SEZ domestic sales at concessional duty will boost import substitution and jobs, says commerce secretary

The Budget FY27 proposal to allow Special Economic Zone (SEZ) units to sell goods in the domestic market at concessional duty rates is expected to boost import substitution and generate employment, Commerce Secretary Rajesh Agrawal said, adding that detailed operational guidelines will be rolled out in the next two to three months.The government has announced a one-time measure allowing SEZ manufacturing units to sell goods in the domestic tariff area (DTA) at concessional import duty rates, subject to quantitative restrictions.The move addresses a long-pending demand from SEZ units, which were unable to offload excess production domestically due to high import duties on several labour-intensive sectors and global demand uncertainties.“It will help in import substitution and better job creation. It will also provide a level playing field to DTA (domestic tariff area) firms (vis-a-vis SEZs),” Agrawal told PTI.He said the proposal would enable domestic buyers to source goods from SEZ units instead of importing from third countries.About seven to eight sectors, including leather, textiles and engineering goods, are expected to benefit significantly from the measure, as these sectors currently face relatively high import duties in India.At present, goods sold from SEZ units into the domestic market attract high import duties, limiting local sales viability.In her Budget speech, Finance Minister Nirmala Sitharaman said the measure is aimed at addressing capacity utilisation concerns in SEZ manufacturing units arising from global trade disruptions.“I propose, as a special one-time measure, to facilitate sales by eligible manufacturing units in SEZs to the DTA at concessional rates of duty,” Sitharaman had said.The quantity of such domestic sales will be restricted to a prescribed proportion of exports. The government will introduce regulatory changes to operationalise the measure while ensuring fair competition with units outside SEZs.Agrawal said limits will be imposed to ensure DTA industries are not adversely impacted.“They cannot sell all of their production. They will be able to sell a portion only in DTA. So, what will be that part? We will calculate that, we will keep a limit on that,” he said.He noted that labour-intensive goods currently imported from countries such as Vietnam and Bangladesh at concessional duty rates could increasingly be sourced domestically from SEZ units.Vietnam is part of the 10-nation ASEAN grouping, with which India has a free trade agreement in goods, while Bangladesh enjoys duty-free access as a least developed country.Agrawal explained that SEZs function as foreign trade enclaves primarily designed for export-led manufacturing, allowing duty-free import of raw materials but requiring finished goods to be exported.“This has been an old pending demand. SEZs are foreign territories as they are mainly designed for export-led production. It can have a duty-free import of raw material, but the production has to be exported. If it has to sell in DTA, it has to pay import duty on that product,” he said.Due to high import duties in certain domestic sectors, SEZ units were often unable to serve local demand despite having spare capacity, he added.The move also reflects changes in India’s trade policy landscape since the SEZ Act was introduced in 2005.“Now, we have done multiple FTAs (free trade agreements),” Agrawal said, adding that imported goods are already entering India at concessional duty rates under trade agreements.The government will separately notify concessional duty rates sector-wise and finalise limits on domestic sales volumes.The measure is also expected to support SEZ exporters facing steep tariff barriers in markets such as the US, where duties on certain Indian goods have risen to around 50 per cent, impacting sectors like textiles and leather.Exports from SEZs rose 7.37 per cent to $172.27 billion in 2024-25. India currently has 276 operational SEZs housing 6,279 units, according to official data.