All you need to know about The DESH Bill, 2022

About 378 SEZs were announced after India approved the Special Economic Zones (SEZ) Act, of 2005 and the rules regulating SEZs went into force in 2006. However, only 268 of them were operational as of March 2022; the government de-notified those SEZs that were not active. Finance Minister Nirmala Sitharaman highlighted the government’s plan to modify the legal framework governing SEZs in her most recent budget statement. She noted a lack of demand as well as substantial changes in taxation and incentive regimes over the last decade that have made the old concept of SEZs considerably less appealing. Furthermore, the WTO found a few years ago that tax-related incentives provided to SEZs breached worldwide accords on subsidies.
This article briefly describes What is the DESH Bill 2022, & the Three Key Levers of Economic Growth under The DESH Bill.

The DESH Bill, 2022: Context 

The main reason why India’s SEZ system needs a rethink is that the business climate has evolved dramatically in recent years. The SEZ policy was designed to encourage exports so that we might gain significant foreign cash. The current SEZ policy has clearly helped the Indian IT industry, which has greatly contributed to the growth of our foreign currency reserves. However, as IT/ITES company business and delivery models evolve to include more on-site delivery capabilities, the luster has faded. Furthermore, the manufacturing sector has not been able to harness SEZs to generate the desired level of export-based economic advantage. The change was thus required, which is why the government has been contemplating a comprehensive overhaul of the present SEZ structure.

Is it the right time to apply for The DESH Bill, 2022?

With a series of disruptive events hastening global supply chain transformations, India’s investment-intensive manufacturing skills in new industries are becoming crucial. It is also critical to expanding commerce and other non-IT services. It is now more crucial than ever to seek for new strategies to attract money to supplement our demographic strengths. Furthermore, rather than continuing to concentrate economic activity in certain urban regions, India needs more broad-based engagement throughout many states. Only policies that permit all of this will accelerate employment creation and, as a result, India’s socioeconomic growth and development.

Against this backdrop, the Government of India intends to present the Development of Enterprise and Service Hubs (DESH) Bill in Parliament during the ongoing monsoon session.

Broader Framework of The DESH Bill, 2022

The DESH Bill encourages the development of two types of hubs: one for services and one for other businesses. The former will have built-up area needs and will allow a wide range of services-related activities (including R&D), whereas the latter will have land-based area requirements and will house manufacturing and/or services. Both types of hubs can be established by the government (Centre/States), jointly, or by any recognized supplier of products and services. The goal is to promote private-sector investments that benefit the home market rather than merely exports. Greenfield or Brownfield initiatives are expected to support the development of infrastructure in non-urban regions.

The DESH Bill promotes the creation of two kinds of hubs: 

• One for services and 
• One for other enterprises. 

The former will require a built-up area and will allow for a wide range of service-related activities (including R&D), whereas the latter will require a land-based area and will contain manufacturing and/or services. Both types of hubs can be built by the government (Centre/States), in collaboration, or by any recognized supplier of goods and services. The idea is to encourage private-sector investments that help the domestic economy rather than just exports. Greenfield or Brownfield efforts are supposed to help non-urban infrastructure development.

Three Key Levers of Economic Growth under The DESH Bill

So far, the central government is eager to use the DESH Bill 2022 as a tool to trigger three important economic development levers:

• Developing the infrastructure required to become a global manufacturing and services hub, particularly as Western countries seek alternatives to China and other countries (including smaller ASEAN nations and some in Latin America and Africa) position themselves as viable destinations, at least in niche sectors. (Some of China’s hubs cover more than 250 square kilometers, but Indian SEZs are rarely larger than 2.5 square kilometers. Chinese hubs are completely integrated communities with well-developed infrastructure with connections to ports, airports, and other facilities. This explains the vast disparity in magnitude between Chinese hubs and those found elsewhere in the globe (a gap that India is eager to close).
• Using India’s scientific/technical skills to innovate and leapfrog the competition in sectors that will become vital not just for self-reliance (e.g., medicine, energy, electronics, etc.), but also for national security (e.g., drones, space technology, composite materials, semiconductor chips, etc.)
• Improving collaboration and alignment between central and state governments (and other stakeholders) so that results such as job creation and effective resource use are not sacrificed on the altar of petty political disputes or short-term benefits.

Key Features of the DESH Bill, 2022

The new DESH Bill 2022 will supersede the current law that governs Special Economic Zones (SEZs). Finance Minister Nirmala Sitharaman announced the new law in the Union Budget in February 2022.

• Development Hubs: Beyond encouraging exports it has a far larger purpose of stimulating local industry and employment creation through ‘development hubs’. These hubs will no longer be needed to be net foreign exchange positive cumulatively in five years (i.e., export more than they import), as required under the SEZ system, and will be able to sell more readily in the local market. As a result, the hubs will be WTO-compliant.
• Online Approval Gateway: The DESH Bill includes an online single-window portal for the award of time-bound permissions for the establishment and operation of the hubs.
• Increase Domestic Market: Companies can sell in the domestic market by paying tariffs only on imported inputs and raw materials rather than the completed product. When a product is sold in the domestic market under the existing SEZ framework, duty is paid to the end product. Furthermore, unlike SEZs, there is no required payment need in currency.
• States will play a Larger Role: State boards will be established to oversee the operation of the hubs. They would be able to authorize imports or acquire items, as well as supervise the use of commodities or services, storage, and trade in the development hub. The commerce department at the Centre made the majority of decisions under the SEZ regime. States may now participate and even make ideas for development centers straight to a central board for approval.

Takeaway

These entities may be classified as bonded zones, with customs duty foregone levied at the time of domestic clearances rather than the customs duty on completed products. If the NFE clause is removed from the proposed hubs, domestic clearances are simplified, the proposed single window clearances are implemented in full cooperation with the states, and duties and taxes, particularly customs duties, are deferred until final domestic clearances, setting up units in these proposed hubs is likely to be significantly less expensive and more compliant than the existing SEZ scheme.

Though the precise parameters will emerge in due course, the bytes suggest that the policy has the potential to be a game changer in the economy, especially given India’s large consumption theme. Aspirant business entities, particularly those aiming to participate in both global and local supply chains, may find the proposed system appealing.

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