What is the DESH Bill?

The SEZ Rules, 2006 came into effect on 10th February, 2006 amid much fanfare. Till mid-June this year, 378 SEZs were notified. And of them, till March this year, 268 SEZs were operational. Rest were de-notified.

So why did such a large number of SEZs have to be de-notified? Among the reasons listed by the government were poor market response, lack of demand for space and change in the fiscal incentive regime.

Exports from these SEZs have fallen to $102.3 billion in FY21, from $112.3 billion in FY20. They account for less than 20% of exports now.

Set up to fulfil India’s plan of becoming a manufacturing powerhouse, these special zones fell short of expectations as the competitive advantage waned and several direct tax benefits were withdrawn.

A WTO panel had in 2019 said that incentives given to entities located in SEZs violated the agreement on subsidies. So now, the government has decided to overhaul the SEZ rules.

The government is likely to introduce the Development of Enterprise and Service Hubs (DESH) Bill in the upcoming monsoon session of Parliament. Through this, the government is seeking to go beyond export-oriented manufacturing and focus on broad-based parameters such as boosting additional economic activity, generating employment, and integrating various industrial hubs.

Unlike in the SEZ ecosystem, the government has proposed to create developmental hubs, whose focus is not limited to exports, but also to cater to the domestic markets. The customs duty would only be paid on the inputs used and not on the expensive final goods. The Bill also seeks to integrate existing industrial estates such as textiles and food parks by converting them into developmental hubs.

The DESH Bill classifies two types of developmental hubs -- Enterprise and services hubs. While the enterprise hubs will have land-based area requirements and be allowed for both manufacturing and services activities, services hubs will have built-up area requirements and be allowed for only services-related activities. These hubs, which will come up under the regional boards of states, could be created by Centre or states or jointly by both or by any goods and services provider.

One of the key aspects of the new DESH Bill is also to promote the expansion of the gambit of service sector units. Currently, only specified services such as IT, ITeS are allowed in special economic zones.

The Bill also proposes to offer tax benefits and other sops. According to reports, the draft bill proposes to freeze the corporation tax at concessional 15% for greenfield and brownfield units in the developmental hubs.