India’s SEZ Policy Shift: A Step Towards Chip Self-Reliance

Context

In a significant policy shift, the Government of India has relaxed key regulations for Special Economic Zones (SEZs) to promote semiconductor and electronics manufacturing. This reform is aligned with India’s strategic goal to reduce import dependency, enhance technological self-reliance, and support the Semiconductor Mission launched in 2022.

What are Special Economic Zones (SEZs)?

• SEZs are designated duty-free zones, treated as areas outside the customs territory of India for authorized operations.

• India adopted this model early, establishing Asia’s first Export Processing Zone (EPZ) in Kandla in 1965.

Objectives of SEZs

• Promote additional economic activity

• Enhance exports of goods and services

• Attract domestic and foreign investments

• Generate employment opportunities

• Support infrastructure development

Legal Framework

• SEZ Policy announced: April 2000

• SEZ Act passed: May 2005 by the Indian Parliament

• Administered through a three-tier structure:

  1. Board of Approval (BoA) – Apex body headed by Secretary, Department of Commerce

  2. Approval Committee – Zone-level body for unit approvals

  3. Development Commissioner – Heads each SEZ and chairs the zone’s Approval Committee

Key Features of SEZs

• No licence required for imports

• Manufacturing and service activities are permitted

• Units must achieve Positive Net Foreign Exchange over five years

• Domestic sales subject to customs duty

• Subcontracting allowed

• No routine customs inspections of cargo

• Tax benefits (direct and indirect) available under the SEZ Act, 2005

Current Status

• As of January 31, 2025, there are 276 operational SEZs across India

Approval Process

• Proposal submitted to the State Government

• State must forward proposal to the Board of Approval within 45 days

• Once approved and notified, units can be established in the SEZ

Recent Reforms for Semiconductor Manufacturing

To facilitate semiconductor manufacturing within SEZs:

• Minimum land requirement reduced from 50 hectares to 10 hectares for SEZs dedicated to semiconductors/electronic components

• Encumbrance-free land condition relaxed if the land is mortgaged or leased to Central/State Government or their agencies

• Aims to ease entry barriers for companies, especially startups and MSMEs

Significance of Semiconductor SEZs

• India aims to launch its first indigenously produced semiconductor chip by end of 2025 (using 28–90 nm technology)

• Six chip fabrication units under development as of May 2025

• Semiconductors are vital for AI, ML, automation, and modern electronics

• Relaxed norms make SEZs more attractive to investors, startups, and global players

• Will boost high-tech manufacturing, reduce dependency, and foster innovation

Strategic Importance

• India’s semiconductor demand is currently $45–50 billion, projected to reach $100–110 billion by 2030

• SEZs will help:

  • Meet domestic demand

  • Reduce import dependency

  • Build a comprehensive supply chain

  • Attract both foreign and domestic investment

  • Create high-skilled jobs in design, R&D, and fabrication

Way Forward

• Reforms are a foundational step toward building a strong semiconductor ecosystem

• Focus areas:

  • Human resource development through specialized training and courses

  • Promotion of Public-Private Partnerships (PPP) to mobilize private investment

  • Strengthen the ecosystem with supportive infrastructure and policy incentives