Introduction
India’s Special Economic Zones (SEZs) were introduced through the SEZ Act of 2005 to boost exports, attract foreign investment, and generate employment. However, over time, SEZs struggled with challenges like tax uncertainties, under-utilisation, and non-compliance with WTO norms.
To address these shortcomings, the Indian government proposed the DESH Bill (Development of Enterprise and Service Hubs) as a modern, investor-friendly replacement for the SEZ framework. The DESH Bill is part of India’s larger plan to position itself as a global hub for manufacturing and services under the “Make in India” and “Atmanirbhar Bharat” initiatives.
Background: Why the SEZ Act Needed Reform
1. WTO Incompatibility
India’s export-linked tax incentives in SEZs were challenged by the World Trade Organization (WTO) in 2019 for violating the Agreement on Subsidies and Countervailing Measures (ASCM). This meant India had to phase out export subsidies.
2. Sunset Clause on Tax Incentives
The income tax exemptions under Section 10AA were gradually phased out, diminishing SEZ attractiveness for investors. New SEZs after 2020 could not avail full tax benefits.
3. Domestic Market Restrictions
Units in SEZs faced hurdles in selling goods in the Domestic Tariff Area (DTA), requiring high import duties and permissions, which led to under-utilised land and infrastructure.
4. Procedural Bottlenecks
Cumbersome compliance procedures, rigid zone classifications, and centralised regulation made the SEZ model less agile compared to modern global economic zones.
What is the DESH Bill?
The DESH Bill (proposed in 2022, pending enactment) seeks to revamp the SEZ regime with a more liberal, WTO-compliant framework. The goal is to create multipurpose economic hubs that can serve domestic as well as export markets.
Key Features of the DESH Bill
1. Development of Enterprise and Service Hubs
DESH zones can now include manufacturing, services, and commercial activities, offering flexibility beyond export-oriented production.
2. WTO-Compliant Incentives
Tax benefits under DESH are expected to be linked to production and employment, instead of direct export performance — aligning with WTO norms.
3. Open Access to Domestic Markets
DESH units can sell in the domestic market by paying applicable customs duties only on imported inputs. This opens up demand opportunities and prevents wastage of capacity.
4. State-Level Empowerment
Unlike the SEZ Act, the DESH Bill allows states to play a larger role by developing and notifying zones. This boosts cooperative federalism and localized economic growth.
5. Ease of Compliance and Digital Governance
The bill proposes a single-window clearance system, unified return filings, and digitized customs clearances — in line with Ease of Doing Business (EoDB) goals.
6. Integration of Services and GIFT City Model
The DESH Bill accommodates service-sector hubs, including fintech, BPOs, R&D centers, and logistics. The framework may integrate with India’s GIFT City, promoting financial innovation zones.
How DESH Bill Aims to Solve SEZ Challenges
From Export-Only to Demand-Driven Model
Instead of being export-exclusive, DESH zones allow domestic sales, which helps developers use existing capacity, reduce inventory waste, and improve overall productivity.
Investor Confidence through Predictability
By removing tax-linked export conditions and moving toward production-linked incentives (PLI), the DESH model gives investors greater legal and tax certainty.
Employment and MSME Inclusion
The new hubs are expected to encourage MSME participation, with simplified entry requirements and fiscal benefits for job creation, especially in Tier 2 and 3 cities.
Environmental and Social Governance (ESG)
The DESH Bill incorporates provisions for sustainability and social audits, ensuring that new zones are inclusive, green, and responsible in operation.
Potential Economic Impact
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Increased FDI inflows due to a friendlier business environment.
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Job creation in emerging sectors like fintech, green energy, logistics, and deep-tech.
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Better land utilisation of existing under-performing SEZs.
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Balanced regional development through state-led hubs.
Concerns and Criticisms
1. Legislative Delay
The DESH Bill is still pending approval in Parliament. Uncertainty about its final shape may delay investments and policy adoption.
2. Loss of Tax Arbitrage
With tax breaks tied to production/employment instead of exports, some large exporters may lose incentives, making them reconsider their expansion plans.
3. Implementation Hurdles
States may face capacity constraints in managing complex zones, requiring technical support and governance reforms.
4. Overlap with Other Schemes
India already has Industrial Corridors, Textile Parks, PLI schemes, and GIFT City. Critics argue that the DESH model must integrate rather than duplicate existing initiatives.
The Way Forward
Clarity on Taxation
The Finance Ministry must issue clear guidelines on duty drawback, GST treatment, and incentives to prevent legal disputes and ambiguity for DESH zone units.
Strong State-Centre Partnership
Success of DESH will depend on how effectively states can plan, execute, and manage the hubs with technical and financial support from the Centre.
Digital First Compliance
Digital integration across customs, DGFT, GSTN, and SEZ online platforms is critical to reduce transaction costs and corruption.
Sustainability-Linked Metrics
The DESH regime should reward green practices like energy efficiency, recycling, and local employment to align with India’s net-zero goals.
Conclusion
The DESH Bill marks a strategic reset in India’s special economic zone policy — shifting focus from export-linked tax sops to a holistic, globally compliant enterprise model. By making zones inclusive of services, domestic sales, and state-level governance, DESH promises to be more flexible, modern, and investment-friendly than its predecessor.
While execution challenges remain, the DESH Bill reflects India’s aspiration to blend economic liberalism with sustainability and federal cooperation. If implemented well, it could become a key pillar in making India a global hub for both services and manufacturing in the coming decade.