As many as 466 units have closed in the last five years till FY25 in seven special economic zones (SEZs) across the country, according to data shared by the Commerce and Industry Ministry in written response to a Lok Sabha question.
This comes against the backdrop of the US tariffs resulting in consecutive months of decline in goods exports in September and October.
The official data showed that 100 units shut shop in FY25 alone, most after FY22 when Covid-19 resulted in the closure of 113 units. The employment in SEZs also declined to 31.77 lakh in FY25 compared with 31.94 lakh during the previous financial year.
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SEZs enjoy various tax benefits, including duty-free imports and domestic procurement and employ over 31 lakh people in various labour-intensive sectors. SEZs in China became a prominent engine of growth, resulting in China’s manufacturing prowess. However, this model has not resulted in similar success for India.
To be sure, exports from the SEZs in the export units during the last 5 years have shown an upward trend. Exports have doubled to Rs 14.63 lakh crore in FY25 compared to Rs 7.59 lakh crore in FY21.
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Meanwhile, investments have also shown a slight uptick as they picked up to Rs 7.82 lakh crore in FY25 from Rs 6.17 lakh crore in FY21. This comes even as SEZs are facing low investments in Research and Development (R&D) and tight competition from other countries.
The Ministry of Commerce and Industry has been working on SEZ reforms for the last 3 years and is expected to announce reforms going forward.
Responding to a question on possible measures planned to aid SEZs, the Minister of State for Commerce and Industry, Jitin Prasada, said the government undertakes various measures from time-to-time to remove operational challenges in SEZs in consultation with different stakeholders.
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“Such measures, including policy initiatives like permitting reverse job work and regulatory changes are a continuous process and introduced in the administration of SEZs as and when needed,” Prasada said.
According to a survey by the Indian Council for Research on International Economic Relations (ICRIER): “Some of the reasons behind low FDI in Indian SEZs are the lack of investment protection agreements, unlike countries like Vietnam; negative perception about the SEZs and limited marketing and brand building to address those perceptions.”
The ICRIER survey added SEZs have been facing productivity-related challenges. Before 2019, there were around 500 gems and jewellery units in SEZs. However, in recent years, many gems and jewellery units exited SEZs and during FY22, there were close to 360 gems and jewellery units in Indian SEZs, the report stated.
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“During FY21, the share of gems and jewellery in total exports from SEZs also declined to 15.7 per cent. This is because of multiple reasons, including better non-fiscal incentives received by firms in other competing countries, withdrawal of fiscal benefits in India, pandemic-related demand and supply disruptions and SEZ-related policy uncertainties,” the report stated.
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