India is considering a significant overhaul of its special economic zone (SEZ) framework to allow a freer flow of goods and services between SEZs and the domestic market.

The move aims to enhance export performance, attract investment, and strengthen manufacturing competitiveness amid a volatile global trade environment, according to a report by The Economic Times.

Discussions are underway between the Prime Minister’s Office (PMO) and the commerce and revenue departments on measures such as rationalising customs duties on sales from SEZs to the domestic tariff area (DTA), allowing rupee payments for domestic services, and permitting domestic units to send goods into SEZs for outsourcing.

According to the report, discussions are underway between the Prime Minister’s Office (PMO) and the commerce and revenue departments to make SEZs more competitive amid growing global trade uncertainty.

The proposals under consideration include rationalising customs duties on sales from SEZs to the domestic tariff area (DTA), allowing payments in Indian rupees for domestic services, and permitting domestic units to send goods into SEZs for outsourcing, sources told ET.

“There are some issues that the SEZs face… these issues are being examined,” a government official told The Economic Times. Another official added that the government is exploring ways to make the framework “nimble enough to respond to business challenges, especially in an uncertain global environment.”

India’s SEZs, designated duty-free zones considered outside the country’s customs territory, currently account for about one-fifth of total goods exports. In FY25, exports from 6,300 units across 276 operational SEZs stood at Rs 14.57 lakh crore, up 7.4% year-on-year.

The government may need to amend the SEZ Act, 2006, to enable the proposed flexibility and encourage manufacturers to scale up operations and achieve economies of scale, ET noted.

Industry experts say the reforms could help transform SEZs into broader “development hubs.”

“It’s about fundamentally shifting the focus from a purely export-centric model to one that promotes integrated development hubs balancing both international and domestic sales,” Pratik Jain, Partner at Price Waterhouse & Co LLP, told ET.

India’s SEZs, designated duty-free zones considered outside the country’s customs territory, currently account for about one-fifth of total goods exports. In FY25, exports from 6,300 units across 276 operational SEZs stood at Rs 14.57 lakh crore, up 7.4% year-on-year.

The government may need to amend the SEZ Act, 2006, to enable the proposed flexibility and encourage manufacturers to scale up operations and achieve economies of scale, ET noted.

Industry experts say the reforms could help transform SEZs into broader “development hubs.”

“It’s about fundamentally shifting the focus from a purely export-centric model to one that promotes integrated development hubs balancing both international and domestic sales,” Pratik Jain, Partner at Price Waterhouse & Co LLP, told ET.