Union Budget 2026–27: Strengthening SEZs for Global Competitiveness & Growth

1. At a Glance

Special Economic Zones (SEZs) are duty-free enclaves deemed to be territory outside the customs territory of India for authorised operations, governed by the SEZ Act, 2005 [S2][S3].
Budget 2026–27 introduced a one-time concessional-duty window allowing SEZ manufacturing units to sell into the Domestic Tariff Area (DTA) — a structural pivot from pure export-orientation to hybrid market access [S1][S2].
Relevant to UPSC for GS-III (economy, trade, manufacturing, industrial policy) and Prelims (Acts, agencies, numbers).

28 March 2026: PIB Backgrounder on Budget 2026–27 SEZ measures released [S2].
CBIC notification under Section 25 of the Customs Act, 1962 operationalised the concessional DTA sales window from 1 April 2026 to 31 March 2027 [S1].
Move framed as a response to global trade disruptions affecting export-dependent SEZ units [S1].

1965: India set up Asia's first Export Processing Zone (EPZ) at Kandla (predecessor framework).
SEZ Act passed by Parliament May 2005; received Presidential assent on 23 June 2005 [S3].
SEZ Rules, 2006 notified; Act + Rules came into force on 10 February 2006 [S3].
June 2025: SEZ Rules, 2006 amended to permit SEZs exclusively for semiconductor and electronic component manufacturing; two new SEZs notified — Sanand (Gujarat) and Dharwad (Karnataka) [S3].
Budget 2026–27: One-time DTA concessional-duty measure announced [S2].

Parent law: Special Economic Zones Act, 2005 + SEZ Rules, 2006 [S3].
Implementing Ministry: Ministry of Commerce & Industry (Department of Commerce); customs notifications by CBIC, Ministry of Finance [S1].
Number of notified SEZs: 368 (as of 28 February 2026) [S2].
SEZ exports 2025–26 (up to Dec 2025): ₹11.70 lakh crore, a 32.02% YoY increase over the same period in 2024–25 [S2].
Beneficiaries of DTA window: ~1,200 SEZ manufacturing units [S1].
DTA sales cap: 30% of the highest annual FOB export value in any of the three preceding financial years [S1].
Validity window: 1 April 2026 – 31 March 2027 [S1].
Enabling provision: Section 25, Customs Act, 1962 (exemption notification) [S1].
Eligibility cutoff: Units that commenced production on or before 31 March 2025 [S1].
Excluded: Free Trade Warehousing Zones (FTWZ) and goods merely imported into SEZ and cleared to DTA without adequate manufacturing [S1].
No double benefit: Duty drawback on inputs not permitted for these clearances [S1].

DTA access offers economies of scale and cushions SEZ units against external demand shocks [S1].
32.02% YoY surge in SEZ exports signals robust pull from electronics, services, and engineering clusters [S2].
Risk: blurs SEZ's export-only character; potential displacement of DTA-based domestic manufacturers.

SEZ Act, 2005 retains primacy; DTA sales operationalised through delegated customs notification under Section 25 Customs Act, 1962 — avoids legislative amendment [S1][S3].
SEZs treated as territory outside customs territory only for authorised operations — a legal fiction, not extraterritoriality [S2].

Twin oversight: Board of Approval (BoA) for SEZ approvals; Development Commissioner for unit-level functioning.
Conditional eligibility (FOB-linked cap, sunset date) creates compliance burden but limits revenue leakage [S1].

DTA window aligns with global supply-chain de-risking trend (China+1); complements Sanand & Dharwad semiconductor SEZs [S3].
Reinforces SEZ role in Global Value Chain (GVC) integration.

June 2025: SEZ Rules, 2006 amended for semiconductor/electronic component SEZs [S3].
June 2025: Sanand (Gujarat) and Dharwad (Karnataka) notified as new SEZs [S3].
February 2026: Union Budget 2026–27 announces one-time DTA concessional-duty proposal [S2].
28 March 2026: PIB Backgrounder issued [S2].
Post-Budget 2026: CBIC issues exemption notification under Customs Act §25 operationalising the measure [S1].

368 notified SEZs in India as of 28 February 2026 [S2].
SEZ exports crossed ₹11.70 lakh crore in 2025–26 (April–December 2025), up 32.02% YoY [S2].
DTA sale cap: 30% of highest FOB export value of last 3 FYs [S1].
Enabling provision: Section 25, Customs Act, 1962 [S1].
SEZ Act passed: May 2005; Presidential assent: 23 June 2005; in force: 10 February 2006 [S3].
Concessional window valid: 1 April 2026 – 31 March 2027 [S1].
Eligibility cut-off: units commencing production on/before 31 March 2025 [S1].
FTWZs excluded from the DTA concessional measure [S1].
About 1,200 SEZ manufacturing units are expected beneficiaries [S1].
Sanand (Gujarat) and Dharwad (Karnataka) SEZs notified in June 2025 for semiconductors / electronic components [S3].
SEZ = deemed territory outside customs territory of India for authorised operations [S2].
Implementing customs body: CBIC, under Ministry of Finance [S1].

GS-III: Indian Economy — Growth, Development, Employment; Effects of liberalization on the economy; Industrial Policy; Infrastructure.
GS-II: Government policies for various sectors; statutory bodies.
Plausible question stems: 1. "The Union Budget 2026–27's concessional DTA-sales window marks a structural rethink of India's SEZ model. Discuss the rationale and risks." 2. "Examine the role of SEZs in integrating India into Global Value Chains, with reference to recent semiconductor SEZ notifications." 3. "SEZs were envisaged as export enclaves; allowing DTA sales dilutes this premise. Critically evaluate."

Foreign Trade Policy 2023 — overarching export framework.
PLI Schemes — complementary manufacturing push.
DESH Bill (Development of Enterprise and Service Hubs) — proposed SEZ successor framework.
India Semiconductor Mission (ISM) — links to Sanand/Dharwad SEZs.
Customs Act, 1962 (Section 25) — delegated exemption powers.
EPZs / FTWZs / NIMZs — distinguishing similar enclaves.
GVC integration & China+1 strategy — geo-economic context.
Make in India / Atmanirbhar Bharat — policy umbrella.

SEZs are NOT outside Indian sovereign territory — only deemed outside the customs territory for authorised operations [S2].
The DTA concessional window is a one-time, time-bound measure (FY 2026–27 only), not a permanent reform [S1].
FTWZ units are excluded — aspirants often assume all SEZ categories benefit [S1].
The cap is on FOB export value, not on turnover or production value [S1].
SEZ Act came into force in 2006, though enacted in 2005 — both years are testable [S3].
Implementing ministry is Commerce & Industry, not Finance (Finance only notifies customs exemption) [S1].

[S1] CBIC introduces one-time relief measure for SEZ DTA sales — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2247628 — (tier: 1)
[S2] Union Budget 2026–27: Strengthening SEZs for Global Competitiveness & Growth (PIB Backgrounder) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2246386 — (tier: 1)
[S3] Government notifies Conditional Concessional Customs Duty for SEZ to DTA sales / SEZ Act background — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2247993 — (tier: 1)