New Delhi, March 28: The Union Budget 2026–27 has proposed a set of reforms aimed at strengthening India’s Special Economic Zones (SEZs), including a one-time measure that will allow eligible manufacturing units to sell a portion of their output in the Domestic Tariff Area (DTA) at concessional duty rates. The move is intended to improve capacity utilisation, support exports and enhance the global competitiveness of SEZ-based industries.
According to the government, the concessional DTA sales will be permitted only for a prescribed share of exports, ensuring that SEZs retain their export-oriented character while giving manufacturers greater operational flexibility.
As of February 28, 2026, India has 368 notified SEZs, which play a significant role in the country’s trade and investment ecosystem. These zones operate as duty-free enclaves deemed to be outside India’s customs territory for authorised operations and are set up for manufacturing goods, providing services, and warehousing through Free Trade Warehousing Zones.
Strong Export Growth from SEZs
Government data shows that exports from operational SEZs reached over ₹11.70 lakh crore in 2025–26 (till December 2025), registering a 32.02% increase compared with the same period in 2024–25. SEZs also remain major employment generators, employing more than 31.73 lakh people as of December 2025, while attracting total investment of ₹7.86 lakh crore.
Officials said the reforms announced in the Budget are aimed at supporting export-led growth, improving economies of scale for manufacturers and strengthening investor confidence amid global trade disruptions.
Concessional DTA Sales to Support Manufacturing
Under the proposal, goods and services cleared from SEZs to the Domestic Tariff Area—which includes the rest of India outside SEZ boundaries—are normally treated as imports and subject to applicable duties under the SEZ Act, 2005. However, the newly proposed one-time provision would allow eligible SEZ manufacturing units to sell part of their production domestically at concessional duty rates.
The government said necessary regulatory amendments will be introduced to implement the provision while maintaining a level playing field for units operating outside SEZs.
In addition, the extension of tax incentives for cloud and data-centre operations within SEZs is expected to attract global technology firms and manufacturers.
Evolution of India’s SEZ Policy
India adopted the Export Processing Zone (EPZ) model as early as 1965 with Asia’s first EPZ at Kandla. However, challenges such as procedural delays and regulatory controls limited its effectiveness. To address these issues, the government introduced a new SEZ policy in April 2000, followed by the SEZ Act, 2005 and SEZ Rules, 2006, which created a simplified regulatory framework and single-window clearance system for investors.
The policy aims to promote economic activity, increase exports, attract domestic and foreign investment, generate employment and develop modern infrastructure.
Focus on High-Technology Manufacturing
In June 2025, the government also notified two new SEZs—one at Sanand in Gujarat and another at Dharwad in Karnataka—dedicated to the manufacturing of semiconductors and electronic components. Amendments to SEZ rules have reduced minimum land requirements and eased certain norms to encourage investments in these capital-intensive sectors.
Officials say these measures are designed to boost domestic manufacturing capacity, create high-skilled jobs and reduce India’s dependence on imports in critical technology sectors.
Incentives for Investors
SEZ units benefit from a range of incentives, including duty-free import or procurement of goods, tax benefits under the GST framework where supplies to SEZs are zero-rated, and exemptions from certain levies offered by state governments. The zones also provide streamlined regulatory approvals through single-window clearances.
With continued policy support and infrastructure development, the government sees SEZs as a key pillar of India’s strategy to expand exports, strengthen industrial growth and integrate the country more deeply into global value chains.
