India’s Special Economic Zones (SEZs) act as vital business hubs and one of the key drivers that promote economic growth, attract foreign investment, and support export development. Established under the SEZ Act of 2005, the special zones offer a special environment with tax incentives, simple regulations, and world-class infrastructure to fuel trade and industrial development. India has 280 SEZs as of March 31, 2024, employing around 2.8 million people and producing an estimated $133 billion worth of exports in 2023, 60% of which is in the services sector. This article includes the major features, benefits, and current trends of India’s SEZs based on India Briefing’s comprehensive guide. According to a Statista report, investments in these SEZs increased to INR 656 billion (approximately US$7.87 billion). Various reports and articles suggest that India’s digital economy is projected to reach $1 trillion by 2030, driven by a combination of factors including digital public infrastructure, growth in e-commerce, and advancements in high-technology manufacturing. SEZs are expected to play a role, particularly in attracting investment and promoting high-tech manufacturing, but they are not the sole determinant.
What are Special Economic Zones?
SEZs are physical geographical areas administered as foreign land for trade and customs purposes. SEZs provide industries with duty-free imports, tax relief, and easy regulatory procedures to encourage manufacturing, services, and export-oriented industries. The SEZ Act, effective from February 10, 2006, gave statutory status to the SEZ policy, replacing earlier Export Processing Zones like that at Kandla. The SEZs aim to provide an investor-friendly atmosphere with single-window clearances, stable infrastructure, and incentives to lure foreign investors.
What are Export Oriented Units?
An EOU is a manufacturing facility that produces goods or services for export primarily. EOUs have a special concession that provides fiscal and procedural leniencies to make Indian exports competitive in the world. EOUs are treated as bonded units and can import or source raw materials, capital goods, and other inputs without payment of customs duty. Moreover, if the final product is exported, EOUs are not required to pay output GST on the said exports, as these supplies are treated as zero-rated supplies. EOUs are located outside Special Economic Zones (SEZs) but have the same benefits, with some variation in functional freedom. The scheme includes manufacturing, services, and other export-oriented activities in electronics, textiles, software, gems and jewellery, and other industries.
Difference Between SEZs and EOUs
- SEZs and EOUs both enjoy duty-free imports, tax holidays, and export incentives. The distinctions are as follows:
- SEZs are in a particular place for functioning effectively, while EOUs can be anywhere.
- SEZ approval process would be done within 1 to 2 months, while that of EOU would be 2 to 3 months.
- SEZs enjoy greater freedom in handling domestic markets, while EOUs enjoy more restricted regulations on DTA sales.
SEZs are not required to pay any input GST on the procurement of raw material, capital goods, and other inputs as the same is treated as exports to SEZ units and are exempt from GST. EOUs are required to pay input GST on the imports of raw material, capital goods, and other inputs. Thereafter, they can take the refund of the eligible Input Tax Credit. This results in blockage of working capital and higher compliance costs for filing of GST returns.
Why SEZs are a better choice than EOUs
SEZs in India offer different incentives to companies, and hence, the SEZs are attracting local as well as foreign companies:
Single-Window Approvals:
Since all the authorities are housed in one designated area, the SEZ is a one-window facility for ease of doing business, and Customs officials/officers work from the SEZ as an extension of the Development Commissioner’s office for faster establishment and operations.
Foreign Direct Investment:
SEZs attract more FDI due to liberal economic policy, tax benefits, and infrastructural amenities, i.e., a 100% FDI set-up allowance.
Strong Infrastructure:
SEZs provide access to high-quality power, pure water, and high-end logistics, which are needed for industries like manufacturing and IT.
Job Creation:
SEZs facilitate the development of India’s labor force by creating 2.8 million jobs.
Minimum Alternate Tax (MAT):
SEZ units are required to pay MAT at a concessional rate of 15 percent instead of 18.5 percent.
Dividend Distribution Tax (DDT):
SEZ units are not required to pay DDT as it was abolished in February 2020.
Industrial Concessions:
Some states provide land provisions to SEZ developers at concessional rates to promote industrial growth in accordance with the state’s prevailing Industrial Policy.
These benefits have turned SEZs into economic growth drivers, particularly in industries like IT, electronics, pharma, and textiles.
Key SEZ Rule Changes to Facilitate Semiconductor Production in India
India’s dream of becoming a global hub for the production of semiconductors has received a major fillip with new amendments to the Special Economic Zone (SEZ) Rules, 2006, released in June 2025. The amendments, introduced to Favor high-tech industries, such as semiconductors and electronics, eliminate major bottlenecks and create a favourable ecosystem for investors. This article recapitulates the key amendments and why it is good for India’s semiconductor ecosystem, as per the SEZ guide.
Major Amendment in SEZ Rules
The Indian government has also made SEZs more enticing for the production of semiconductors through targeted reforms:
Relaxed Land Norms:
Previously, land in SEZ was required to be “encumbrance-free,” which was not feasible in the case of India’s highly involved land records. The new rules allow the utilization of mortgaged or litigated land, making clearances easier and reducing delays in the establishment of semiconductor units.
Lower Land Requirements:
Land requirements for SEZ units have been lowered, which cuts down the barrier to entry for investors and allows small specialist semiconductor fabrication facilities.
Increased Export and Inventory Flexibility:
The policy changes allow firms to manage inventory more effectively and access foreign and domestic markets with less constraint, so SEZs become more competitive to international supply chains.
These investments have already attracted significant investments. For example, ₹13,000 crore has been invested by Micron Semiconductor Technology India for setting up a semiconductor plant within Gujarat’s SEZ, while Karnataka Hubballi Durable Goods Cluster has been provided with ₹100 crore to enable production of electronic components. All these investments are under the Semicon India program, which was launched in 2022 with a budget of ₹76,000 crore with an aim to minimize India’s dependence on imported electronics. By eliminating land and regulatory barriers, the amendments enable quicker implementation of projects and attract foreign players seeking alternatives to market-leading semiconductor manufacturing countries like China, which dominated 35% of the global market in 2021. Ease of norms also enables India’s “Design in India, Make in India” vision by developing a proper ecosystem for chip designing and manufacturing.
Top Operational SEZs in India
India’s SEZs are spread across various states, with some standing out for their scale and impact. Notable examples include:
Santa Cruz Electronics Export Processing Zone (SEEPZ), Mumbai: A hub for electronics and IT, known for its high export volumes.
Cochin SEZ, Kerala: Specializes in seafood processing, IT, and engineering goods.
Noida SEZ, Uttar Pradesh: A major center for IT and IT-enabled services.
Kandla SEZ, Gujarat: India’s first export processing zone, now a diversified SEZ.
Chennai SEZ, Tamil Nadu: Focused on automotive, leather, and IT industries.
These zones cater to diverse industries, leveraging India’s skilled workforce and strategic location to serve global markets.
Strategic Importance and Global Context
The global supply chain disruptions caused by the COVID-19 pandemic made the risk of relying heavily on single-country vendors more apparent, with China accounting for 35% of worldwide semiconductor production in 2021. India’s SEZ reforms aim to position India as a competitive hub, creating a “Design in India, Make in India” ecosystem. The government’s focus on high-tech industries like semiconductors is part of its vision to position India as a global manufacturing hub.
Furthermore, initiatives like the National Industrial Corridor Development Programme (NICDP) complement SEZs by creating integrated industrial clusters and logistics hubs. Districts as Export Hubs decentralize export bases even more, enabling companies to operate effectively away from the conventional SEZs.
Challenges and the Way Forward
Despite their successes, Special Economic Zones (SEZs) in India continue to face significant challenges. One major issue is the complex land acquisition process, wherein some of the major SEZs, having high demand and scarce land, operate through an auction-based system. This often requires businesses to submit competitive bids for land, sometimes resulting in higher acquisition costs. To address this, the Government of India is considering the introduction of streamlined land acquisition rules aimed at reducing costs and facilitating easier access to land for businesses. Additionally, SEZs face policy inconsistencies when compared with Free Trade Zones in other countries, making them less competitive in the global landscape.
In the future, India’s SEZs will expand even more, particularly in new fields like artificial intelligence and green technology. Opening India’s first AI SEZ in Nava Raipur, Chhattisgarh, is a visionary move to harness new technologies for socio-economic benefits. In December 2022, it was reported that the Kandla SEZ in Gujarat alone accounted for US$38 billion in export value.
To conclude, India’s Special Economic Zones stand as one of the key economic drivers that lead to the generation of employment and international trade. For investment and business, SEZs are an attractive value proposition to reach India’s huge market and talent pool and benefit from a facilitative business environment
