• The government has introduced pioneering reforms in the Special Economic Zone (SEZ) rules to address the specialised needs of semiconductor and electronics component manufacturing sectors. 

• Since manufacturing in these sectors is highly capital intensive, import dependent and involves longer gestation periods before turning profitable, rule amendments have been carried out to promote pioneering investments and boost manufacturing in these high technology sectors.

• The government has approved the proposals from Micron Semiconductor Technology India and Hubballi Durable Goods Cluster (Aequs Group) for setting up SEZs for manufacturing of semiconductors and electronic components.

• Micron will establish its SEZ facility in Sanand, Gujarat, over an area of 37.64 hectares with an estimated investment of Rs 13,000 crore, while Aequs will establish its SEZ in Dharwad, Karnataka, over an area of 11.55 hectares to manufacture electronics components with an estimated investment of Rs 100 crore.

What are the amendments?

• After amendments in Rule 5 of SEZ Rules, 2006, an SEZ set up exclusively for the manufacturing of semiconductors or electronic components will require a minimum contiguous land area of only 10 hectares, reduced from the earlier requirement of 50 hectares. 

• Further, amendment to Rule 7 of SEZ Rules, 2006, allows the Board of Approval for SEZs to relax the condition requiring SEZ land to be encumbrance-free in cases where it is mortgaged or leased to the Central or state government or their authorised agencies.

• The amended Rule 53 will allow the value of goods received and supplied on a free-of-cost basis to be included in Net Foreign Exchange (NFE) calculations and assessed using applicable customs valuation rules. 

• Moreover, amendments have been made in Rule 18 of the SEZ Rules to allow SEZ units in semiconductor as well as electronics component manufacturing sector to also supply domestically into the domestic tariff area as well after payment of applicable duties.

• The amendments will boost high-tech manufacturing in the country, spur growth of semiconductor manufacturing ecosystem and create high skilled jobs in the country.

Importance of semiconductors

• Semiconductor is a foundational industry touching almost every aspect of life, powering everything from fridges to ACs and cars, aircraft to trains.

• Semiconductor chips are the essential building blocks of digital and digitised products. From smartphones and cars, through critical applications and infrastructures for healthcare, energy, communications and industrial automation, chips are central to the modern digital economy. 

• Recent global semiconductors shortages forced factory closures in a wide range of sectors from cars to health care devices. In the car sector, for example, production in some European countries decreased by one-third in 2021. This made more evident the extreme global dependency of the semiconductor value chain on a very limited number of actors in a complex geopolitical context.

• By 2030, the global semiconductor industry is expected to grow to $1 trillion.

• The Indian semiconductor market, worth $15 billion in 2020, is estimated to reach $63 billion by 2026.

• India currently imports most of its semiconductors, but the government wants to change that through domestic manufacturing. 

Additional Read:

India Semiconductor Mission

The India Semiconductor Mission (ISM) aims to build a strong semiconductor and display ecosystem, positioning India as a global hub for electronics manufacturing and design, while serving as the nodal agency for the efficient and seamless implementation of semiconductor and display schemes.

(The author is a trainer for Civil Services aspirants.)