Govt to revamp SEZ incentives policy, focus on employment over exports

SEZs may be rechristened as 'employment economic conclaves'

The Union commerce and finance ministries are considering revamping Special Economic Zones (SEZs).

The idea is to focus on service sector export and incentivise manufacturing, with stress being shifted from export to employment. A report on this was given early last week by a committee headed by Baba Kalyani, chairman of Bharat Forge. 

Its major recommendations include temoval of sunset clauses for services SEZs (including international financial centres) and for job-based incentives to address issues that might not stand with Wolrd Trade Organization (WTO) rules. 

A government official said: “The suggestions are very constructive and the commerce ministry will immediately begin formal consultations with the finance and other ministries, so that implementation of the committee’s recommendations could be done without delay.” 

The committee was set up in June by the commerce ministry, to ensure the SEZ policy was compatible with WTO rules, after the US governemnt challenged India’s export subsidy programme at the multilateral trade body. 

To address this, the panel has proposed SEZs be renamed 'Employment Economic Conclaves' and incentives be based on the employment generated. This will be crucial for manufacturing sector units in these zones and the export compulsion on them should be relaxed when the emphasis is on employment. Manufacturing units in SEZs now have a sunset clause for incentives; those set up after April 2020 will not receive tax benefits. If incentives are given on the basis of employment generation, the WTO concerns can be addressed.

For services sector SEZs, the panel says those other than information technology and IT-enabled services also be promoted. Such as health care, financial services, legal, repair and design services. With no sunset clause. Job-based incentives should be there for services SEZs, too.

An SEZ official says with the sunset clause from 2020, some leading global financial centres' officials (including from Dubai and Singapore) are coming to India to market their platforms, inviting Indian units to set up shop there. 

Several recommendations were made to promote services which can create large numbers of jobs and economic activity. They include setting up of global services delivery centres, global innovation hubs, global payment services hubs, design & innovation hubs, data and research services and others.

The committee has also considered the potential of the International Financial Services Centre with a Multi Services SEZ at GIFT City, Gujarat, to bring in global financial service businesses, if the required regulations and tax framework it provides is comparable to other global centres. It has proposed a unified regulator for the financial sector at GIFT, also recommended by the Reserve Bank. The central government is said to be finalising a Bill to change the regulatory regime for IFSC.

It also wants the IFSC to have single-window approvals, time-bound responses and advance rulings on taxes for units coming up there. It would like the IFSC SEZ to become a hub for global financial & allied services, aircraft/shipping leasing and financing of international reinsurance, bullion trading, global fund businesses, legal services and so on. Lots of businesses in these are shifting to global markets and international finance centres.