FY23 Union Budget may rewrite SEZ law, says commerce ministry

The 2022-23 Budget to be presented by Finance Minister Nirmala Sitharaman on February 1 will focus a lot more on trade-related packages and may propose to amend the Special Economic Zone (SEZ) Act, said Commerce Secretary B V R Subrahmanyam on Tuesday.

“There will be a lot of trade-related packages coming up in the Budget. For the first time, you will find specific paras addressing us (the commerce ministry). The old history of us wanting something and the finance ministry not doing it is no longer there. We have brought harmony there,” said Subrahmanyam. He was speaking at a session of the Confederation of Indian Industry Partnership Summit.  

Hinting at an announcement on the simplification of SEZs, Subrahmanyam said the commerce ministry would be rewriting the SEZ law.  “If there is a unit in an SEZ facing the domestic market, it will behave like a domestic tariff area entity. If it is facing the international market, it will behave like an SEZ unit. It will still be one unit. That’s going to be a breakthrough once we get it through the next session of Parliament,” he said.  

The commerce and finance ministries are often at loggerheads over the SEZ policy on tax incentives to SEZ units and allowing them to sell in the domestic tariff area.

An expert committee led by Bharat Forge Chairman Baba Kalyani, that was formed in 2018 to review the SEZ policy, has already submitted its report, recommending significant changes in the SEZ policy, including the formulation of separate rules and procedures for manufacturing and service SEZs.

Subrahmanyam also cautioned the Indian industry, telling it to brace for increased competition and think global since India was going to sign a host of “very deep” free trade agreements (FTAs) to integrate the Indian economy with advanced economies, such as the UK, Australia, and the European Union (EU).

“FTAs can’t be one way. Everybody wants market access. I want the industry to keep that in mind. To make FTAs realistic and compliant with World Trade Organization norms, we need to have at least 90 per cent of trade covered under substantial liberalisation. We can’t be cherry-picking. It will be a deep integration of economies. There will be some sensitive lines, of course. In the Indian context, dairy, for example, is a sensitive area. By and large, these are going to be very deep FTAs,” he added.

Subrahmanyam said India would be concluding an FTA with the United Arab Emirates (UAE) any day.

“I am saying any day, not weeks. Launched on September 22, we will have the signing sometime in January,” he added.  

He said India was also going to relaunch the FTA with Israel by March-April next year.

“We are negotiating an FTA with Australia. We will have an interim in place by the end of this month and a full agreement by next year. We are entering into an agreement with the UK. We will have an interim in place by March-April and a final one by December next year. The EU FTA, which had been stalled for seven years, will hopefully be done by mid-2023. It is a more complex dynamic, given there are 27 countries. We are in talks with Canada and by the end of next year, we should have a full-fledged agreement,” he added.