The Global Trade Research Initiative (GTRI) recently proposed a significant shift in how goods from Special Economic Zones (SEZs) enter the Indian market. Specifically, the think tank suggested on Tuesday that the government should allow the sale of SEZ-manufactured products in the domestic market on the payment of duty foregone on inputs. Currently, units within these zones must pay duties based on the finished output when selling to the Domestic Tariff Area (DTA). Consequently, this new proposal aims to promote higher value addition and create parity with other existing manufacturing schemes.+1
Creating Parity Between SEZs and the MOOWR Scheme
The GTRI highlighted that the government already grants similar concessions to firms under the ‘Manufacturing and Other Operations in Warehouse Regulations’ (MOOWR) scheme. Under MOOWR, companies can make DTA sales by paying duties only on the inputs used. Ajay Srivastava, Co-Founder of GTRI, noted that extending this to SEZs would ensure fairness. Because tariffs on finished products often exceed those on raw materials, this change would incentivise units to process goods further within the zone. Therefore, such a move could significantly enhance technological advancement and skill development across the manufacturing sector.
Protecting the Export-Oriented Mandate of SEZs
While promoting domestic sales is vital, the GTRI cautioned against allowing duty-free access to the DTA. Currently, SEZs operate as foreign territories for trade purposes, allowing duty-free imports of components with the condition that finished goods are exported. If these units sold products domestically without any import duties, it would distort their primary export focus. Furthermore, it could turn these zones into “back doors” for duty-free imports. Consequently, maintaining a clear duty framework is essential to preserve the government’s revenue and the integrity of export-focused zones.
Preventing Unfair Competition for Domestic Industry
Unrestricted access for SEZ goods could adversely affect the existing domestic industry. Because SEZ units enjoy various exemptions, selling their goods at lower prices in the DTA could lead to unfair competition. Srivastava warned that this influx might cause potential job losses in traditional manufacturing sectors. Therefore, the proposal to pay duty on an input basis provides a balanced middle ground. It encourages SEZ domestic sales through value addition while ensuring that domestic manufacturers remain protected from price distortions. Overall, this strategic adjustment could strengthen India’s position as a global manufacturing hub.
Courtesy: economictimes.indiatimes.com
