports stood at approximately $172 billion in FY 2024-25 — about 38% of India's total merchandise exports
- Total employment in SEZs: ~32 lakh persons
- Cumulative investment attracted: ~₹7.07 lakh crore
- The DESH Bill, 2022 (pending in Parliament) proposed to replace the SEZ Act, 2005
- Baba Kalyani Committee (2018) recommended renaming SEZs as Employment & Economic Enclaves (3Es)
- SEZ Act, 2005 was passed to consolidate scattered SEZ policies and give them statutory backing
- US tariffs on Indian goods rose to 50% before the February 2026 interim US-India trade framework brought them to 18%