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Recently, the Department of Commerce notified key amendments to the SEZ Rules, 2006, to boost semiconductor and electronics component manufacturing. These reforms address the high capital intensity and import dependency of the sector and aim to attract pioneering investments.

Key Rule Amendments:

Rule 5: Minimum Land Requirement Relaxed

• What Changed: Minimum land required for SEZs dedicated to semiconductor/electronics manufacturing reduced from 50 hectares to 10 hectares.
• Why it matters
  • Eases land acquisition
  • Makes SEZs more feasible, especially in smaller industrial clusters
  • Encourages pioneering investments in land-scarce regions

Rule 7: Encumbrance-Free Land Norm Relaxed

• What Changed: SEZ land no longer required to be entirely encumbrance-free, if it is mortgaged/leased to the Central or State Government or authorized agencies.
• Why it matters
  • Removes a major legal hurdle in land approvals
  • Accelerates SEZ project clearance and development timelines

Rule 18: Domestic Supply Allowed from SEZ Units

• What Changed: Semiconductor/electronics SEZ units can now sell products in the Domestic Tariff Area (DTA) after paying applicable duties.
• Why it matters
  • Greater market access
  • Enhances revenue and profitability
  • Breaks away from traditional export-only SEZ model

Rule 53: Clarity on Free-of-Cost Goods in NFE Calculation

• What Changed: Free-of-cost goods received or supplied will now be included in Net Foreign Exchange (NFE) calculations, using customs valuation rules.
• Why it matters
  • Encourages R&D and contract manufacturing
  • Promotes transparent reporting of value addition
  • Aligns with global manufacturing practices

Significance of Reforms:

• Tailored for High-Tech Sectors: Recognises the long gestation and capital-intensive nature of semiconductor and electronic component industries.
• Encourages Domestic and Global Investment: Makes India an attractive destination for global electronics giants.
• Enables Domestic Market Integration: By allowing DTA sales, it expands market access for SEZ-based units.
• Supports India's Semiconductor Mission: Complements existing initiatives like the Semicon India Programme.