Development of Enterprise and Service Hubs Bill (DESH), 2022

Development Of  Enterprise and service Hubs (DESH) bill is introduced by the government to replace the Current Special Economic Zone Act, 2005. It was done after the World trade organization review regarding India’s special economic zone. WTO has ruled that India’s export-related schemes, including  SEZ schemes, are not according to WTO rules. The current rule directly links the tax benefits to exports, and the country couldn’t subsidize export. SEZ will be renamed as a Development hub and will be free from several laws. Hub will facilitate both export-oriented and domestic investment.

Special Economic Zone:

• The region in the country has different economic regulations than other regions of the same country. 
• It is the region targeting foreign direct investments.
• It facilitates rapid economic growth, and tax incentives are leveraged to attract foreign investment and technological development. 
• SEZ is governed by a three-tier administrative setup.

Objectives of Special Economic Zone:

• Generation of economic activities.
• Promotion of exports of goods and services.
• Promotion of investment from domestic and foreign resources.
• To generate employment.
• To develop infrastructure activities.

Types of the Special Economic Zone:

• Free trade zones.
• Export processing zones.
• Free zones/ Free economic zone.
• Industrial parks.
• Free ports.
• Bonded logistics parks.
• Urban Enterprise zones.

Special Economic Zone Act, 2005

• SEZ act was launched in 2000 and passed by parliament in 2005.
• No license for import.
• Manufacturing and service activities are not permitted.
• The unit will be receiving positive net foreign exchange, which will be calculated cumulatively for five years.
• Domestic sales will be under full customs duty and import policy.
• SEZ is allowed for sub-contract and will be free from the routine examination by the customs authority.

Challenges faced by industries due to SEZ Act, 2005:

• Existence of multiple models of economic zones- The country is divided into different zones like coastal economic zone, Delhi Mumbai industrial corridor, National investment, Food park, and textile market. It makes coordination challenging.
• Underutilization of the existing capacity- SEZs are not allowed to do work for the domestic areas. The area outside SEZ is known as DTA, and goods and services exchanged between SEZ and DTA are treated as imports. 
• Minimum alternate rate- IT was imposed on April 1, 2012, and then the imposition of income tax on the new SEZ in April 2020 introduced a new challenge for the industry.
• Due to the significantly less role of the state government, there was very little support from the state government for forming a single window system.

Development of Enterprise and Service Hubs Bill (DESH), 2022:

Key Provisions:

1. Special economic zones will be renamed Development of the Enterprise and Service Hubs.
2. Hubs no longer need to have net foreign exchange positive cumulatively in 5 years as in SEZ act.
3.  Hubs can easily sell in the domestic market, and duty only needs to pay on the imported inputs and raw materials, not on the final product.
4.  Equal levy for goods and services supplied to the domestic market to bring tax at a level to the outside unit. 
5.  Hubs will not be benefited from direct tax incentives, and hubs will now comply with the WTO rule.
6.  It ends the duration of holding goods which was one year according to SEZ rule.
7. Bill’s decision is taken by the Department of Commerce, allowing the state to participate and send recommendations for development hubs.

Need of the Development of Enterprise and Service Hubs Bill (DESH), 2022:

• The slow growth of the manufacturing sector- The service sector is growing, but the manufacturing sector growth has been continuously lagging.
• The limited positive impact of the 2005 SEZ act. It is also 16 years old, and a lot has changed since that law.
• Unoccupied land- More than 1 lakh acres of land under SEZ is unoccupied.
• Low export share-  only 5,5576 operational unit is covered under 262 operational SEZs.
• Ease of doing business– Government will take reform to make it entirely IT driven and on a custom national portal.
• SEZ act 2005 is complicated, and it is essential to make it in line with WTO rules.

Significance of DESH Bill, 2022:

• It aims to promote domestic manufacturing and job creation beyond export.
• DESH provides a single window online portal for granting one-time bound approval.
• It increases state role. The state can approve imports or procurement of goods and monitor the goods and services in the warehouse and trading. During SEZ act, all the decision was taken by the central department of commerce, but now the state can participate.
• It will boost the domestic market because duties will only be paid on imported inputs.
• The new bill is expected with tax rebates, refunds, and financial subsidies.
• Transformation of existing ports, airports, and inland container depots will be converted into Development hubs which will benefit the country’s development.

Steps for the Development of the Hubs:

• DESH must subsume large SEZ/ industrial parks so that zones become competitive and self-contained.
• The government should focus on creating a cohesive policy for the framework of the DTA units.
• DTA units must not get lower concessions than special economic zones.
• Hubs should be treated as a powerhouse of job creators.

Conclusion:

Development of Enterprise and service hubs bill while replacing SEZ act, 2005 has a target of increasing trade balance, employment, increased investment, job creation, and effective administration. The state’s involvement in decision-making is important for developing center-state relations.