SEZ units get one-time domestic sales window in Budget amid 50% US tariffs

The Union Budget proposes a one-time measure allowing eligible SEZ manufacturing units to sell a portion of their output in the domestic market at concessional duty to offset US tariff shocks

To cushion exporters from the impact of the 50 per cent tariff imposed by the United States (US), finance minister Nirmala Sitharaman on Sunday announced a one-time measure to help units in Special Economic Zones (SEZs) utilise idle capacity and improve the export competitiveness of sectors that have been hit the hardest by the tariffs.

 

The finance minister proposed customs duty exemptions on items that are manufactured in India or imported in negligible quantities, simplified duty rates, and lowered costs for strategic manufacturing, clean energy, defence, healthcare, and exports. She also raised tariffs on a few consumer goods.

 

“To rationalise the customs duty structure for goods imported for personal use, I propose to reduce the tariff rate on all dutiable goods imported for personal use from 20 per cent to 10 per cent,” Sitharaman said in the Budget speech.

 

Duties are eliminated on nuclear generation equipment, absorber rods, and project imports for all nuclear plants registered with customs authorities through September 2035.

 

Customs duties are removed on raw materials for the manufacture of parts of aircraft for maintenance, repair, or overhauling of aircraft or components or parts of aircraft, including engines, when imported by the defence ministry. Duties have also been removed on sodium antimonate used in solar glass, capital goods needed to make lithium-ion cells, and on monazite. Inputs for microwave ovens and video game consoles are exempted.

 

Delhi-based think tank GTRI said the Budget’s tariff exemptions align with US strengths in aerospace, nuclear technology, clean energy equipment, electronics, and medical devices — quietly improving market access for US firms to India.

 

The duty-free import limit for specified inputs used in the processing of seafood exports will be raised from 1 per cent to 3 per cent of the previous year’s free on board (FOB) export turnover. Duty-free imports of specified inputs, which are currently available for exports of leather or synthetic footwear, will be extended to shoe uppers. The time period for exporting finished products of leather or textile garments, leather or synthetic footwear, and other leather products will be doubled to one year.

 

To promote e-commerce exports of small businesses and startups, the government will remove the Rs 10 lakh per consignment cap on courier exports.

 

Sitharaman announced a one-time measure to allow eligible manufacturing units in SEZs to sell their goods in the domestic market at a “concessional duty”. However, the quantity of such sales will be limited to a certain proportion of their exports. This will ensure that adequate safeguards are in place and units operating in the domestic tariff area (DTA) are not at a disadvantage.

 

The move, once implemented, will help units in SEZs utilise idle capacity, considering the unpredictability of the export market and the adverse impact on demand due to the imposition of additional tariffs since August. “Necessary regulatory changes will be undertaken to operationalise these measures while ensuring a level-playing field for the units working in the DTA,” she added.

 

The detailed notification is expected within a month’s time, said government officials.

 

Over a third of India’s outbound shipments from SEZ units are exported to the US. During April–December, merchandise exports from SEZs to the US remained nearly flat at $10.5 billion, data showed.

 

“This will enable better utilisation of capacities in SEZs. It will also enable SEZ units to supply world-class products to the Indian market rather than importing the same. This will help in import substitution and create employment opportunities in Indian SEZs. This may facilitate more investment in SEZs,” said Alok Chaturvedi, director general of the Export Promotion Council for EOUs and SEZs (EPCES).