The Special Economic Zones (SEZs) Act introduced in 2005 has played a key role in boosting India’s exports over the last two decades. To provide some background, an SEZ is an area classified as a territory outside the customs territory of India for its authorised operations.
The policy was announced in April 2000 with the main objective of providing an internationally competitive and hassle-free environment for exports (Ease of doing Business-EoDB). SEZs feature key facilities, such as banks and in-house customs, to allow for quick and easy clearance. By the end of 2021, 268 SEZs were operational in India. Of these, 15 are dedicated to gems and jewellery, and are home to over 500 manufacturing units.
Studded gold jewellery accounted for the highest share (47%) of net exports from the SEZs in 2021, followed by studded silver jewellery (27%), plain gold jewellery (11%), plain silver jewellery (7%) and polished lab-grown diamonds (3%).
For jewellery exporters, operations in the SEZ allow duty-free imports of gold and hence save considerable working capital and paperwork compared to exporting through the Domestic Tariff Areas (DTAs) where duty refunds must be processed separately. The latter not only takes more time but often offers a lower duty drawback than the actual duty paid, due to differential applicable tariffs.
That aside, DTAs also attract GST, which does not apply within export units based in the SEZs. As a consequence, gold jewellery exports through SEZs grew from just 23% in 2015 to 57% in 2019. However, the pandemic negatively impacted jewellery fabrication and by 2021 the share of exports via SEZs had collapsed to 11%.
This drop can also be attributed, in part, to the fact that some of the tax advantages enjoyed in SEZs for nearly two decades (such as income tax exemption on export income) ended in 2020.
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