Govt relaxes SEZ norms for manufacturing chips, electronic components

.

The government has allowed manufacturers of semiconductors and electronic components to set up factories on smaller land parcels in special economic zones (SEZs), as part of a broader effort to give a boost to production in India at a time when global trade uncertainties put supply chains at a risk.

The Special Economic Zones (Amendment) Rules, 2025, notified by the government on June 3, also give greater autonomy to manufacturers to move or sell finished goods.

Factories can now come up on smaller land parcels

The most significant change in norm, however, is that of the minimum land requirement. In SEZs exclusively meant for making semiconductors or electronic components, companies, including startups, will now be able to set up factories 10 hectares of land against the earlier 50 hectares.

In multi-product SEZs, the minimum land requirement has been lowered to four hectares from 20. This rule will be applicable in Goa, Uttarakhand, Himachal Pradesh, Nagaland, Manipur, Mizoram, Arunachal Pradesh, Tripura, Meghalaya, Sikkim, Ladakh, Puducherry, Andaman and Nicobar, Lakshadweep, Daman and Diu, and Dadra and Nagar Haveli.

Wearables such as smart watches, hearables like earbuds, display module sub-assembly, li-ion cells for batteries, camera module sub-assembly, battery sub-assembly, various types of other module sub-assemblies, printed circuit board (PCBs), mobile and information technology hardware components will be considered as electronic components.

The amendments also offer more options to manufacturers to manage their inventories. Companies can now either export the goods directly from India or sell them in the country (domestic tariff area) by paying the required taxes. They can also move their goods to a free trade and warehousing zone (FTWZ) in the same or a different SEZ or to a customs bonded warehouse, which is a special storage under government control.

Companies that offer manufacturing services as well have also been given relief. Service providers based in SEZs can now source raw materials, capital goods, components and consumables from the domestic market, other than imports. These companies will have to include goods that provided free of cost in their foreign exchange earnings. This is important because SEZ units are required to earn net foreign exchange, that is, they must bring in more foreign currency than they spend.

The gazette notification issued by the commerce and industry ministry also offers more land options to manufacturers.

Earlier, the land for SEZs had to be “encumbrance-free”, meaning it had to be completely free of any legal claims or debts. But now, if the land is already mortgaged or leased to the Centre or state government or their authorised agencies, it can be used to set up an SEZ.

What is at play?

India’s semiconductor market was valued at $45 billion in 2023 and is expected to cross $100 billion by 2030, according to industry estimates. The growth is being powered by a booming demand for smartphones, laptops, electric vehicles, medical devices, and defence systems, all of which need chips.

India is now the world’s second-largest market for 5G smartphones after China, making it a natural growth zone for chip demand.

The government launched the India Semiconductor Mission (ISM) in 2021 to develop a full-stack chip ecosystem — from design to manufacturing and testing. The ISM has an outlay of Rs 76,000 crore (around $10 billion) and is tasked with implementing key incentive schemes and policy initiatives.

More than 70 startups and 270 institutions are working on semiconductor innovation. Twenty of these products have already been taped out at the modernised Semi-Conductor Laboratory (SCL) in Mohali.