SEZ 2.0 Policy Reform 2026: 17‑Member Committee to Overhaul India’s SEZ Framework and Boost Exports
Introduction: Why SEZ 2.0 Matters Now
In March 2026, the Government of India notified a 17‑member committee to recommend comprehensive reforms in the Special Economic Zones (SEZ) policy, marking the formal launch of SEZ 2.0.
The panel’s mandate is to modernise the Special Economic Zones Act, 2005, align it with evolving global trade dynamics, and enhance India’s export competitiveness by addressing structural bottlenecks in SEZs (such as under‑utilised land, regulatory overlaps and WTO‑related subsidy concerns).
With SEZ exports touching USD 172.27 billion in 2024–25 (a growth of 7.37%) and 276 operational SEZs housing 6,279 units, the need for a structural overhaul is both immediate and strategic.
Background: From SEZ 1.0 to SEZ 2.0
Evolution of SEZ Policy in India
The SEZ Act, 2005 replaced earlier export‑processing‑zone (EPZ)‑style schemes and created a unified legal framework for SEZs, with a strong export‑orientation, tax and duty incentives, and special customs procedures.
While SEZs contributed significantly to India’s services exports (especially IT/ITeS) and some manufacturing segments, the model has been criticised for land‑banking, low capacity utilisation, and incentives perceived as export‑linked subsidies that attract World Trade Organization (WTO) scrutiny.
The Stalled DESH Bill
Before SEZ 2.0, the government proposed the Development of Enterprise and Service Hubs (DESH) Bill to replace the SEZ Act, 2005, and transform SEZs into “Development Hubs” that could serve both domestic and export markets.
However, the DESH Bill remained stalled due to inter‑ministerial disagreements, especially between the Commerce and Finance ministries, over fiscal incentives, tax treatment and the extent of domestic‑market integration.
SEZ 2.0 is now being treated as a policy‑and‑amendment pathway to achieve many of DESH’s goals, but through gradual, law‑based reforms rather than a single, politically sensitive statute.
Mandate and Composition of the SEZ 2.0 Committee
Why a 17‑Member Panel?
The government has constituted a 17‑member committee under the Ministry of Commerce and Industry to prepare a concept paper and roadmap for SEZ 2.0, including short‑, medium‑ and long‑term reforms.
The panel is expected to submit its recommendations within six months of constitution, ensuring that the SEZ 2.0 framework can be synchronised with other trade and industrial policies, including the Union Budget and WTO‑related timelines.
Key Members and Institutional Representation
The committee composition reflects a multi‑stakeholder approach, drawing expertise from trade, taxation, industry‑policy and planning institutions:
- Ministry of Commerce and Industry (Commerce Department, Directorate General of Export Promotion, Export Promotion Council for SEZs)
- Central Board of Indirect Taxes and Customs (CBIC) and Customs authorities
- Department for Promotion of Industry and Internal Trade (DPIIT) and NITI Aayog
- Department of Economic Affairs, two Development Commissioners and other domain experts
This mix ensures that the SEZ 2.0 framework will be legally robust, operationally feasible and fiscally conscious.
Core Objectives of the SEZ 2.0 Committee
1. Modernisation of SEZ Laws
The committee has been tasked with reviewing the relevance and effectiveness of the SEZ Act, 2005 in the current macroeconomic and global‑investment landscape.
Key focus areas include:
- Whether the export‑only orientation and NFE (Net Foreign Exchange)‑based performance criterion remain suitable in a post‑DESH, WTO‑sensitive environment.
- The need to amend Sections 30, 31 and 35 of the SEZ Act to incorporate domestic‑tariff‑area sales at concessional duties and new performance metrics.
2. Harmonisation with Other Export Promotion Schemes
A major objective is to reduce policy overlaps and fragmentation by aligning SEZs with other export‑promotion mechanisms:
- Export‑Oriented Units (EOUs)
- MOOWR (Manufacturing and Other Operations in Warehouse)
- EPCG (Export Promotion for Capital Goods)
- Advance Authorisation and Duty Free Import Authorisation (DFIA)
The committee will study how these schemes interact and recommend streamlined, unified benefit structures for exporters, reducing compliance burden and administrative complexity.
3. Addressing Capacity Utilisation and Land Use
Despite 276 operational SEZs, a significant portion of developed and allotted land remains under‑utilised or idle, leading to criticisms of land‑banking and speculative investment.
The SEZ 2.0 committee is expected to:
- Identify under‑utilised zones and units.
- Propose time‑bound development and exit clauses for developers.
- Encourage multi‑sectoral and mixed‑use SEZs (manufacturing + services) to maximise floor‑space and employment intensity.
4. Ensuring WTO Compliance
One of the key drivers of SEZ 2.0 is WTO‑compatible design. The SEZ Act, 2005, has long attracted scrutiny because several exemptions and remissions can be treated as export‑linked subsidies under the Agreement on Subsidies and Countervailing Measures (SCMA).
The committee is expected to recommend a shift from export‑linked to investment‑linked and infrastructure‑based incentives, such as:
- Capital‑expenditure‑linked incentives for greenfield projects.
- Infrastructure‑investment credits tied to connectivity, logistics and utilities.
- Geographic and sectoral neutrality to avoid treating SEZ units as “special categories” in a way that distorts domestic markets.
Key Proposed Reforms Under SEZ 2.0
1. Domestic Tariff Area (DTA) Sales at Concessional Duties
A landmark move in the Union Budget 2026–27 is the one‑time permission for eligible SEZ manufacturing units to sell goods in the Domestic Tariff Area (DTA) at concessional duty rates, instead of paying full import duties.
Under SEZ 2.0, this is likely to be systematised into a structured scheme with:
- Eligibility criteria (e.g., minimum investment, export track record, technology upgradation).
- Duty‑forgone mechanism calibrated to avoid unfair advantage over domestic producers.
- Linkage to import substitution (e.g., prioritising DTA sales that replace imports from FTAs or high‑tariff jurisdictions).
This change moves SEZs from pure export enclaves toward integrated manufacturing hubs serving both domestic and global markets.
2. Performance Metrics: From NFE to “Net Positive Growth”
Currently, SEZ units are evaluated primarily on Net Foreign Exchange (NFE), calculated over a five‑year period from the commencement of commercial production.
The committee is exploring a broader “Net Positive Growth” framework that includes:
- Investment (domestic and foreign, capex per unit).
- Technology upgradation (R&D expenditure, automation, energy efficiency).
- Employment generation (direct and indirect, skill‑intensity).
- Value addition and export diversification (basket of products, global markets).
Such a shift would align SEZ performance with sustainable development goals rather than just forex‑earning targets.
3. Operational Flexibility and Compliance Reduction
The SEZ 2.0 framework is expected to simplify customs procedures, reduce compliance burden and harmonise approvals across central and state authorities.
Likely measures include:
- Single‑window clearance for environmental, labour and land‑use approvals within SEZs.
- Digitalisation of customs and SEZ‑specific EDI systems for faster clearances and fewer physical checks.
- Standardised audit and reporting formats to reduce duplication and inspection fatigue.
4. Infrastructure, Logistics and Integration with Industrial Corridors
Another key focus is infrastructure and last‑mile connectivity of SEZs, especially their integration with national industrial corridors and logistics‑infrastructure projects.
The committee is expected to recommend:
- Enhanced connectivity (rail‑linkages, expressways, inland waterways) for coastal and inland SEZs.
- Dedicated logistics parks, warehousing and cold‑chain facilities within or near SEZs.
- Synergy with initiatives like the National Industrial Corridor Development Programme (NICDP) and PM GatiShakti so that SEZs act as nodes in larger industrial‑transport networks.
Current SEZ Landscape (2024–25)
Export Performance
- Total SEZ exports (goods and services): USD 172.27 billion in 2024–25, representing 7.37% year‑on‑year growth.
- SEZs continue to contribute a significant share of India’s services exports, especially in IT/ITeS and some high‑value manufacturing.
Structural Indicators
- 276 operational SEZs hosting 6,279 units as of 2024–25.
- Despite high export numbers, many SEZs operate below optimal capacity, with idle land and under‑utilised infrastructure.
SEZ 2.0 aims to reverse this trend by making existing SEZs more productive through policy clarity, flexibility and integration with domestic markets.
SEZ 2.0 vs DESH Bill: What’s Different?
In essence, SEZ 2.0 is a pragmatic, incremental approach that builds on the SEZ Act while gradually incorporating DESH‑like features, especially domestic‑market access and multi‑sectoral hubs.
Implications for Industry, States and Trade Policy
For Exporters and SEZ Developers
- Greater flexibility to sell in DTA at concessional duties can improve capacity utilisation and risk‑diversification amid volatile global demand.
- Harmonised schemes (EPCG, EOUs, MOOWR, SEZ) may reduce paperwork and enable multi‑scheme optimisation for manufacturers.
For States and Sub‑National Governments
- SEZ 2.0 reforms tied to state‑level infrastructure projects (roads, ports, industrial corridors) can boost regional investment and employment.
- States may also get greater administrative space in planning and monitoring SEZ‑linked industrial clusters, similar to the DESH‑style regional boards.
For India’s Trade Policy and WTO Engagement
- Shifting from export‑linked to investment‑linked incentives reduces the risk of WTO disputes over prohibited or actionable subsidies.
- A more WTO‑compliant SEZ regime can strengthen India’s position in FTA negotiations and trade‑defence cases.
Challenges and Criticisms
Fiscal and Equity Concerns
- Critics argue that duty‑forgone domestic sales and infrastructure‑linked incentives may still lead to revenue leakage if not tightly monitored.
- There are also concerns that large, well‑connected SEZ developers may benefit disproportionately, leaving smaller units and new entrants at a disadvantage.
Coordination Across Ministries
- Successful SEZ 2.0 implementation will depend on cohesion between Commerce, Finance, States, Customs and DPIIT, which has historically been a bottleneck (as seen in the DESH Bill delay).
- Any ambiguity in DTA‑sales rules or duty‑forgone formulae could create disputes between exporters, customs authorities and domestic manufacturers.
UPSC Perspective: Why SEZ 2.0 is Important
For UPSC aspirants, SEZ 2.0 offers a multi‑dimensional case study on:
- Trade and industrial policy (export promotion vs WTO obligations, role of SEZs).
- Inter‑ministerial coordination and federalism (Centre–state roles in industrial corridors and SEZs).
- Public policy evaluation (performance metrics beyond NFE, capacity utilisation, social impact of incentives).
FAQs on SEZ 2.0 Policy Reform
Q1. What is SEZ 2.0 and why has it been launched?
SEZ 2.0 is the Government of India’s initiative to comprehensively reform the Special Economic Zones (SEZ) policy framework through a new roadmap for exports, investment, and ease of doing business.
It has been launched to address issues of policy overlap, under‑utilised capacity, and WTO‑related concerns while repositioning SEZs as competitive hubs integrated with domestic and global value chains.
Q2. Who has set up the SEZ 2.0 committee and when?
The Union Government has set up a 17‑member committee in March 2026 to suggest broad‑based reforms and draft a SEZ 2.0 policy framework.
The committee will submit a concept paper and roadmap with recommendations for short‑, medium‑, and long‑term reforms within six months.
Q3. What are the main objectives of the SEZ 2.0 committee?
The committee’s core objectives are to harmonise various export promotion schemes, evaluate SEZ effectiveness, and identify operational and regulatory challenges faced by developers and units.
It will also recommend policy, legal, and procedural reforms, including possible amendments to the SEZ Act and Rules, to boost exports, investment, jobs, and ease of doing business.
Q4. Which export promotion schemes will be harmonised under SEZ 2.0?
The committee will study and harmonise SEZs with schemes such as Export‑Oriented Units (EOUs), MOOWR, Advance Authorisation, EPCG, and Duty Free Import Authorisation (DFIA).
This is meant to reduce duplication, policy arbitrage, and compliance complexity across different export promotion mechanisms.
Q5. How will SEZ 2.0 change Domestic Tariff Area (DTA) sales rules?
The panel will review recent and proposed relaxations, including allowing eligible SEZ manufacturing units to sell in the DTA at concessional duty rates.
It will assess the impact of such measures on exports, investment, and import substitution and recommend a predictable framework for DTA access.
Q6. What performance metrics will SEZ 2.0 focus on?
The committee will evaluate SEZ performance in terms of exports, investment, employment, and ease of doing business rather than only Net Foreign Exchange (NFE).
It will also measure value addition, technology up‑gradation, and MSME participation to guide a more growth‑oriented incentive structure.
Q7. How many SEZs and units are currently operational in India?
India has 276 operational SEZs with 6,279 units, and SEZ exports rose 7.37% to USD 172.27 billion in 2024‑25.
These figures underscore the need to unlock further potential through reforms in incentives, compliance, and infrastructure.
Q8. What challenges faced by SEZs will the committee address?
The panel will identify issues relating to customs, taxation, compliance burden, infrastructure gaps, and coordination among stakeholders across Centre, States, and SEZ authorities.
It will also map hurdles that limit investment, capacity utilisation, and job creation, especially in manufacturing and services.
Q9. How is SEZ 2.0 linked to the DESH Bill?
The DESH Bill aimed to replace the SEZ Act, 2005 and create flexible Development Hubs with both export‑oriented and domestic‑market focus.
SEZ 2.0 builds on this vision by using a committee‑based approach to design WTO‑compliant incentives, streamlined governance, and integrated zones without immediately discarding the existing Act.
Q10. What is the expected impact of SEZ 2.0 on exports and investment?
SEZ 2.0 is expected to improve investor confidence by rationalising incentives, easing compliance, and strengthening infrastructure and logistics connectivity.
If implemented effectively, it can raise exports, attract higher FDI, deepen value chains, and generate more employment, including for MSMEs.
Q11. How is WTO compliance being addressed in these reforms?
The committee will study international best practices and ensure that benefits under SEZ 2.0 are aligned with WTO‑compatible, investment‑linked and infrastructure‑linked support.
This shift reduces dependence on narrowly defined export‑linked subsidies that are more prone to global trade disputes.
Q12. Why is SEZ 2.0 important for UPSC preparation?
SEZ 2.0 directly touches GS‑II (policy, federalism, WTO, inter‑ministerial coordination) and GS‑III (industry, trade, logistics, employment, MSMEs).
It also connects with previous reforms like the DESH Bill and Baba Kalyani Committee, making it an excellent case study for mains answers and essays.
