Indian government eyeing to create new comprehensive economic hubs called DESH

22 Jun 2022 , 11:07 AM

According to a draft that was released for consultation, industrial units situated in these hubs, which will be known as Development of Enterprise and Service Hubs (DESH), may be permitted to sell in the domestic market and contract manufacture for those outside of these zones as well.

The package to convert SEZs into comprehensive economic zones is likely to include some financial incentives and measures to make conducting business easier.

These hubs may be created by the Centre, a state, or both separately or together, or by any individual for the production of commodities, the provision of services, or both.

To make taxes on products and services delivered to the domestic tariff area equal to those on goods and services provided by units outside the zones, an “equalization charge” may be placed on them. Units in SEZs are now export-focused and are subject to limitations on sales to the domestic market.

Once the draught is finished after stakeholder talks, appropriate legislation is likely to be submitted in the forthcoming monsoon session of parliament, according to persons familiar with the discussions.

The SEZ Act will be replaced by new legislation that will allow states to collaborate on development, according to Finance Minister Nirmala Sitharaman’s address on the February budget.

States that want to create these zones will be allowed to set up boards that will be in charge of supervision. Additionally, it is suggested to loosen the requirement for foreign exchange payments for supplies purchased from domestic tariff areas and to allow subcontracting for both products and services for DTA units.

Numerous recommendations in the draught come from the 2019 report of an expert committee led by Baba Kalyani, chairman of Bharat Forge. The committee had proposed that SEZs be transformed into employment and economic enclaves (3Es) with the expansion of MSME initiatives, simplification of procedures, and tax benefits for the services sector.

According to experts, the proposal suggests shifting the emphasis away from exports and toward economic activity, investment, and global value chain interlinkage, among other things, in addition to stronger governmental participation.

The industry has previously voiced its worries about the proposed equalization levy, claiming that it will cause instability, and has urged that instead of the several directors that are proposed in the draught, there should be just one hub director for each DESH.