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As countries, including India, engage with each other to smoothen pathways to do business through free-trade agreements (FTA), among other measures, these discussions have put a spotlight on local medical device makers invested in special economic zones (SEZ), and their call for an amended SEZ 2.0 policy.
Industry insiders say they are not against trade agreements. Their ask is for a booster shot by way of reform to the SEZ policy, and for the Centre to not close the India market to SEZ units.
Ravi Abraham, Managing Director of Kanam Latex, a manufacturer and supplier of medical and surgical gloves, located in an SEZ in Tamil Nadu, says, “We welcome FTA/BTA (bilateral trade agreements) as this increases export opportunities; also, competition from outside will only make us innovate and improve… What SEZ units are looking for is a level playing field with DTA (domestic tariff area) units and manufacturers.”
Drawing attention to the problems faced by SEZ units, the company said in its November 2024 letter to Central authorities: “Today the product that we manufacture can be imported duty-free from any of the countries that India has signed FTA with, and if we have to export and also sell in our own market (India), we have to pay 11 per cent duty for sale in DTA, even if we have not used any input that would have been taxable. Why should anyone invest in SEZ (special economic zone), as even a unit outside India can get duty-free import into India and we in SEZ have to pay 11 per cent customs duty and 12 per cent to 18 per cent GST?”
The Association of Indian Medical Device Industry (Aimed), in its letter late last year, also called for the long-promised reforms to make SEZs a “make-in-India enabler”. It outlined the difficulties of units invested in these zones, even as benefits get gradually phased out.
Legit ask?
Industry had opted for setting up units in SEZs to export from India, points out Saurabh Agarwal, Tax partner, EY India. But with opportunities increasing in India and global competition in export markets, many of these units now want to use their facilities to manufacture supplies for the domestic market.
At present, SEZ units are required to pay the full duty on finished goods, rather than duty on only the imported components used in the finished goods, when they sell inside the country.
Given the changing global and local dynamics, “it is legit to ask for the SEZ law to be reviewed — to levy duty only on the goods or services procured by them for manufacturing finished goods supplied to (the) domestic tariff area, which have not suffered duties due to the existing SEZ legislation — in other words, treat it like an import into the country only to the extent of goods and services that have not suffered duty originally,” he says, comparing it to the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) scheme that seeks to facilitate manufacturing and investment in India.
Not cast in stone
SEZs were set up about 20 years ago to facilitate exports, and there are several reporting obligations on them to get those benefits, says Rishi Agrawal, Chief Executive Officer and co-founder, Teamlease Regtech.
But the world has since changed, and so has India, he says, calling for greater flexibility and policy resilience, without disadvantaging others in the process. “The original act came in 2005… in 2025 our compulsions have changed. But our regulations haven’t. Our needs have changed. But our laws are still the same,” he says.
Industry has been asking to remove the SEZ’s “export only” focus, because “if they are overly dependent on exports, then there can be an underutilisation of their capacity. Especially when the global demand is going through an upheaval”, he explains.
For instance, an entrepreneur invests heavily in a set-up — with people, technology, machines, infrastructure — only to see a dip in global demand even as India emerges as a promising market, given that it is one of the fastest growing economies, he says. “So, you have everything but you are unable to provide that in India; that kind of puts you at the mercy of global demand.” Calling for digitisation and resilience, Agrawal says, “Our regulations have to adapt and align with the changing needs of the time and business. Our regulations are treated like (they are) cast in stone. They cannot be cast in stone.”
Published on June 15, 2025
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