Development (Enterprise and Services) Hub Bill, 2022

In News

• The existing Special Economic Zone (SEZ) law in India is all set to be replaced with a new law as per the Budget 2022-23 speech of the Finance Minister.
  • The revamped law for Special Economic Zones (SEZs) is also known as Development (Enterprise and Services) Hub (DESH) Bill, 2022. 

Special Economic Zone

• It is an area in a country that is subject to different economic regulations than other regions within the same country.
• The economic regulations of SEZs tend to be conducive to and attract Foreign Direct Investment (FDI).
• It facilitates rapid economic growth by leveraging tax incentives to attract foreign investment and spark technological advancement.
• The functioning of the SEZs is governed by a three-tier administrative setup. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce.
• The Special Economic Zones (SEZs) policy was launched in 2000.  
  • SEZs Act, 2005, was passed by Parliament in 2005.
  • Salient features:  A designated duty-free enclave to be treated as a territory outside the customs territory of India for the purpose of authorised operations in the SEZ.
    • No licence is required for import.
    • Manufacturing or service activities allowed.
    • The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production.
    • Domestic sales are subject to full customs duty and import policy in force.
    • SEZ units will have freedom for subcontracting.
    • No routine examination by customs authorities of export/import cargo.

Major provisions of the Bill

• Development hubs
  • The new draft DESH Bill seeks to set up development hubs for promoting economic activity, generating employment, integrating with global supply and value chains and maintaining manufacturing and export competitiveness, developing infrastructure facilities, promoting investments, including in research and development.
  • These development hubs will be further classified into enterprise and service hubs. 
    • While enterprise hubs will permit both manufacturing and services activities, services hubs will permit only services activities. 
• Easier financing norms
  • The government plans to facilitate easier financing norms to activities pertaining to the manufacturing and services hubs.
• Infrastructure status
  • This will be done by giving them infrastructure status, at par with sectors such as road, rail waterways, and airports, to improve access to finance and enable long-term borrowing from lenders at easier terms.

Need of the Bill

• Slow growth in manufacturing sector 
  • While India’s service sector continues to show appreciable growth, the manufacturing sector has been lagging, necessitating urgent interventions.
• 2005 SEZ Act
  • While the 2005 SEZ Act was brought in with the hope of making India a manufacturing powerhouse of the world, it had very limited positive effect.
• Low share in exports
  • The 262 operational SEZs set up over this period currently have only 5,576 operational units and account for less than 20 per cent of the country’s exports. 
• Land unoccupied
  • More than 1 lakh acres of land within the current SEZs is still not occupied.
• Outdated Law
  • The current legislation is over 16 years old and the legislation was framed under different circumstances and a lot has changed since then.
• Compatibility
  • Rules are complicated and there is also a need to make it World Trade Organisation (WTO) compatible.
• Ease of doing business in SEZ 
  • To enable ease of doing business in SEZ units, the government will also undertake reforms in customs administration of SEZs and make it fully IT-driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks.

Significance of the Bill

• Paradigm shift: The bill is expected to bring about a paradigm shift by moving the focus from exports to domestic investments, eliminating compliance and procedural challenges, and integrating multiple models of economic zones such as SEZs, coastal economic zones, and food and textile parks.
• Boosting economic activity: In transforming the existing SEZs into enterprises and service hubs, the focus will be on boosting economic activity and the domestic market, integrating the various models, facilitating ease of doing business and generating employment.
• States to play a greater role: DESH is also expected to enable states to play a greater role in the integration of all existing industrial parks within states with existing SEZs across the country. 
• Tax benefits: The new bill is expected to ensure tax rebates/refunds/financial subsidies to developers/companies in the hub, in a manner similar to the existing SEZs, but with no export compulsion NFE obligation.
• Transformation: Existing ports, airports, inland container depots, land stations, etc., are proposed to be transformed into Development Hubs with a clear demarcation of processing and non-processing areas. 

Way forward

• The idea is to develop large manufacturing and investment hubs and go beyond the export-oriented approach.
• Making such zones compliant with World Trade Organization (WTO) norms. 
• Give these hubs access to the domestic market and enable easy entry and exits of units.
• India’s target of becoming a USD 5 trillion economy by FY 2026, with a contribution of USD 3 trillion and over USD 1 trillion from the services and manufacturing sector respectively, requires accelerated investments. 
• Baba Kalyani Committee: The Government of India initiated several steps to improve the investment attractiveness of SEZs and constituted the Baba Kalyani Committee to suggest changes to India’s SEZ policy based on inputs from various stakeholders.

Source: BS