SEZ Rules Eased for High Tech Manufacturing

Special Economic Zones (SEZ):

1. They are the special zones which are designed to help industries grow faster with fewer restrictions.
2. Features include:
   1. Business-Friendly Areas: They are the regions where businesses get special benefits like tax breaks and relaxed regulations to encourage investment and manufacturing.
   2. Boosting Trade & Industry: SEZs help attract companies by offering better infrastructure and policies, making it easier to set up factories and create jobs.
   3. Helping the Economy Grow: By promoting exports and manufacturing, SEZs contribute to economic development and make countries more competitive in global markets.

About Semiconductors:

1. What is a Semiconductor?
   1. It is a substance with electrical conductivity that falls between a conductor and an insulator.
   2.  It plays a vital role in electronics by regulating the flow of electrical current.
   3. Silicon and germanium are commonly used materials in semiconductor production due to their adaptable properties for electronic applications.
2. What are Semiconductor Fabs?
   1. Semiconductor fabrication facilities, commonly known as semiconductor fabs, are cutting-edge manufacturing plants dedicated to producing semiconductors.
   2. These facilities are highly specialized, maintaining controlled environments to ensure accurate and efficient fabrication processes.
3. Importance of Semiconductor Chips:
   1. Core of Modern Technology – They serve as the central components of electronic devices, communication systems, automobiles, household appliances like refrigerators, and critical medical equipment such as ECG machines.
   2. Driving Innovation – Advancements in emerging technologies, including AI, 5G, and autonomous vehicles, rely on a robust and affordable semiconductor industry.
   3. High Global Trade Value – After petroleum and automobiles, semiconductors rank among the world's most-traded products.
   4. Enhancing Electronics – These chips improve electronic devices by making them more compact, cost-effective, and powerful—for example, smartphones with advanced processing capabilities.
   5. Shaping Industries – Semiconductors continue to drive major breakthroughs, transforming fields such as aerospace, consumer electronics, energy, and healthcare.
4. Why is diversification of semiconductor supply chains required?
   1. Manufacturing Concentration - Semiconductor concentration is heavily concentrated in a few countries like Taiwan and South Korea.
   2. Pandemic-Induced Disruptions - The global semiconductor industry faced severe supply shortages during the pandemic due to production disruptions in China.
   3. Geopolitical Tensions - The Russia-Ukraine conflict has led to shortages of key raw materials. Ukraine, for instance, is a major supplier of neon, a crucial component in semiconductor manufacturing.
   4. Global Supply Chain Diversification – Countries are actively seeking to diversify semiconductor supply chains to reduce dependence on a few dominant players. India is positioning itself as a key alternative for nations looking to expand their semiconductor manufacturing base.

India’s Semiconductor Industry:

1. India’s semiconductor industry is experiencing rapid growth, with the market valued at approximately $38 billion in 2023 and projected to reach $109 billion by 2030.
2. The country’s semiconductor consumption market is expected to expand at a strong Compound Annual Growth Rate (CAGR) of 13% through 2030.
3. This growth is driven by increasing demand across sectors such as mobile handsets, IT, telecommunications, consumer electronics, automotive, aerospace, and defense.
4. India is actively working to strengthen its semiconductor ecosystem, with government incentives and industry collaborations playing a crucial role in shaping its future.

Initiatives to Strengthen the Semiconductor Industry in India

1. Semicon India Program – Government-led initiative offering incentives and strategic partnerships to boost domestic semiconductor manufacturing.
2.  India Semiconductor Mission – Aimed at building a strong semiconductor and display ecosystem, positioning India as a global electronics hub.
3. Global Collaborations – Partnering with leading firms like Micron to establish semiconductor manufacturing units in India.

Challenges

Way Forward

High Investment Requirement – Setting up semiconductor fabs in SEZs requires massive financial resources.

Government Support & SEZ Incentives – Offering tax exemptions, subsidies, and financial aid for semiconductor manufacturers in SEZs.

Shortage of Skilled Professionals – SEZs lack trained experts in semiconductor design, fabrication, and testing.

Skill Development Programs in SEZs – Setting up specialized training centers within SEZs to develop a skilled semiconductor workforce.

Dependence on Imports – SEZ-based semiconductor fabs still rely on imported raw materials like silicon wafers.

Building Domestic Supply Chain in SEZs – Encouraging local industries within SEZs to manufacture key semiconductor components.

Lack of Advanced Manufacturing Infrastructure – SEZs in India do not yet have large-scale semiconductor fabrication facilities.

Global Collaborations for SEZs – Partnering with international firms to set up advanced chip-making units in SEZs.

Competition from Established Players – Global semiconductor giants from Taiwan, South Korea, and the U.S. dominate the industry, making it tough for SEZs in India.

Strategic SEZ Policies & R&D Investments – Strengthening research facilities in SEZs to drive semiconductor innovation and attract global investors.

Earlier Stringent SEZ Regulations – Previous policies restricted semiconductor investment and manufacturing in SEZs.

Relaxed SEZ Rules – Recent government changes encourage semiconductor production, approving high-tech SEZs in Gujarat and Karnataka.

Ensure IAS Mains Question:

Q. Relaxation in SEZ rules marks a major policy shift to support India’s ambition in semiconductor and high-tech manufacturing." Discuss the significance of these changes and suggest measures to further strengthen the semiconductor ecosystem in India. (150 words)

Ensure IAS Prelims Question:

Q. With reference to recent changes in SEZ rules in India (2025), consider the following statements:

1. The minimum land requirement for SEZs manufacturing semiconductors has been reduced from 50 hectares to 10 hectares.
2. SEZ units for semiconductors can now supply to the domestic market after payment of applicable duties.
3. Only foreign companies are eligible to set up SEZs under the new rules.

Which of the statements given above is/are correct?

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2 and 3

Answer: a

Explanation:

Statement 1 is correct: The Government of India amended Rule 5 of the SEZ Rules, 2006, reducing the minimum land requirement for SEZs dedicated to semiconductor or electronic component manufacturing from 50 hectares to 10 hectares. This aims to make it easier for companies to set up such SEZs.

Statement 2 is correct: As per the amendment to Rule 18, SEZ units in semiconductor and electronics sectors can now sell their products within India, after paying the applicable customs duties. Earlier, SEZs were mainly export-focused.

Statement 3 is incorrect: The new rules do not restrict SEZ development to only foreign companies. Both Indian and foreign companies are eligible to set up SEZs under the amended regulations. For example, Micron (a U.S.-based firm) and Aequs Group (an Indian company) have both received approvals.