Even before 1991, when India’s economy was broadly autarkic by design, export promotion was part of our policy agenda. Designated areas were carved out as special economic zones (SEZs), with these industrial estates exempt from various levies that went against export competitiveness. Set up in the mid-1960s, Kandla in Gujarat was our first SEZ. It has long been dwarfed by another one across the Gulf of Kutch in Jamnagar, home to a huge Reliance oil refinery that logs major exports, but we also have hundreds of other SEZs, all of them governed by the SEZ Act of 2005. By basic definition, these are duty-free enclaves. So long as businesses earn more foreign exchange than spend over each five-year stretch, units located here can freely import what they need (i.e., sans permits, duties and customs checks) and also enjoy a clutch of tax exemptions, such as zero GST on domestic supplies. As these operate like offshore zones, any sales of their products and services in the Indian market face regular import tariffs. In 2019, however, the World Trade Organization (WTO) held that subsidies for our SEZ units violated its rules of fair trade. In response, the government now plans to enact a bill that will restructure and reposition SEZs. While this may offer us a way out, let’s do it with minimal scope for unintended consequences.
