finance
As India celebrates Azadi Ka Amrit Mahotsav and moves towards Atmanirbhar Bharat to address the challenges posed by the COVID-19 pandemic, the Development of Enterprise and Services Hubs (DESH) Bill is set to be introduced during the ongoing monsoon session of Parliament. This legislation aims to revamp the SEZ Act of 2005, ensuring that Special Economic Zones (SEZs) are more compliant with World Trade Organization (WTO) regulations.
SEZs in India are designated zones with distinct business, trade, and tax laws primarily focused on promoting exports. These zones allow for export-oriented production without the constraints of conventional regulations. The SEZ Act of 2005 governs 425 approved SEZs in India, with 376 notified and only 268 operational. Approximately 5,576 units operate within these zones, which collectively hold a land bank of 47,013.65 hectares, generating substantial investments and employment.
Despite these figures, Indian SEZs have not achieved the success seen in countries like Singapore and China. Numerous challenges hinder their effectiveness, including:
To tackle shortcomings in the SEZ framework, the Ministry of Commerce and Industry established the Baba Kalyani Committee, which submitted its recommendations in November 2018. Key proposals include:
In response to the Baba Kalyani Committee's recommendations, the Government is set to introduce the DESH Bill, which encompasses a broad vision for new developmental hubs. This legislation not only focuses on exports but also emphasizes catering to domestic markets, integrating existing industrial estates and modifying SEZ structures.
Rebranding of SEZ Units: The proposed legislation redefines SEZs as "development hubs," including enterprise hubs for manufacturing and services hubs strictly for service-oriented activities.
Expanded Service Sector Inclusion: The new definition broadens eligible services to include more sectors beyond IT and ITeS, allowing entities such as Limited Liability Partnerships and certain foreign offices.
New Guiding Principles: The Bill adds principles for promoting innovation, global integration in supply chains, and the creation of global service centers.
State Participation: State authorities will play a greater role in overseeing hub operations, send recommendations for approvals, and monitor procurement and usage of goods and services.
Technology-Driven Processes: An integrated online portal will facilitate time-bound approvals, enhancing transparency and accountability.
The DESH Bill aligns more closely with WTO regulations by redefining "services" to include manufacturing and warehousing without mandating cumulative net foreign exchange earnings over five years. The encouragement of local sales in domestic markets is designed to enhance business competitiveness.
The DESH legislation’s framework supports labor-intensive manufacturing while enabling subcontracting between development hubs and DTAs. This approach addresses unemployment and fosters skill development for the workforce.
The Bill introduces a two-tiered dispute resolution process for commercial disputes within development hubs, emphasizing mediation and, if needed, arbitration, thereby relieving judicial burdens.
As India aspires to become a $5 trillion economy by 2025, the DESH Bill represents a significant step in modernizing the SEZ framework to promote growth and opportunity. The collaboration between state and central authorities is essential in executing this new legislation, which can potentially transform the country's economic landscape. The DESH Bill, once enacted, has the potential to create a robust ecosystem for businesses, ultimately contributing to India's goal of global leadership in manufacturing and services.