An Overhaul in the Making
All eyes in India's trade and manufacturing sectors are currently fixed on the Commerce Ministry. A 17-member committee, established in March 2026, is on the verge of submitting its final report, which contains recommendations for a sweeping overhaul
of the country's Special Economic Zone (SEZ) policy. This report, destined for the desk of Commerce Secretary Rajesh Agarwal, is expected to provide a roadmap for what many are calling 'SEZ 2.0'—a new framework designed to revitalize these crucial export hubs. The committee's work has been extensive, involving detailed consultations with various stakeholders to understand the operational, regulatory, and procedural hurdles that have hindered the full potential of SEZs. The central objective is to boost domestic manufacturing, increase exports, and reduce reliance on imports, aligning the policy with India's current economic priorities.
Why the 2005 Policy Ran Its Course
The original SEZ Act was passed in 2005, a time when India's trade landscape and global economic dynamics were vastly different. For years, it was a cornerstone of India's export strategy, creating tax-friendly enclaves that attracted investment and generated significant foreign exchange, especially from the IT and services sectors. Today, there are 276 operational SEZs housing over 6,200 units across the country. However, the nearly two-decade-old framework is now seen as outdated. Global trade rules have evolved, and some of the incentives offered under the old act have faced scrutiny at the World Trade Organization (WTO) for being perceived as direct export subsidies. Furthermore, a previous attempt to modernize the law through the Development of Enterprise and Service Hubs (DESH) Bill stalled due to disagreements between ministries, creating a policy vacuum that the new panel was tasked to fill. A reported decline in SEZ exports in 2025-26 has only added to the urgency for reform.
The Key Problems the Panel Tackled
The committee's mandate was comprehensive. It was asked to identify the fundamental challenges facing both SEZ developers and the businesses operating within them. One of the biggest complexities is the web of different export promotion schemes that often operate in silos. The panel has reportedly focused on harmonising these schemes—including SEZs, Export-Oriented Units (EoUs), and others—to create a more cohesive and efficient system. Another major focus area was the fiscal impact of SEZs, with the panel assessing the costs and benefits in terms of revenue, investment, and overall economic activity. They also delved into operational bottlenecks, such as rules around selling goods within the domestic market (Domestic Tariff Area or DTA) and procedural complexities that add to the cost of doing business. Stakeholders have pushed for changes like allowing rupee transactions for services sold to the DTA, which could be a game-changer for many firms.
The Potential Dawn of 'SEZ 2.0'
While the final recommendations remain under wraps, the direction of the reforms points toward a more flexible and integrated model. The concept of 'SEZ 2.0' aims to transform these zones from purely export-focused islands into broader economic hubs that can also serve the domestic market more effectively. The recommendations are expected to be broken down into short, medium, and long-term actions, including potential amendments to the SEZ Act and its associated rules. Industry watchers anticipate proposals that will streamline customs procedures, simplify compliance, and create a more predictable regulatory environment. By examining international best practices, the panel aimed to suggest reforms that would make Indian SEZs more competitive globally while remaining compliant with international trade laws. The ultimate goal is to create a modern policy that fuels India's ambitions to become a global manufacturing powerhouse.
The Ministry's Decisive Next Step
Once the panel submits its findings, the ball will be firmly in the Commerce Ministry's court. The ministry will review the recommendations and decide which reforms to accept and how to implement them. This process will likely involve further inter-ministerial consultations, particularly with the Finance Ministry, to iron out fiscal details and ensure the new policy is aligned with the government's broader economic strategy. The decisions made in the coming weeks and months will have far-reaching consequences. For thousands of businesses operating in SEZs, these reforms could unlock new growth opportunities and reduce administrative burdens. For the Indian economy, a successful SEZ 2.0 policy could provide a significant tailwind for the 'Make in India' initiative, boosting exports, creating jobs, and strengthening the country's position in global supply chains.
