Revised SEZ Rules to Boost Semiconductor Manufacturing in India

Introduction to Revised SEZ Rules

The Ministry of Commerce and Industry has recently updated the Special Economic Zones (SEZ) Rules, 2006, on June 9, 2023. These changes aim to foster domestic semiconductor and electronics manufacturing, addressing critical needs in India's supply chain.

Key Changes to the SEZ Rules

Two significant modifications were introduced:

• Rule 5: Size Requirement Reduced
  Previously, the minimum contiguous land required for establishing SEZs focused on semiconductor and electronics manufacturing was set at 50 hectares. This requirement has now been reduced to just 10 hectares. This change facilitates smaller investments, allowing more players to access the benefits of SEZs, such as tax exemptions, duty-free imports, and essential infrastructure support.
• Rule 18: Domestic Sales Allowed
  In the past, SEZ units were primarily focused on exports. The revised rules now permit SEZs to engage in domestic sales after paying applicable customs duties. This adjustment aims to create a reliable domestic supply chain, particularly crucial in light of global disruptions, and aligns with India’s self-reliance objectives.

Reasons Behind the Rule Changes

The amendments to the SEZ rules arise from several strategic considerations:

• Strategic Need: India relies heavily on imports for its semiconductor needs. The COVID-19 pandemic highlighted significant vulnerabilities in global supply chains, leading to a strong push for local manufacturing capabilities.
• Semicon India Programme: Launched in 2022 with an investment of ₹76,000 crore, this policy aims to establish India as a global semiconductor hub, enhancing the country’s technological independence.
• Land and Legal Constraints: The previous 50-hectare requirement was viewed as excessive and impractical, especially given India's fragmented land ownership and slow legal processes. The reduction in size requirements can potentially streamline the establishment of new SEZs.

Examples of New Investments

Under the new SEZ rules, two major projects have already received approval:

• Micron Technology India
  Location: Sanand, Gujarat
  Investment: ₹13,000 crore
  Focus: Semiconductor manufacturing
• Tata Electronics
  Location: Dharwad, Karnataka
  Land: 37.64 hectares
  Focus: Manufacturing electronic components under the Gujarat Durable Goods Cluster.

Conclusion

The revised SEZ rules signify a proactive approach from the Indian government to bolster domestic semiconductor and electronics manufacturing. By lowering land requirements and permitting domestic sales, these changes are expected to attract significant investments, enhance self-reliance, and strengthen the overall economy.

Frequently Asked Questions (FAQs)

Q1. What are the key changes in the SEZ rules in 2023?
Answer: The SEZ rules have been modified to reduce the minimum land requirement from 50 hectares to 10 hectares and now allow domestic sales after paying customs duties.

Q2. Why did India revise the SEZ rules for semiconductor manufacturing?
Answer: The revisions were driven by the need for local manufacturing due to heavy imports, vulnerabilities exposed during the COVID-19 pandemic, and the aim to strengthen India's position as a semiconductor hub.

Q3. How do the new SEZ rules support smaller investments?
Answer: By reducing the land requirement to 10 hectares, the new rules lower barriers for smaller players to enter the semiconductor market, enabling broader participation in the industry.

Q4. What is the significance of allowing domestic sales in SEZs?
Answer: Allowing domestic sales ensures a reliable supply of semiconductors in the local market, which is essential for maintaining production during global supply chain disruptions.

Q5. Can you name some companies investing under the new SEZ rules?
Answer: Notable companies include Micron Technology, investing ₹13,000 crore in Gujarat, and Tata Electronics, focusing on electronic components in Karnataka.

UPSC Practice MCQs

Question 1: What is the new minimum land requirement for SEZs focused on semiconductor manufacturing?
A) 50 hectares
B) 20 hectares
C) 10 hectares
D) 5 hectares
Correct Answer: C

Question 2: Which company is investing ₹13,000 crore in semiconductor manufacturing under the new SEZ rules?
A) Tata Electronics
B) Micron Technology
C) Samsung India
D) Intel Corporation
Correct Answer: B

Question 3: What significant change was made regarding domestic sales in SEZs?
A) Domestic sales prohibited
B) Domestic sales allowed after customs duties
C) Only exports allowed
D) No change in sales policy
Correct Answer: B

Question 4: What was a major reason for revising the SEZ rules in India?
A) Increase in exports
B) Global supply chain vulnerabilities
C) Decrease in land availability
D) None of the above
Correct Answer: B