SEZ units may get to sell at home as well

The Union government may allow the sale of finished products SEZ to domestic tariff area (DTA) on payments of duties foregone on imported raw materials required to manufacture these products.

The provision has special relevance for units in the sectors like gems and jewellery, leather and fabrics.

In case of goods produced out of domestic raw material, SEZ units would be required only to pay excise duty payable on similar products manufactured in DTA, sources close to the development said.

"A SEZ unit will not be remunerative if it is not allowed to tap the vast domestic market. Sale to DTA is a hedge mechanism against cyclical nature of export. Only DTA sale can increase capacity utilisation, improve productivity and thus can attract both local and overseas investor in SEZ," sources added.

At present there are five SEZ operating in the country. All of them used to be export processing zones and then converted into SEZ. Thirteen more SEZs are planned by developers. While work on eight of them has started, five are still on the drawing board.

Even though there was initial enthusiasm about SEZ model which was emulating the Chinese model, on ground implementation is taking longer than anticipated. The first greenfield single product SEZ has come up in Kolkata for gems and jewellery but it is yet to start production.

"One of the reason why foreign investors did not show as much enthusiasm as in China or neighbouring south Asian country, is because DTA sale was restricted. DTA sale now attracts full custom duty on manufactured goods. If sale is allowed on payments of duties foregone on imported raw materials, it would make products made out of SEZ unit competitive," Pradeep Chopra, regional chairman of EPCES (Falta SEZ) pointed out.

SEZs account for more than 22 per cent of China's exports and more than 50 per cent production of such SEZ goes to cater the domestic Chinese market.

Exports from SEZs during 2003-04 have registered a growth of 46 per cent in dollar terms and 39 per cent in rupee terms. Exports during 2003-04 from SEZs stood at US $ 3,038 million (Rs 14,003.89 crore) as compared to US $ 2,079 million (Rs 10,056.62 crore) during the corresponding period last year.