Why in the News?

The Central government has relaxed key rules related to Special Economic Zones (SEZs) to further encourage the domestic manufacture of semiconductors and electronics.

What’s in Today’s Article?

• Semiconductor & Electronics Manufacturing (Introduction, Significance, etc.)
• SEZ Rules (Key Changes, Impact, Industry Response, Challenges, Future Outlook, etc.)

Introduction

• In a strategic push to localise high-tech manufacturing, India has amended key provisions of its Special Economic Zones (SEZ) Rules, 2006.
• These reforms primarily target the semiconductor and electronics component manufacturing sectors, which are crucial for India’s ambitions of technological self-reliance and reduced import dependence.
• Notified by the Ministry of Commerce and Industry in June 2025, the new rules mark a significant shift in India’s industrial policy approach, particularly given post-pandemic supply chain disruptions and rising global digital demand.

Significance of Semiconductors and Electronics Manufacturing

• Semiconductors are the foundational technology powering modern electronics, from smartphones and laptops to electric vehicles and smart appliances.
• With increasing digitisation and the rise of technologies like Artificial Intelligence (AI) and the Internet of Things (IoT), semiconductors have become central to economic and national security.
• India, like many other countries, became acutely aware of its import vulnerability during the COVID-19 pandemic when semiconductor shortages disrupted key industries.
• Given that China accounted for around 35% of global semiconductor manufacturing in 2021, countries including India have sought to de-risk their supply chains through domestic production.

Key Changes in SEZ Rules

• The recent amendments in the SEZ framework aim to reduce regulatory burdens and attract capital-intensive, technology-oriented investments.
• Reduction in Land Requirement (Rule 5 Amendment):

• The minimum land requirement for SEZs focused on semiconductors or electronic components has been slashed from 50 hectares to just 10 hectares.
• This reform facilitates smaller yet high-value investments by allowing firms to avail SEZ benefits such as duty-free imports and tax exemptions without the need for large land parcels.

• Easing of Encumbrance Norms (Rule 7 Amendment):

• SEZs no longer need to have “encumbrance-free” land if the land is mortgaged or leased to Central/State governments or their agencies.
• This is especially significant in India, where legal land records and title clearances often delay industrial development.

• Domestic Sales Permitted (Rule 18 Amendment):

• Units in semiconductor and electronics SEZs are now allowed to sell in the Domestic Tariff Area (DTA) after paying applicable duties.
• Earlier, SEZs were exclusively export-oriented. The new rule provides flexibility amid global trade uncertainties and boosts domestic supply chains.

• Revised Net Foreign Exchange (NFE) Calculations (Rule 53 Amendment):

• Goods received and supplied on a free-of-cost basis can now be included in NFE calculations and assessed using customs valuation rules.
• This is particularly helpful for industries like semiconductor manufacturing that often involve high-cost prototypes and design iterations.

Early Impact and Industry Response

• The reforms have already started to bear fruit. The Board of Approval for SEZs has cleared two major proposals:

• Micron Semiconductor Technology India Pvt. Ltd. will establish a semiconductor manufacturing SEZ over 37.64 hectares in Sanand, Gujarat, with an investment of Rs. 13,000 crore.
• Hubballi Durable Goods Cluster Pvt. Ltd. (Aequs Group) will set up an electronics component SEZ in Dharwad, Karnataka, spanning 11.55 hectares, with an investment of Rs. 100 crore.

• These investments signal a shift in India’s manufacturing landscape and align with larger initiatives like the Semicon India Programme (Rs. 76,000 crore outlay), aimed at building a complete semiconductor ecosystem.

Challenges in Execution

• Skilled Workforce: Semiconductor manufacturing requires highly trained professionals, which India is still developing at scale.
• Infrastructure Readiness: High-tech units need stable power, clean rooms, and water-intensive facilities, logistics that require substantial state support.
• Global Competition: Other countries, including the U.S., Taiwan, and South Korea, are also rolling out incentives. India must ensure competitiveness in its policy offerings.

Strategic Importance and Future Outlook

• India’s SEZ reforms are not isolated but part of a broader national effort to position the country as a trusted global hub for electronics manufacturing.
• The flexibility offered through SEZs, coupled with Production Linked Incentives (PLI), reflects a strategic understanding that manufacturing capability in semiconductors and electronics is essential for both economic growth and national resilience.
• By reducing regulatory friction, allowing domestic sales, and facilitating faster approvals, India is making itself a more attractive destination for global investors looking to diversify from traditional supply chains.