[Answered] How far, do you think, the DESH bill is going to improve the investment environment in India or enhance export competitiveness?

Through the Development of Enterprise and Service Hubs (DESH) Bill, the Government proposes to rebrand India’s 268 Special Economic Zones (SEZs) as ‘development hubs’. The Bill aims to make the SEZ Act compliant with World Trade Organization (WTO) norms and boost manufacturing and job creation.

Beneficial:

• The developers of the zones, (to be called Development Hubs) will get infrastructure status, which will allow them to get easier credit at competitive rates.
• The Bill removes the restriction that exports should be more than imports over 5 years. Now units can import any amount. They can also do invoicing in rupee to facilitate domestic transactions.
• Units in the development hubs will be allowed to sell goods in the domestic market with customs duty to be paid only on the imported raw materials and not on the entire finished goods.
• The Bill has introduced a set of growth criteria that could include investment and employment ramp-ups as qualifiers for benefits.
• The Bill also proposes a framework to include the existing industrial parks in the DESH framework—including those of other government departments like textile parks, food parks, pharma and power.
• With the hegemonic war between the US and China flaring up, it is expected that the foreign investors would move out of China. India’s proposed hubs will thus be competing with those in other countries.

Issues:

• The SEZ units in the notified areas will be permitted to sell in the domestic tariff area (DTA).This would create business units each of which would have a “DESH” area and “Videsh” area with differential tax treatments.
• India’s existing tax laws are complex and contentious. The intra-unit variances were likely to create an explosion of tax disputes that will defeat the purpose of the new Bill.
• DESH units producing the same goods as DTA units can enjoy tax breaks. This will create an inherent disadvantage for DTA units.
• Land acquisition by the private sector has proven a near-intractable problem to date. The DESH Bill does not address this issue.

The proposed DESH legislation is a step in the right direction that will also play a vital role in making India a US$ 5 trillion economy. The Government must learn the lessons from not-so-successful SEZs and ensure that the proposed hubs make India the center of global manufacturing value chains.