The Centre is likely to propose changes to the Special Economic Zone (SEZ) law in Budget 2026 to make it easier for Indian manufacturers to buy goods from SEZ units. The aim is to improve coordination between export-focused zones and domestic factories, without weakening the export objective of SEZs.
At present, SEZs are treated as being outside India’s customs territory. As a result, any sale from an SEZ unit to a domestic company is treated as an import. This means full customs duty is charged on the finished product, making such purchases expensive and often unviable for Indian manufacturers.
Under existing rules, domestic manufacturers can freely supply raw materials or inputs to SEZ units. However, when they try to buy finished or semi-finished goods from SEZs, the transaction attracts import duties. This one-way flow limits collaboration and prevents SEZ units from becoming part of broader domestic supply chains.
The rigid separation has created inefficiencies. Many SEZ units operate below capacity, especially during periods of weak global demand. At the same time, domestic manufacturers miss out on sourcing high-quality goods locally due to higher costs.
The proposed reforms are based on recommendations from a committee led by a senior NITI Aayog member. The panel reviewed structural issues affecting trade, investment, and industrial competitiveness. One key finding was that outdated SEZ rules were limiting integration with the domestic economy.
To address this, the committee suggested modernising the legal framework so SEZs can function as part of a larger manufacturing ecosystem rather than isolated export hubs. Implementing these changes would require amendments to the SEZ Act, which would need parliamentary approval.
One option under discussion is a more balanced duty structure for SEZ sales to the domestic market. Instead of charging customs duty on the entire finished product, duties could apply only to imported inputs used in production. This would remove cost disadvantages and make domestic sourcing more attractive.
Such a move could improve capacity utilisation in SEZs and strengthen India’s manufacturing base by encouraging closer operational links.
The reforms may also allow SEZ units to undertake job work and processing for domestic firms. Smoother movement of goods and services between SEZs and the domestic market could improve efficiency and reduce supply chain friction.
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If implemented, the proposed SEZ reforms could help integrate export zones with domestic manufacturing, lower costs, and support industrial growth. Budget 2026 may mark a key step in aligning SEZ policy with India’s broader manufacturing goals.
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Published on: Dec 16, 2025, 5:40 PM IST
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