A revamp of special economic zones (SEZs) is under the active consideration of the commerce and finance ministries. They are being revamped with a focus on service sector exports and incentivising manufacturing, with the focus shifting from exports to employment. The move follows a report submitted early last week by a high-level committee headed by Baba Kalyani, the chairman & MD of Bharat Forge.
Major recommendations include the removal of the sunset clause for services SEZs (including international financial centre) in India and providing an employment-based incentives scheme to address any issues that might not stand within World Trade Organization (WTO) rules.
The commerce ministry has accepted the recommendations. A government official said, "The suggestions of the committee are very constructive and the commerce ministry will immediately begin formal consultations with the finance and other ministries so that implementation of the committee's recommendations may be done without any delay."
ALSO READ: Commerce Min to start consultations with FinMin on SEZ report
The committee was set up by the Union Commerce Ministry last June to make its SEZ policy compatible with WTO rules after the US challenged India's export subsidy programme at the multilateral trade body.
To address this issue, the committee has proposed that the SEZs be rechristened as "employment economic conclaves" and incentives be based on employment generation. This will be crucial for manufacturing sector units in these zones, and export compulsion should be relaxed for them when the emphasis is on employment.
At present, manufacturing SEZ units have a sunset clause for incentives. Units set up after April 2020 will not receive tax benefits in SEZs. If incentives are given based on employment generation, then WTO concerns can also be addressed. For service sector SEZs, other services such as healthcare, financial services, legal, repair and design services should also be promoted in line with information technology (IT) and information-technology-enabled services (ITeS), said the committee in its report.
ALSO READ: Comm Min panel on SEZs proposes continuation of incentives
The committee has suggested that there should be no sunset clause for services SEZs and that the employment-based incentives scheme should also be made applicable for them.
There is an urgent need to implement these recommendations and promote services SEZs. According to an SEZ official, due to the sunset clause coming in force from 2020, a few leading international financial centres, including Dubai and Singapore, are coming to India and marketing their centres, inviting Indian units to set up shop there.
The committee has made an attempt to ensure the growth of many other services, in line with IT and ITeS.
Several recommendations have been made to this effect with a view to promoting services that can create a large number of jobs and economic activity in India. These include setting up global services delivery centre, global innovation hub, global payment services hub, design & innovation hub, promoting data and research services, business process outsourcing, human resources & recruitment services, and developing large job-generating services through global players in these SEZs.
ALSO READ: 13 SEZ developers, units seek more time to implement projects
The committee has also considered the potential of the International Financial Services Centre (IFSC) with Multi Services SEZ at GIFT City, Gujarat, which can bring back international financial services business of around $125 billion by 2025, provided that the required regulations and tax framework are in place and comparable to those in other global financial centres.
However, to promote IFSC-Gift, the committee has proposed a unified regulator for the financial sector at GIFT. This was also recommended by the Reserve Bank of India (RBI), and the government is said to be finalising a Bill to change the regulatory regime for IFSC. Another important recommendation for the IFSC is to have 'single window approval, time-bound response and advance rulings' for units coming up there. Single window facilities save lots of time, while sectoral regulators, on the other hand, might have a domestic market angle, with which the IFSC has no particular concerns, in preparing policies.
The report also said that the IFSC SEZ should be made a hub for global financial & allied services, aircraft/shipping leasing & financing international reinsurance, international bullion/gold trading, global fund business & fund administration, and legal services/professional services, etc. All these services can grow substantially in GIFT.
Major recommendations include the removal of the sunset clause for services SEZs (including international financial centre) in India and providing an employment-based incentives scheme to address any issues that might not stand within World Trade Organization (WTO) rules.
The commerce ministry has accepted the recommendations. A government official said, "The suggestions of the committee are very constructive and the commerce ministry will immediately begin formal consultations with the finance and other ministries so that implementation of the committee's recommendations may be done without any delay."
ALSO READ: Commerce Min to start consultations with FinMin on SEZ report
The committee was set up by the Union Commerce Ministry last June to make its SEZ policy compatible with WTO rules after the US challenged India's export subsidy programme at the multilateral trade body.
To address this issue, the committee has proposed that the SEZs be rechristened as "employment economic conclaves" and incentives be based on employment generation. This will be crucial for manufacturing sector units in these zones, and export compulsion should be relaxed for them when the emphasis is on employment.
At present, manufacturing SEZ units have a sunset clause for incentives. Units set up after April 2020 will not receive tax benefits in SEZs. If incentives are given based on employment generation, then WTO concerns can also be addressed. For service sector SEZs, other services such as healthcare, financial services, legal, repair and design services should also be promoted in line with information technology (IT) and information-technology-enabled services (ITeS), said the committee in its report.
ALSO READ: Comm Min panel on SEZs proposes continuation of incentives
The committee has suggested that there should be no sunset clause for services SEZs and that the employment-based incentives scheme should also be made applicable for them.
There is an urgent need to implement these recommendations and promote services SEZs. According to an SEZ official, due to the sunset clause coming in force from 2020, a few leading international financial centres, including Dubai and Singapore, are coming to India and marketing their centres, inviting Indian units to set up shop there.
The committee has made an attempt to ensure the growth of many other services, in line with IT and ITeS.
Several recommendations have been made to this effect with a view to promoting services that can create a large number of jobs and economic activity in India. These include setting up global services delivery centre, global innovation hub, global payment services hub, design & innovation hub, promoting data and research services, business process outsourcing, human resources & recruitment services, and developing large job-generating services through global players in these SEZs.
ALSO READ: 13 SEZ developers, units seek more time to implement projects
The committee has also considered the potential of the International Financial Services Centre (IFSC) with Multi Services SEZ at GIFT City, Gujarat, which can bring back international financial services business of around $125 billion by 2025, provided that the required regulations and tax framework are in place and comparable to those in other global financial centres.
However, to promote IFSC-Gift, the committee has proposed a unified regulator for the financial sector at GIFT. This was also recommended by the Reserve Bank of India (RBI), and the government is said to be finalising a Bill to change the regulatory regime for IFSC. Another important recommendation for the IFSC is to have 'single window approval, time-bound response and advance rulings' for units coming up there. Single window facilities save lots of time, while sectoral regulators, on the other hand, might have a domestic market angle, with which the IFSC has no particular concerns, in preparing policies.
The report also said that the IFSC SEZ should be made a hub for global financial & allied services, aircraft/shipping leasing & financing international reinsurance, international bullion/gold trading, global fund business & fund administration, and legal services/professional services, etc. All these services can grow substantially in GIFT.
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